Agency Banking Comes into Focus on First Day of KBA Banking Research Conference

Preliminary research finding points to bank reputation as a key factor influencing the success of the agency model

The inaugural Kenya Bankers Association (KBA) Annual Banking Research Conference opened in Nairobi today with evidence that agency banking has taken root in Kenya and played a key role in financial inclusion.

Over 150 banking experts have gathered for the two-day conference that will discuss various research papers on diverse topics and emerging issues in the local banking sector.

Finance Minister Robinson Njeru Githae opened the conference with a call on players in the banking sector to do more in reaching out to country’s unbanked population. The Minister was accompanied by Central Bank of Kenya Governor, Prof. Njuguna Ndung’u, KBA Chairman Mr. Richard Etemesi and Chief Executive Officer Mr. Habil Olaka.

 

 

Mr. Olaka said the banking sector through the KBA would increasingly be guided by objective research.  “We believe that through this research, we will be able to anticipate developments within the industry as well as initiate measures to mitigate any adverse effects,” he said.

While presenting a paper reputation in agency banking, the research team of Dr. Almadi Obere, Martin Wafula, Dr. Lydia Ndirangu and Dr. Anne Kamau revealed that banks have incorporated the agency banking model as a viable channel as witnessed by a significant rise in account holders especially in the low income bracket.

Agency banking was introduced in Kenya in 2011 for the purpose of increasing access to basic financial services in both urban and peri-urban and rural areas.

 “The success of the agency model, however, depends much on trust. If the customers can trust that when they deposit their money, it will for sure be reflected in the principle bank’s system in good time and securely, then they will use the agent,” said the lead researcher adding that trust was critical seeing that the agents handle sensitive transactions and act as intermediaries between the customer and principal banks.

According to the findings, 91 per cent of the respondents noted that the reputation of the principal bank matters more than the agent. Important reputation factors had to do with the bank having a positive image, the bank being stable and having operated for a long time, and customers past experiences with the same or other banks. However, the bank’s marketing activities (commercials and advertisement on TV, billboards, magazines and other media); its involvement in Corporate Social Responsibility; or its reputation in the minds of friends and family were not cited as influencing the customer’s choice.

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Press Release

Agency Banking Comes into Focus on First Day of KBA Banking Research Conference

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The presentation alluded to the fact that Kenya has over the last five years experienced an explosion of various forms of remote access to financial services, that is, beyond branches.

“These have been provided through a variety of different channels, mainly the mobile phones. Others include the automated teller machines (ATMs), point-of-sale devices (POs) and banking correspondents,” states the report.

Cost has been over the years cited as one of the main obstacles to financial inclusion. This is both the cost to banks involved in servicing low-value accounts and extending physical infrastructure to remote rural areas, and the cost in money and time incurred by customers in remote areas to reach bank branches.

The researchers also explored customers’ preferences to banks in general – outside of agency banking.

Issues related to bank location and branch network were cited as important factors in influencing the choice of bank. Most of the respondents indicated that having many branches countrywide, many ATM outlets, bank being located near their residence or near place of work influenced their choice of bank.

Other presentations on the first day of the conference included presentations on Interest Rate Spreads; the Role of Capital Requirements on Competitiveness and Stability of the Banking Sector; and Income Diversification in the Banking Sector – Moving Beyond Interest Income.

Organized by the banking sector umbrella body Kenya Bankers Association, the research conference will cover various working papers on studies that cut across banking in Kenya. Themed ‘Fostering Objectivity in Banking and Financial Services,’ the conference is one of the avenues that the recently founded KBA Centre for Research on Financial Markets and Policy will be using to inform the development of the banking sector.

The research will be concluded in December and published as a Working Paper Series by the KBA on the Association’s web site www.kba.co.ke.

Ends….