By Mwendwa Muriungi

The Finance Act, 2009 has triggered a revolution in the banking sector.

Millions of unbanked Kenyans will soon access banking services at their doorsteps.

In every shopping Centre, estate, village or town there is a main grocery store, which sells all types of merchandise and is always busy.

Customers flock such stores to buy sugar, flour, basins, Sukuma Wiki†and onions and more recently the stores probably started offering M-Pesa services.

Soon, an additional service will be offered in this General Store. Customers will make deposits and withdrawals from their bank accounts as they do their normal shopping of the day.

Through Agency Banking, banks will partner with these existing shops, pharmacies, supermarkets, wholesalers outlets, agro-vets, petrol stations, hardware shops and other retail outlets to offer banking services.

The Finance Act of 2009 amended the Banking Act to enable the use of third party agents by banks to offer banking services.

Third parties that have been vetted and approved under the CBK regulations will be contracted by the bank to provide banking services on behalf of the bank, under specified conditions and regulations from the Central Bank of Kenya.

Since the coming into operations of the Guidelines on Agent Banking in May 2010, six banks have applied to the CBK for Agent Network approval.

Of these, two applications had been granted approval by end of September 2010, while the other four are at various stages of review.

As at 30th September 2010, CBK had approved 5,892 agents of which 4,392 of these agents are telecom related with 1,500 comprising other types of enterprises.

Why agency banking

The introduction of agent banking is intended to enable institutions to provide banking services in a more cost effective way, which is equally cheaper to the customers.

It is further intended to enhance financial access especially for those people who are currently unbanked.

Currently only 34 per cent of Kenya’s current population is banked with only 1030 bank branches in the country many†of these in urban areas. This means people in rural areas have to travel many kilometers to access the services of a bank.

Banks expansion is usually limited due to the high initial cost of opening a branch and in many areas due to the low economic status of the people living in these areas.

The initial costs of setting up a branch and running cost takes many years to be translated into profits hence limiting branch expansion. Through partnerships with businesses across the country, banks will take their services closer to the
people in areas with potentially less number and volume of transactions.

This in turn will lead to increased customer base and thus the market share, increased coverage with low cost solution, increased revenue from improved indirect productivity by reducing congestion in existing branches.

Customer’s visiting the General store will benefit from lower transaction costs as it is closer home and hence no need to travel 150 km to a bank, longer banking hours as the Agents will operate for
longer hours and shorter queues than in branches.

The shopkeeper will also be more accessible by the illiterate and the very poor who might feel intimidated by branches.

To the shop keeper; the additional customers visiting the shop for banking services will lead to increased sales.

The shop will be also be differentiated from the other businesses, good reputation from affiliation with a well known reputable institution and additional revenue from commissions and incentives by the bank.

The retailers will be free to partner with as many banks as possible as long as the primary business activity is ongoing and profitable.

How does Agent Banking work

Once an Agent has been vetted and licenced, the Bank will brand the shop with visible signage and provide an agent with either Point of Sale devices or a mobile phone which will provide a link to the Bank.

Agent Banking works the same way M pesa does, an agent will have a float account through which deposits and withdrawal will be made. The
float account will have a minimum and balance restrictions.

In the case where a Client withdraws money, the following will take place; the Customer initiates the transaction by sending a request to withdraw the funds via his mobile phone to the bank and indicates the retailer’s agent number.

The Agent receives a message with a unique transaction code and the customer’s details and the amount withdrawn. The customer’s account is
debited with the funds while The Agent’s float account is credited with the same amount.

The customer will need to produce identification documents to the Agent who will then give money to the customer.

In case of account deposit the customer will provide his details and give the Agent the amount to be deposited.

The Agent then sends a message to the bank via the mobile phone and his account is debited with the amount while the customer’s account is
credited with the funds.

These services are real time in that a transaction number in SMS format will be sent to both the agent and the customer for the transaction to have been completed successfully.

The transaction process for banking services using a bank card is simple:
† 1. An existing bank client presents his card at the agent and requests a specific transaction and the amount to be withdrawn, deposited, or transferred;
† 2. The agent selects the type of transaction on the POS device or personal computer, enters the amount, swipes the client’s card through
the device, and lets the client enter his PIN;
† 3. A dial up, General Packet Radio Service (GPRS),† or satellite communication connects with the bank’s server to authorize the transaction;
† 4. Once the transaction has been authorized, the device prints the client’s receipt.

For these transactions to be valid, a receipt has to be issued in the form of a massage to both the agent and the customer which has a unique transaction number

Agents will be supposed to make their own security arrangements.

To qualify as an agent:

To be appointed an agent of a bank, the business has to have been in operation, engaged in business activity of some form over eighteen
months.

Current M-Pesa agents will be at an advantage as they are aware of how electronic money works and due to the previous experience with M pesa.

Services which will be available to customers are; deposit and withdrawal of cash, Disbursement and repayment of loans , Payment of bills, Payment of retirement and social benefits, Payment of salaries, Transfer of funds, Balance enquiry, Generation and issuance of mini bank statements, Collection of documents in relation to account opening, loan application, credit and debit card application, Mobile phone airtime and Cheque book request.

Brazil is the best-known example of a country where correspondent’s agents have been successfully used to expand financial access.

An extra 13 million unbanked people have been reached and more than 100,000 retail outlets (post offices, lottery kiosks, grocery stores) have been turned into correspondent banks since 1999, Payment transfers and deposits are made in real time using Point of Sale devices and bank cards.

Correspondents are used to distribute welfare payments and other public services and other services such as pre-approved credit lines, simplified accounts and international remittances.

The writer is pursuing a Masters degree in Communication studies at the University of Nairobi