The Effect of Agency Banking on financial inclusion in Kenya

Abstract

Despite the impressive performance by banks, customers continue to shoulder the heavy burden of high transactional costs. In an effort to bring down the cost of offering financial services to the Kenyan public, Central Bank together with other stakeholders have put in place a business model aimed at broadening financial inclusion to the majority of Kenyans at a lower cost. It is envisaged that this model will enable banks to leverage on additional cost and effective distribution channels to offer financial services. To achieve this, the Banking Act was amended through the Finance Act, 2009, to permit banks to contract third parties to provide certain banking services on their behalf. The study sought to find out the effects of agency banking on financial inclusion in Kenya. The study adopted a cross sectional survey approach in research design. The population consists of six commercial banks with agency banking services in Kenya .secondary data was used since its readily available. Inferential statistical techniques were used to make a prediction about the dependent variable based on the covariance with the concerned independent variable. From the findings it’s evident that there is a strong positive relationship between financial inclusion and agency banking. The tests conducted shows that the correlation coefficient between agency banking aspects and financial inclusion was 0.727, which is enough to indicate the existence of strong relationship between the independent variables and the dependent variable. The R-square is 0.529 which means that 52.9% of the variance in the financial inclusion variable can be explained and predicted by the agency banking aspects variables. The study therefore recommends that agency banking as a means of enhancing financial inclusion is highly supported and encouraged by all players