Rural economy benefits
Introduction of agency banking will also have a huge impact on the economy, especially the rural economy, according to Joseph Lutwama, the Policy, Legal, and Regulatory specialist at Financial Services Deepening Uganda (FSDU).
Lutwama said Uganda needs to look at its trading partner, Kenya’s success story to see the benefits of agency banking.
Data from the Central Bank of Kenya indicates that agent banking that was formerly started in 2010 with a main objective being improving financial inclusion witnessed a rise of 56 million transactions in the first-quarter of 2016 compared to 10 million transactions noted in the same period in 2015. The value of banking transactions undertaken through agents almost tripled from Ksh 65.0 billion to Ksh176.7 billion over the same period. The bank attributed the good jump in numbers to increased confidence and acceptability of the banking model by banks and the public as an economical, convenient delivery channel of financial services. As at the end of Q1 of 2016, there were 17 commercial banks that had contracted 40,224 agents which had facilitated over 170.5 million cumulative transactions valued at Ksh930.2 billion as compared to 16 commercial banks that had 34,381 agents that had facilitated 149.4 million transactions valued at Ksh817.7 billion in the same quarter the previous year.
Lutwama said rural people, who fear or shun formalised institutions due to low levels of literacy and the fact that bank branches are not evenly distributed across parts of the country, will finally enter the formal financial system.
Data from BoU indicates that by 2013, the country had 25 commercial banks, 658 bank branches and 835 ATMs serving approximately 4 to 5 million customers. These numbers could now go up sharply with agency banking.
To Lutwama, agent banking once embraced will boost rural economies that struggle to access financial services to invest in critical sectors of the economy.
He added that deeper financial inclusion in sectors like agriculture ideally means more money in the economy, more investments, more jobs created and more taxes for government – that ultimately means positive economic growth and development other factors constant.
He noted that the beauty with most rural economies in Uganda is that they are agricultural driven – a backbone sector that employs over 70% of the population and contributes a substantial 25% to national gross domestic products, according to the 2015 government figures.
Once, the rules of the game are made public, Lutwama says bankers should thoroughly train agents in areas of customer care and relationship management, information technology, loans application and repayment, marketing, finance and accounting and more so as to push the financial deepening agenda forward.
Only 52% of Uganda’s adult population has access to financial services and 51% of adults prefer to keep their savings at home. It is also true that only about 8 million adult Ugandans have a bank account, according to the latest World Bank figures released early this month.
Meanwhile, only 16% of the 68% adult population saves through formal channels such as banks, deposit-taking microfinance institutions and Savings and Credit Cooperative Societies (SACCOs).
Saving being an ingredient for boosting growth of the financial sector and the economy in general, there is agreement that something must be done urgently to improve on financial inclusion.
Convenience for rural women
Annet Nakawunde Mulindwa, the managing director at Finance Trust Bank (FTB) told The Independent on Feb.16 that agency banking could remove one of the biggest impediments to financial inclusion – which is limited participation of women in the financial sector.
This, she said, would spearhead investments in sectors like agriculture where mothers are deeply involved.
“Women are busy, hardworking and special in nature,” Nakawunde said, “They need services closer to them if they are to contribute more tangibly to economic growth,” she said, “…we needed agency banking some years back.
“Agency banking is all about convenience to customers and financial inclusion for banks,” she said.
Apart from women, Nakawunde said, rural households, and hard-to-reach populations, as well as informal micro and small firms would benefit from the agent banking model.
With 36 branches across the country, Nakawunde says, agency banking will give FTB more prominence in areas where they have not yet reached given that establishing a bank branch is costly and requires two years or more to break-even.
She said that banks together with the regulator will work to mitigate risks such as theft, liquidity shortages, technological challenges that would impede the successful implementation of the banking model in the country.
She added that FTB will identify agents to deal with for this banking model once the legal processes by government are concluded.