The use of the agency banking model by banks in Kenya has continued to improve access to banking services and has also increased financial deepening in the country since it was launched in 2010.
According to Central Bank of Kenya (CBK) reports, statistics show that as of December 2013, the number of banks conducting agency banking increased to 13 licensed banks in Kenya. Since 2010, a total of 23,449 agents had been contracted facilitating over 42.1 million transactions valued at USD. 2.624 billion as at December 2013 representing a 44% increase in the number of active licensed agents. On the other hand, the number of banks branches increased by 70 to 1,324 in 2013 from 1,272 branches in 2012 representing a 5% increase. This shows that agent banking as an alternative delivery channel is becoming a recent phenomenon in Kenya banking industry.
The number of transactions increased by 40% from 30 million transactions registered in 2012 to 42.1 million transactions registered in 2013. A brief summary is provided in Table 1 below;
Table 1: Type, Number and Values of transactions undertaken through Agent Banking December 2013
Type of Transactions Number of Transactions
Year 2012 Year 2013 Cumulative (July 2010-Aug 2014)
Cash Deposits 12,554,299 18,531,811 50,872,851
Cash Withdrawals 11,862,412 16,981,903 45,686,582
Payment of Bills 142,046 113,429 382,970
Payment of Retirement and Social Benefits 303,455 387,454 916,025
Payment of Salaries - - -
Transfer of Funds 944 3,292 5,420
Account balance enquiries 4,770,829 5,771,490 15,921,064
Mini statement requests 43,376 30,776 116,104
Collection of account opening application forms 176,218 158,781 1,396,326
Collection of debit and credit card application forms 52,212 57,245 113,938
Collection of debit and credit cards 31,321 19,673 56,325
Total 29,937,112 42,055,854 115,649,860
Number of Agents 16,333 23,477 29,776
The increase was largely driven by transactions relating to transfer of funds, deposits and cash withdrawals which increased by 249%, 48% and 43% respectively in the year 2013. Cash deposits, cash withdrawals and account balance inquiries remained the major transactions carried out on the agency platform in 2013 representing 44%, 40% and 14% of the total transactions respectively.
In monetary terms, the value of transactions carried out through the agency network grew by USD. 2.624 billion in 2013 - an increase of 59% from USD. 1.689 billion in 2012. The growth was largely driven by transfer of funds, cash deposits, cash withdrawals and payment of retirement and social benefits which experienced an increase of 89%, 59%, 49%, and 15% respectively. A brief summary is provided in Table 2 below:
Table 2: Type and Values of transactions by bank agents
Type of Transactions Value of Transactions (USD. Millions)
Year 2012 Year 2013 Cumulative
July 2010 - Aug 2014)
Cash Deposits 1124.12 1786.55 4701.77
Cash Withdrawals 551.22 821.04 2196.34
Payment of Bills 2.65 2.79 9.66
Benefits 11.83 13.93 36.11
Funds 0.16 0.30 0.69
Total 1,689.97 2,624.62 6,945
The two tables highlight the tremendous growth of the agency model in both the number and value of transactions. The increased number and value of transactions demonstrate the increased role of agent banking in promoting financial initiatives being championed by the CBK and also due to the fact that banks and financial related institutions in Kenya are increasingly deploying the use of payments using agencies to enhance the quality of their financial services and increase growth.
According to the FinAccess Business Survey 2013 findings, 25% of Kenya’s population is still excluded from access to formal financial services due to various reasons. Among the reasons cited is the absence of bank branches within their vicinity forcing them to travel long distances. Therefore, to reach the excluded formal financial institutions should device alternative delivery channels for example agent banking and mobile financial services.
The CBK has been at the forefront in creating an enabling environment through regular reviews of policy options for better regulation of alternative delivery channels including banking agents. Recently, through the Finance Act 2013 and the Microfinance (Amendment) Act 2013, Sec. 2 (1) of the Banking Act and Sec. 2 (b) of the Microfinance Act 2006 were respectively amended to allow the sub-contracting of agents. This provision allows banks and microfinance banks to achieve scale in their respective agency networks while adhering to service quality standards. Furthermore, banks and microfinance banks will be able to enter into single contracts with Agent Network Managers (ANM) rather than multiple contracts with individual agents. Therefore, with such enabling amendments it will increase the number of agents who will in turn upscale the performance of their respective banks/microfinance banks.
Channel innovation has revolutionized the face of banking around the world. Consumers’ adoption of multiple channels has fueled their expectation of true multi-channel banking, which allows them to transition seamlessly between touch points as they fulfill several, or even a single transaction. Therefore, for the banks to match the pace of the transformation, agency banking is an important channel innovation since it helps banks tap into other segments, by becoming an integrated component of multi-channel banking.
The rise of the digital consumer and the high-cost infrastructure of setting up physical banking locations have led to a decline on the Return on Investments (ROI) for branches. Implying that if the branch model stays on its current course, it will become a financial burden to banks, cutting deep into cross-channel profitability. This is not to say branches will be wiped out, but branches remain an important interaction point, playing an essential role in complex product sales and relationship building for both retail and small-business customers. But as consumers transform the way they bank, the value proposition of traditional branches is in question. Evolving the branch strategy to align with changing consumer and economic realities can help banks boost ROI and position themselves for the future. So for banks to remain competitive and be able to safeguard their market share, agency banking would be very handy.