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Agency Banking Essay

1565 words - 7 pages

ABSTRACT

Agency banking is a new banking concept introduced in Tanzania by the Bank of Tanzania (BOT). The main objective is to increase financial services outreach and to promote financial inclusion to the un-banked and under-banked population without risking the safety and soundness of the banking system. The concept is also geared towards encouraging financial institutions to use agents in the provision of banking services so as to reduce the cost of financial services and to foster financial inclusion, reach and depth. Commercial Banks worldwide offer similar kinds of services, but they could provide differences in terms of service quality. This paper analyzes past studies regarding ...view middle of the document...

Other financial institutions, especially in developing markets, use agents to reach an “additional” client segment or geography. Reaching poor clients 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 piggy back on 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 clients often feel more comfortable banking at their local store than walking into a marble branch.
Banking agents are the backbone of mobile banking, i.e., performing transactions over a mobile device, most often a mobile phone. To enable clients to convert cash into electronic money and vice versa which can send be sent over their mobile phone, clients will have to visit a branch, automated teller machine (ATM), or banking agent. Especially in remote and rural locations, where cash is still the most important way to pay and transact, a mobile banking service is dependent on banking agents to enable clients to effectively use the service.


Statement of the Problem
The most rural population has remained largely unbanked. Rural entrepreneurs’ access to banking services in these areas has been hindered by the assumption that rural populations have low incomes which are not sufficient to sustain banking operations; hence most formal banks have shied away from offering banking services to rural areas for many years. Recently, commercial banks in collaboration with the mobile phone service providers came up with the new innovation of mobile and agency banking. Given the potential for the transformative impact of such a service to the rural population, despite the known impact, most of Small and Micro Enterprises (SMEs) owners are still not utilizing the mobile banking to the full potential if used at all. The question that begs for answer and requires immediate intermediation is what ails adoption of this type of technology. This question motivated and guided the researchers to conduct this study focusing technology adoption and agency banking by looking at the factors causing difference.
Though the Bank continues to invest in rolling out brick and mortar branches that are complimented by various delivery channels, the challenge of access to formal financial services remains a big impediment to financial inclusion. Tanzanians (especially in remote areas) are forced to travel long distances and spend huge amounts on transport in order to access a branch. In addition to the cost of transport is the time spent commuting to and fro that could have been spent more productively.
To curb these challenges, the Central Bank of Tanzania released a legislation that allows commercial banks to contract third party retail networks as agents. Upon successful application, vetting and approval, these Agents are...

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