Mwaniki Wahome
26 December 2011
This year, banks lurched on to agency banking, with some attributing their increased profits on the concept.
Equity, Co-operative and Kenya Commercial Bank are among those that have rapidly spread their footprints across the country by opening various agency banking points, bringing their services closer to the people.
Equity Bank’s agency points increased from 875 in January to 2,797 by the end of September, with transactions reaching 734,000.
Cut transaction costs
The bank intends to roll out more agency banking locations to reach at least 20,000. It launched its system last December and opened 1,000 agencies countrywide.
The bank’s chief executive officer, Mr James Mwangi, attributed the 39 per cent increase in third-quarter earnings partly to the model, which cut transaction costs. The bank’s pre-tax profit for the period increased from Sh6.4 billion to Sh8.99 billion.
“Agency banking is a reality and is starting to have significant impact. The agencies are doing a third of the transactions done by branches. It is creating new business for Equity Bank,” Mr Mwangi told investors in October.
He said the model, which was developed over five years, has taken off successfully, with local shopkeepers becoming agents of the bank in financial transactions.
Branchless banking
The Kenya Commercial Bank has also reaped from the branchless banking concept.
“We continue to use our vast IT infrastructure to increase reach and utilisation of our service delivery channels. KCB agent banking services and partnership programmes with other providers has yielded increased transaction revenues that have contributed to our profitability,” said the managing director, Mr Martin Oduor-Otieno, during an investor briefing in September.
The bank’s profit before tax increased from Sh6.5 billion to Sh9.1 billion.
Co-operative Bank also gained from this system, increasing its customer base by 57 per cent to 2.3 million, with deposits also increasing by Sh20 billion to reach Sh137.7 billion.
“The successful strategy of increasing our customer numbers, thereby increasing transaction-based income, is expected to drive our performance for the rest of the year,” said managing director, Mr Gideon Muriuki.
Agency banking gained ground during the year when Finance minister Uhuru Kenyatta proposed that the law be amended in 2010 to allow commercial banks to provide financial services through agents.
The concept is intended to deepen penetration of financial services, which currently stand at only about 38 per cent of the population.According to Mr Mwangi, Brazil is the only country to have successfully used the agency banking model.
Experts say that, because many of the agencies will be located in rural areas where people walk long distances to access banking halls to transact, it could be the answer to unlock the potential of the unbanked population.
“It will also increase efficiency of the mobile money transfer business because it allows withdrawals and deposits from M-Pesa, M-Kesho, Iko-Pesa, and Yu-cash, the cellphone bank accounts networked with Equity Bank,” said Mr Mwangi.
The concept allows non-banking institutions to offer financial services, especially in rural areas, where banks find it uneconomical to establish outlets.
It allows banks to use the platform and networks of savings and credit societies and microfinance institutions to reach the unbanked millions. Under the agency model, banks manage and guarantee deposits but rely on other outlets for front office operations where they have no presence.
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