The role of agency banking on development of the banking sector in Kenya

Abstract

Banks play a crucial role in the development of a progressive and inclusive financial sector which entails preserving the core foundations of financial stability at all times, ensuring effective and efficient financial intermediation, and contributing towards economic growth and development. Banks hold the vast majority of financial sector assets in developing countries and therefore any development in the banking sector will have a major effect on the financial sector and the economy at large. The agency banking model was aimed at broadening financial inclusion to the majority of Kenyans at low costs which would allow the growth of the financial sector by encouraging the provision of banking services. The objective of the study was to establish the role of Agency banking on the development of the banking sector in Kenya. The study applied descriptive research design. The target population was all the commercial banks that dominate the banking sector in Kenya and the sample was all the commercial banks that have adopted the agency banking model. Secondary data was collected from CBK annual reports, economic reviews, banks annual reports as well as World Bank data base. The study data covered a period of five years between 2010 and 2014. Quantitative analysis was used to analyze the collected data by the help of SPSS. Regression and correlation analysis were conducted to establish the relationship between agency banking and banking sector development. The results revealed that there was a strong positive relationship between Agency banking and the development in the banking sector. A regression analysis revealed that 73.38 % of the independent variables used for the study namely financial depth, operational efficiency, stability and access contributed 73.38 % of the development in the banking sector. The study recommended that all banks be encouraged to adopt the agency model so that the sector can fully utilize its potential.