Kenya: Institutions Get Okay to Launch Agency Business

May 2010
Nairobi, Kenya, May, 03 2010 - Banks, deposit-taking micro-finance institutions, and mortgage finance companies can from Monday roll out their agency banking services after the Central Bank of Kenya unveiled the rules under which the new banking model will be operated.

The rules are meant to minimise risks inherent in the agency banking system by providing a clear regulatory framework.

“This will ensure that the introduction of third parties into the banking business will not compromise the supervision, safety, and soundness of the banking sector,” reads part of a statement signed by K. Pere, the director of Bank Supervision at CBK.

The introduction of agency banking is meant to expand access to financial services, especially in rural areas where it has been expensive for banks to maintain a presence, owing to smaller volumes.

Banks will tap into the network of Saccos and micro-finance institutions to access their front office services while guaranteeing customers’ deposits.

Agency banking is expected to boost the current penetration rate of banking services, estimated at 27 per cent.

Lack of access to formal financial services has made many to turn to mobile money services like Zap, M-Pesa, and Yu Cash, with a combined record subscription of over 10 million as of March, according to data seen by Business Daily.

The government hopes to capture billions of shillings that remain in the informal sector through the system, as well as deepen the range of financial services available to the poor.

Executives said agency banking could offer a new growth impetus the financial sector needs.

“This is what 80 per cent of the banking population requires. Demand for banking services can be created through agency relationships ultimately boosting the top line revenues for banks,” Mr James Mwangi, the chief executive of Equity Bank, said in an earlier interview.

For bankers, agency banking means cutting down on operational costs as the pressure to establish a wider presence through their self-funded branches eases out.

In the regulations, CBK has put an emphasis on protecting consumers who will access normal banking services like making deposits, withdrawals, and taking and paying back loans from the representatives of the main financial institutions.

CBK will approve individual agents, who can be owner-operators, a partnership or a company.

Further, the regulator has instructed the main institutions to closely supervise their agents, adding that it will also have full and round-the-clock access to the internal systems, documents, reports, records, staff and premises of the agents as far as the agency banking business is concerned and that it shall take all the necessary measures.

Agents may brand themselves as they wish, but will make it clear to customers that they are not banks, mortgage or micro-finance firms.

In a bid to make the sponsor institutions closely regulate their agents, CBK has crafted a clause in the contract between the two parties that will compel the main institutions to take full liability for all actions or omissions of the agent.

“This responsibility extends to actions of the agent even if not authorised in the contract so long as they relate to banking services or matters connected therewith,” the regulation circular reads.

Settlement of transactions is another major highlight of the regulations, with agents required to adopt technologies to ensure that the transactions they conduct are immediately reflected in the main financial institutions’ records.

Payment system

Further, they will only carry out transaction as long as they have funds.

In what could entice investors to join the agency business, CBK has allowed agents to serve multiple banks provided they have capacity and signed separate contracts.

Agents will be expected to check against money laundering by reporting abnormal transactions and to identify their customers on two factors, like IDs, PINs, passwords.

“The most important thing in the payment system is settlement of transactions which the National Payment System Bill will help strengthen,” Mr Mwaura Nduati, the head of national payment system at CBK, said in an earlier interview.

He added that the Bill, once enacted, will help address the integration of the innovative payment systems in the country, including mobile money transfers and online banking in a bid to boost overall financial access.

Source : Business Daily

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