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Title: Agent Banking: Up-Scaling Outreach For Increased Profitability And Impact


1
Agent Banking Up-Scaling Outreach For Increased
Profitability And Impact Presented by DIPO
FATOKUN Director, Banking and Payments System
Department Central Bank of Nigeria, Abuja at the
D-8 Workshop on Microfinance for SMEs 7th
Annual Micro, SMEs Finance Conference, held at
Transcorp Hilton, Abuja
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Outline
  • Introduction
  • Definitions of Agent Banking
  • Principle and Logic for Agent Banking
  • Countries experiences on Agent Banking
  • Highlights of Nigerias Agent Banking Guidelines
  • What Agent Banking Means to the various
    Stakeholders
  • Permissible Activities to be carried out by the
    Agents
  • Prohibited Activities of Agents
  • Benefits of Agent Banking
  • Challenges of Agent Banking in Nigeria
  • Conclusion

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Introduction
  • In the last decade, there has been an explosion
    of different forms of remote access financial
    services that is beyond banks branches. These
    have been provided through a variety of different
    channels, including mobile phones, Automatic
    Teller Machines (ATMs), Point-of-Sale (POS)
    devices and agent banking.
  • In many countries, these branchless channels have
    made an important contribution to enhancing
    financial inclusion by reaching people that
    traditional branch-based structures would have
    been unable to reach.
  • Studies conducted by Enhancing Financial
    Innovation and Access (EFInA), 2012, showed that
    34.9m adults in Nigeria are financially excluded.
  • One of the factors that is responsible for this
    is the distance from financial services centers
    which is a direct result of the high cost of
    establishing brick and mortar branches, and
    staffing such branches. This when juxtaposed with
    low volume of business and low interest rates
    creates serious disincentive to serving remotely
    located clients

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Introduction
  • Agent Banking, especially in developing
    economies are rapidly evolving and making
    tremendous impact in the economies and lives of
    its citizenry
  • Financial Institutions have successfully expanded
    their outreach by engaging local agents to offer
    their services, among which are cash in/cash
    out, electronic transfers, bill payments,
    pre-approved credit lines, accounts opening,
    international remittances, government and other
    micro credit payments and other banking
    transactions that may be permissible by the
    Financial Institution and CBN
  • Nigeria had begun the process as far back as 2007
    with the development of the Payments System
    Vision 2020 document, which has charted the
    course for the recent developments in the
    payments system

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Definition of Agent Banking
  • What is Agent banking ?
  • Agent banking (or Branchless banking) is the
    provision of financial/banking services by an
    authorized third party on behalf of the Principal
    (Financial Institution), to customers through a
    single business unit or distributed networks of
    retail or postal outlets. Banking agents can be
    pharmacies, supermarkets, post offices, kiosks,
    etc. The best suited are however, businesses that
    have built good customer relations and gathered
    experience in handling cash floats.
  • Agent banking is also known as correspondent
    banking, this is a model for delivering financial
    services whereby a bank partners with a retail
    agent (or correspondent) in order to extend
    financial services in locations for which bank
    branches would be uneconomical. Agents can be
    both banking (small banks) and non-banking
    correspondents (post offices, gas stations, and
    retail shops). Agent banking is a delivery
    channel that holds high potential for closing the
    location gap.

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Principle and Logic for Agent Banking
  • Despite being the most populous African nation,
    Nigeria is a mid-level player in the Sub-Saharan
    financial sector and lags behind some of its
    peers in Africa with respect to Financial
    Inclusion.
  • In setting out the Financial Inclusion agenda,
    the Bank identified Agent Network for banking as
    one of the channels with great potential to
    overcome the distribution challenges and increase
    the use of financial services to the unbanked
    and the under-banked.
  • To achieve this objective, the Bank issued the
    Guidelines on the Regulation of Agent Banking and
    Agent Banking Relationship in Nigeria in February
    2013.

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Principle and Logic for Agent Banking
  • Leveraging mobile payments and agents' banking
    networks will allow Financial Institutions to
    focus on product innovation and diversification
  • Microfinance agent banking could increase the
    linkage of rural cooperatives to microfinance
    banks as was done in various other countries.

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Countries Experiences on Agent Banking
  • Agent banking is quickly becoming recognized as a
    viable strategy in many countries for extending
    formal financial services into poor and rural
    areas.
  • In recent years, agent banking has been adopted
    and implemented with varying degrees of success
    by a number of developing countries, particularly
    in Latin America.
  • Brazil is often recognized as a global pioneer in
    this area since it was an early adopter of the
    model and over the years has developed a mature
    network of agent banks covering more than 99 of
    the countrys municipalities.
  • Other countries in Latin America have followed
    suit, including Mexico (2009), Peru (2005),
    Colombia (2006) and Brazil (2000)

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COUNTRIES EXPERIENCES ON AGENT BANKING
  • In Malaysia, agent banking initiative has already
    produced promising results. Three financial
    institutions, namely Malayan Banking Berhad, RHB
    Bank Berhad and Bank Simpanan Nasional have a
    combined agent network of 4,120 agents as at
    end-December 2012, which includes post offices,
    petrol stations, retail outlets and
    telecommunication agents. Compared with branches,
    financial institutions reported that agent
    banking channels delivered cost savings in terms
    of set-up costs of more than 80, while agents
    have also benefitted from the increased customer
    flow to their business premises.

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Countries Experiences on Agent Banking
  • In Kenya, agent banking is continuously improving
    and growing, and as it grows, the level of
    financial inclusion is also growing
    proportionately.
  • Other countries around the world have also
    utilized the agent banking model to expand
    financial services, including Pakistan,
    Philippines, Venezuela, South Africa, Uganda,
    India, etc.

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Countries Experiences on Agent Banking

Country Year Agent banking was launched Year Regulation was introduced No of Agents currently functioning
Brazil 2000 2000 151,958
Colombia 2007 2006 9,843
Mexico 2010 2009 9,303
Kenya 2010 2010 8,809
Peru 2008 2005 6,028
Nigeria 2013 2013 gt4,000???
Source Central Bank of Brazil, MIDAS, SBS, CNBV,
2010
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Countries Experiences on Agent Banking
  • Studies have shown that increasing the area
    covered by agents within the country has had the
    effects of increasing the reach of the financial
    services to the people, thus raising the levels
    of financial inclusion.

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Highlights of the Nigerias Agent Banking
Guidelines
  • The Guidelines for the Regulation of Agent
    Banking and Agent Banking relationships in
    Nigeria outlines the minimum expectations to be
    observed by FIs that intend to undertake agent
    banking. Broadly, the Guidelines aim to
    facilitate the implementation of agent banking in
    un-served/under-served areas, in a reliable, safe
    and sustainable manner whilst safeguarding
    consumer interest and confidentiality.
  • The Guidelines operate on the premise that
    Financial Institutions (FIs) retain the ultimate
    responsibility and accountability of all agents
    banking activities

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Highlights of the Nigerias Agent Banking
Guidelines
  • Other aspects of the document include
  • Application and Approval Requirements
    Documentary requirements, Agent Structure,
    Information requirements for agent structure,
    Renewal of engagement and Monitoring of Agent
    Banking relationships (Further clarification
    issued to remove the need for approvals)
  • Minimum Requirements of Agent Banking Contract
    Amongst other things it states the FIs full
    liability with respect to customers, obligation
    of the FI and the agent, services the agent can
    conduct on the principals behalf, fees charges
    to be stated in the contract, etc
  • Establishment of agent Banking relationship
    Agent eligibility
  • Assessment of Agents Suitability assessment of
    an agent, Moral and professional suitability of a
    prospective agent, Agent due diligence
  • Key Roles Responsibilities of the Financial
    Institution Management of agent banking
    business, Permissible activities, Prohibited
    activities, Operational and Transactional Limits

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Highlights of the Nigerias Agent Banking
Guidelines
  • Rules on exclusivity of agents No exclusivity of
    agent banking contracts between the FIs and
    agents
  • Supervision of agents FIs shall put in place
    prudential and operational risk measures for
    monitoring the activities of agents
  • Settlement of transactions and the technology
    requirement Real time transactions, Minimum IT
    requirements for the operation of agent banking,
    Data and Network Security Requirements
  • Money Laundering Put in place customer due
    diligence (daily and transaction limits, minimum
    IT security requirements, authentication of each
    customers transaction), Anti-Money Laundering
    and Combating the Financing of Terrorism
    (AML/CFT) requirements,
  • Consumer protection measures Ensure appropriate
    consumer protection systems against risks of
    fraud, loss of privacy and loss of service

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What Agent Banking means for key stakeholders
  • Banking agents help financial institutions to
    divert existing customers from crowded branches,
    providing a complementary and more convenient
    channel.
  • Financial institutions, can utilize agents to
    reach an additional customer segment or
    geography. Reaching poor customer in rural areas
    is often prohibitively expensive for financial
    institutions, since transaction numbers and
    volumes do not cover the cost of a branch.
  • In such environments banking agents that take
    advantage of an existing retail infrastructure
    and lower set up and running cost, can play a
    vital role in offering many low-income people
    their first-time access to a range of financial
    services. Also, low-income customers often feel
    more comfortable banking in their immediate
    environment than walking into a FIs branch

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Permissible Activities of agents
  • Cash deposit and withdrawal.
  • Bills payment (utilities, taxes, tenement rates,
    subscription etc.).
  • Payment of salaries.
  • Funds transfer services (local money value
    transfer).
  • Balance enquiry.
  • Generation and issuance of mini statement.
  • Collection and submission of account opening and
    other related documentation.
  • Agent mobile payments/banking services
  • Cash disbursement and cash repayment of loans.
  • Cash payment of retirement benefits.
  • Cheque book request and collection
  • Collection of bank mail/correspondence for
    customers.
  • Any other activity as the CBN may from time to
    time prescribe.
  • It shall be the responsibility of the FI to
    determine, based on agent risk assessment, which
    services a particular agent may provide.

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PROHIBITED ACTIVITIES BY AGENTS
  • An agent shall not
  • i. Operate or carry out any transaction when
    there is communication failure with the FI.
  • ii. Carry out a transaction where a receipt or
    acknowledgement cannot be generated.
  • iii. Charge the customer any fee.
  • iv. Give any guarantee.
  • v. Offer banking services on its own accord.

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PROHIBITED ACTIVITIES OF AGENTS
  • VI. Continue with the agency business when it
    has a proven criminal record involving
  • fraud, dishonesty, integrity or any other
    financial impropriety.
  • vii. Provide, render or hold itself out to be
    providing or rendering any banking service which
  • is not specifically permitted in the contract.
  • viii. Open accounts, grant loans or carry out any
    appraisal function for purposes of opening
  • an account or granting of a loan or any other
    facility except as may be permitted by any
  • other written law to which the agent is subject.
  • ix. Undertake cheque deposit and encashment of
    cheques.
  • x. Transact in foreign currency.
  • xi. Provide cash advances.
  • xii. Be run or managed by an FIs employee or its
    associate.
  • xiii. Sub-contract another entity to carry out
    agent banking on its behalf except where there
  • is a super-agent structure in place.
  • xiv. FI may in the contract document specify
    other activities, which the agent is prohibited
  • from undertaking.

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Benefits of Agent Banking to Stakeholders
  • Benefits to a customer
  • Cheapest means of accessing financial services
    with lower transaction cost
  • Service closer to his immediate environment
  • Longer opening hours
  • Shorter lines than in branches
  • More accessible for less educated, the very poor
    and less privileged who might feel intimidated in
    traditional bank branches
  • Benefits of greater economic development to
    isolated communities
  • Benefits to the Agent/ Agent Network Provider
  • Increased sales from additional foot-traffic
  • Differentiation from other businesses the agent
    might normally operate
  • Reputation from affiliation with well-known
    financial institution
  • Additional revenue from commissions and incentives

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Benefits of Agent Banking to Stakeholders
  • Benefits to the Financial Institution
  • Increased customer base and market share
  • Increased coverage with low-cost solution in
    areas with potentially less number and volume of
    transactions
  • Increased revenue from additional investment,
    interest, and fee income, Improved indirect
    branch productivity by reducing congestion
  • Benefits to Mobile Money Operators(MMO)
  • Provides standards and guides for engaging Agent
    Network providers for the provision of mobile
    money offerings
  • Non-exclusivity of agent network provides a
    shared platform for customer take-up
  • Provides more geographic spread for the scheme

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Benefits of Agent Banking to Stakeholders
  • Benefits to the Government
  • Facilitates financial inclusion
  • Provides a tool for government to utilize for
    government to person and person to government
    payments (disbursements, microcredits/repayments,
    subsidies, tax/levies etc.)
  • Facilitation of domestic remittances
  • Opportunities
  • For the private sector and individuals to invest
    in and drive uptake for agent banking by signing
    up as agents with the expectation of generating
    revenues from transaction charges and other
    benefits that the Financial Institution will
    provide
  • For Innovations As has been with other similar
    jurisdictions, mHealth, mAgriculture,
    micro-insurance, micro-savings, will arise and
    these will have a positive impact on the economy.
    These innovations provide opportunities for
    businesses to customize their products offerings
    to suit the changing times

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Success Factors for Agent Banking
  • The Key Success Factors For Agent Banking rest
    heavily with the agents at the customer frontline
  • Credibility The agent has to be a trusted brand,
    or member of the community
  • Proximity Agent networks have to be easily
    accessible by the customer
  • Consistency Offer similar customer experience
    regardless of location
  • Security As the main interface with the
    customer, agents have to ensure compliance not
    only with KYC as required by CBN regulator but
    with all fraud prevention processes.
    As such agents will be responsible to ensure that
    their counter staff have the appropriate
    levels of training
  • Simplicity Agents are the main human interface
    it is their responsibility to explain the
    service, guide the user, and make the
    service simple and accessible
  • Liquidity Customer experience is critical to the
    success of this ventureit is imperative that
    customers have immediate access to their cash.
    Agents will have to ensure minimum liquidity
    levels

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Success Factors for Agent Banking
  • Financial Institutions (FIs) are no longer
    required to apply for an approval before
    deploying Agent Banking.
  • ¬†
  • FIs are however required to submit returns on
    their Agent Banking activities as part of their
    statutory returns to the CBN.
  • The stage has now been set for FIs to commence
    agent banking and agent banking relationships.

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Challenges
  • With every new system, there are bound to be
    challenges. Some of the major obstacles are
    mentioned below. However, it is worthy to note
    that CBN with the other stakeholders are working
    towards surmounting the challenges
  • Epileptic Power Supply
  • Poor Telecommunication Connectivity
  • Need for enhanced Customer Awareness, etc.
  • WHAT ARE WE DOING?

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Conclusion
  • Successful Agent Banking all over the world have
    demonstrated that an effective agent network is
    paramount to the success of financial inclusion.
  • Despite the fact that its not a one-size fits
    all approach, agent network development and
    structures have certain critical aspects in
    common, not least of all is a clear and well
    understood selection recruitment process,
    consistent agent monitoring and practical
    liquidity management procedures.
  • As we begin this journey, It is worth noting that
    the afore mentioned will be the drivers for the
    increase in agent activity in Nigeria. This will
    be followed by the growth in the number of
    agents, increased activity of agents, increase in
    average number of transactions per agent and the
    requisite growth in financial inclusion and
    profit margins for the agents and their principals

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Thank You
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