Agency banking and financial inclusion in Kisumu, Kenya

Abstract

Agent banking has become one of the most promising strategies for offering financial services to the poor and underserved. In this model, financial institutions work with networks of existing nonbank retail outlets to deliver financial services. This approach is especially powerful when serving the unbanked poor because or its ability to reduce banks' cost-to-serve and reach low-income customers where they live. This alternative banking channel has increasingly gained importance in developing countries over the last decade. The extent to which agency banking can be used as a tool for broadening financial inclusion remains largely unknown. This study aimed at assessing the impact of agent banking services in reducing transactional costs, mitigating risks and enhancing financial inclusion. The study explored the role of agent banking in broadening financial inclusion to both banked and unbanked. It intended to probe how commercial banks were responding to risks like fraud and insecurity which result from this innovation. This study sought to assess the impact of agency banking in enhancing financial inclusion in Kenya. Descriptive survey design was used in conducting this study. This involved collection of information by administering a questionnaires and interviewing to a sample of individuals. The design was appropriate because it allowed the researcher to describe record, analyze and report conditions that exist. The study population involved all commercial banks in Kisumu that had been approved by Central Bank of Kenya (CBK) to roll out agent banking. The data collected was edited to minimize errors, coded and entered into an access database. Descriptive methods were used to analyze the qualitative data while Statistical Package for Social Scientists (SPSS) was used to analyze quantitative data. The results of the study were presented through tables, charts and graphs in a continuous prose form. The study found that agency banking cash withdrawal; deposit and accounts opening were the most commonly used services. Further, the study found that the business model was not self- sustaining and required that it be hinged to another business. It recommends that agents should be allowed to offer a wider array of services including balance enquiries, bills payment and loan appraisal. The principal bank should support the agents so as to generate adequate income by way of dedicating some services, such as payment for utilities, to be exclusively offered by agents. The regulating body should control the proliferation of many agencies in a locality to ensure profitability. The physical distance from one agent to the other should take into consideration the population of the area so as to enhance financial inclusion.