CBN Governor, Sanusi Lamido Sanusi
Agency banking can be used as a vehicle to boost the federal government’s financial inclusion strategy, writes Obinna Chima
The Nigerian banking sector has no doubt, undergone dramatic changes. Before, deposit money banks always target corporate customers while the retail customers, particularly those in the rural areas, are neglected.
But the banking sector crisis and subsequent intervention by the regulator three years ago that partly showed that some corporate customers were of the habit of taking bank loans without any intention to pay back, made banks to review their strategy with a view to attracting more retail customers.
This and the low level of banking penetration in the country also resulted into the inauguration of the financial inclusion strategy.
In line with its financial inclusion strategy, the Central Bank of Nigeria (CBN) had disclosed plans to introduce agency banking in the economy so as to deepen financial inclusion.
To this end, experts who spoke at the 2012 Nigeria Deposit Insurance Corporation’s (NDIC) annual workshop for Finance Correspondent Association of Nigeria (FICAN), tagged: “Deposit Insurance and Financial Inclusion,” that was held in Dutse, last week, stressed the need for the introduction of a framework for agency banking, saying that it would ensure the spread of banking services in the country.
Agency banking has to do with the use of retail or postal outlets contracted by a financial institution or a mobile network operator for banking transactions.
Managing Director/Chief Executive Officer, NDIC, Alhaji Umaru Ibrahim, explained: “A banking agent is a retail outlet contracted by a financial institution or mobile network operator to process clients’ transactions. Banking agents can be pharmacies, supermarkets and many more.
“Agent banking has the potential to grow access to banking facilities in that country, especially uneducated and those in the rural areas. Another area where agents could be meaningfully deployed is in the mobile payment system as successfully done in Kenya and some other countries.”
Role of Agent Banking
To the Assistant Director, NDIC, Mr. Rotimi Ogunleye, agency banks provide banking services to customers on behalf of licensed, prudentially-regulated financial institutions, such as a bank or other deposit-taking financial institutions.
He said that services provided by bank agents could be divided into four categories namely: transmitting information (providing customers with account information and receiving account and loan applications); processing information, cash handling and electronic fund transfer.
According to him, agent banks are capable of providing financial services to the country’s widely dispersed population at affordable prices. He added that agent banking systems were cheaper to operate than branches.
“In some countries, it is promoted to decongest existing customers from crowded branches, to improve the access to financial services among the most vulnerable sections of the society. Subject to what is permitted under applicable regulation, a bank might choose among a variety of arrangements for managing agents including the involvement of Agent Network Managers (ANMs).
“Most commonly used ANMs include: a specialised third party operators to whom the bank outsources the agent management functions; a third party that signs an agency agreement with the bank and sub-contracts with other legal entities or individuals, each of whom functions as an agents or a large retailer that pursuant to its agency agreement with the bank, manages its outlets as agents of the bank,” Ogunleye explained.
Commenting on the transaction process, Ogunleye stated that just like traditional brick and mortar branches, there would not be any difference in customers accessing their account with the use of agency banking.
He added: “For the agent, besides signing a contract with the financial institution it will be working for, the banking agent also has to open an account at the same time. The agent will also have to deposit a certain amount of cash into the account which will serve as the agent’s ‘working capital’. The financial institution could extend credit line to the agent as the agent’s working capital.”
Benefits of Agent Banking
On his part, Ibrahim listed lower transaction cost, longer opening hours and accessibility as some of the benefits of agent banking to the customers.
He also said that the agents would benefit from increased sales from additional foot-traffic; reputation from affiliation with well-known financial institution as well as additional revenue from commissions and incentives.
The benefits to financial institutions include: “huge savings on cost of construction of bank premises; savings on equipment like furniture and computers; increased customer base and market share; increased coverage with low-cost solution in areas with potentially less number and volume of transactions; increased revenue from additional investment, interest and fee income; and improved indirect branch productivity by reducing congestion.”
However, Ogunleye identified operational risks involved in this form of banking such as fraud, theft, unauthorised fees; loss of customer assets and records as some of the shortcomings of agency banking.
Financial Inclusion and Education
The Director, Special Insured Institutions Department, NDIC, Mr. Bashir Umar, emphasised that the corporation as one of the financial safety nets, plays a critical role not only in promoting public confidence in financial systems, but in protecting unsophisticated and small depositors.
“The importance of deposit in improving financial inclusion cannot be over emphasised. Through public awareness initiatives, deposit insurance systems can play meaningful role to ensure that poor and low-income depositors are informed about safe methods of storing their money and can help build trust in formal financial institutions,” Umar argued.
On her part, the Chairperson, ABANTU for Development, Kaduna, Mrs. Hajiya Bilkisu, highlighted the need to bring more women into the financial system.
To the Editor, BusinessDay Newspapers, Mr. Philips Isakpa, financial education could also help in addressing existing imbalances that exists and assist consumers in the use of financial products.
According to Isakpa, financial education in emerging and developing economies has to be directly connected to the debate on access to finance, lack of knowledge on money issues and on the role of banks.
“The primary focus therefore should be on financial literacy, with provision of basic information about money and the benefits of having a relationship with a formal banking institution. The aim should be to build the required long term trust and ultimately, to enlarge the level of ‘bancarisation’ of the population.
“Moreover, financial education can contribute to a more efficient and more proactive use of scarce financial resources by current clients of banks through a better understanding of the opportunities and options on offer. It is also important to enable customers, especially the most vulnerable ones, to protect themselves from abusive financial practices and prevent them from being overburdened by debt,” Isakpa advised.
Certification for Agent Banking
In preparation for the take-off of agent banking in the country, the Chartered Institute of Bankers of Nigeria (CIBN) said it had certified operators that intended to set up agency banks in the country.
Registrar/Chief Executive, CIBN, Dr. ‘Uju Ogubunka, had said: “We have started granting practicing license to members of the institute that are qualified, in preparation for agency-banking, which is going to be part of the arrangement to drive the financial inclusion project and take banking to the rural areas. Bankers who understand what banking is all about will go into the rural areas to deliver banking services.
“The good thing about this is that we don’t just grant license without the person meeting certain criteria. The person involved will also attend an interview session with a board constituted to address this issue.”