Title: Agent Banking: Up-Scaling Outreach For Increased Profitability And Impact
1Agent 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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2Outline
- 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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3Introduction
- 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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4Introduction
- 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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5Definition 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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6Principle 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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7Principle 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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8Countries 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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9COUNTRIES 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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10Countries 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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11Countries 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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12Countries 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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13Highlights 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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14Highlights 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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15Highlights 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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16What 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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17Permissible 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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18PROHIBITED 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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19PROHIBITED 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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20Benefits 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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21Benefits 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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22Benefits 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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23Success 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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24Success 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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25Challenges
- 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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26Conclusion
- 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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27 Thank You
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