The use of third party outlets as agents for the financial services provider. Another form of e banking in kenya is eazzy 247 offered by equity bank of kenya. In olden days people started dealing with other on sitting on benches. Update on regulation of branchless banking in kenya january 2010 this update of cgaps 2007 notes on regulation of branchless banking in kenya 1 incorporates research conducted by cgap in january 2010 regarding relevant legal and policy changes through the end of.
Financial inclusion in asia asian development bank. We then methodically select seven androidbased branchless bank. The study selected 4 senior managers from each bank thus forming a sample size of 36 respondents who was used in this study. The regionally integrated and harmonized crossborder transportation system throughout the east. The term bank is derived from old italian word banka which means a bench or money exchange table. Can agency banking improve financial inclusion in south. Access to finance in nigeria rural finance and investment. Breakeven point is the point at which total cost and total revenue are equal. It is believed to reach the lowincome and rural individuals as well as making these individuals better off. As per the policy of state bank of pakistan only bank led model of branchless banking is allowed for the establishment of bb setup.
Both primary and secondary data on branchless banking and financial performance of. But these new branchless banking models, with their emphasis on mobile banking and agent networks rather than branchbased service delivery, create a particular tension for regulators. In terms of branchless banking, kenya is probably best known for nonbankbased models, specifically those launched by mnos. The belief that indias high poverty rates renders rural financial institutions unviable is widely held. Pdf the effect of branchless banking strategy on the financial.
A survey of all the 42 licensed commercial banks in kenya was done. So far, 7 of the partner banks have made noteworthy progress in blb expansion with over 100 blb points launched across the country. The liberalization of banks in kenya was effected back in 1995 where all exchange controls where lifted. The early experience with branchless banking findev gateway.
How branchless banks took over country daily nation. Welcome to session 2 of the eba finance learning module \in this session, we will take a closer look at what is covered by t\. The early experience with branchless banking is based on the research and observations of cgaps work in technology and microfinance, and identifies a need for the following. Contents introduction 1 examples international 4 examples southern africa 9.
There is little data on market demand for microfinance, sme finance or branchless banking. This year, we accepted 19 fellows from a large pool of applicants, primarily public servants, most of whom work for central banks, ministries of finance, or regulatory authorities. Most mnos are precluded from awarding interest on savings, managing. Challenges associated with adoption of agency banking and.
Another difference lies in the nature of agency agreement between bank and the non bank. Technology is usually assessed in terms of convenience of conducting transaction, user interface, portability etc. In kenya, the banking act, central bank of kenya act and the companies act govern the operations of banking sector. Financial innovations and bank performance in kenya. Three other countries with relevant experience in branchless banking kenya, brazil and india participated in a similar exercise at approximately the same time. Kenya has become the epicentre of branchless banking. Jansen further reports that brazil established their branchless banking model in 2003 when banks only had branches in 1,500 of the countrys 5,500 municipalities. Accessibility of digital banking on customer satisfaction. Branchless banking a tool for financial inclusion 1 definition branchless banking bb is one of the marvels of innovation in the fields of information communication technology ict and bpr business process reengineering. Legal environment for branchless banking, including mobile. This indicates branchless banking is receiving increasing international attention and capturing the imagination of a wide array of players and international bodies. The effect of agency banking on the financial performance. Banking beyond branches uses agents or other thirdparty intermediaries as the primary point of contact with customers and relies on technologies such as cardreading point. Transaction economics for technology enabled branchless.
New branchless banking models, enabled by the broad reach of mobile phone infrastructure, are reinventing financial servicesonce the exclusive domain of the richand offer the 2. Branchless banking is the use of alternative delivery channels such agency banking and electronic banking mobile banking, internet banking, atms and pos channels in the distribution of financial services. The case of mpesa in kenya olga morawczynski, university of edinburgh gianluca miscione, university of oslo abstract this submission will examine how trust can emerge and be sustained in the context of mobile transactions. Impact of regulations on cashin and cashout networks. These services are often deployed as smartphone apps, and although marketed as secure, these applications are often not regulated as strictly as traditional banks, leaving doubt. Mobile banking to transform microfinance world bank. The evolution of a number of branchless banking models has. The target population for the study was bank customers and banking staff from national bank in bungoma county and a sample size of 417. Financial sector opportunities and challenges branchless.
Mobile banking mbanking is the same service as mmoney, except the senders mwallet is linked to a bank account and the receivers may be as well. We perform the rst comprehensive security analysis of branchless banking applications. The overarching issues across all three sectors include the following. These banking agent guidelines were designed to emulate the bank led brazilian branchless banking system and allow banks to use agents for cico services, just as mpesa uses agents. Branchless banking may follow bank based, nonbankbased, or mixed models cgap, 2008. May 2008 with the right market conditions, mobile banking could reach large numbers of poor people who are outside the formal financial system, predicts a new report from cgap, the global microfinance body. In kenya, for example, we have mshwari, which is offered by commercial bank of africa in conjunction with safaricom kenya limited. The paper then explores financial education as a key strategy for strengthening the weak levels of knowledge and skills associated with branchless banking among low. The study recommends further research on customer satisfaction and how it influences the growth of agency banking in kenya. A remote access service such as internet banking, that is of use only to people who are already likely to be fully served, is purely additive and does not expand access. Branchless banking is relatively new in nepal as this form of banking services has been operational for less than a decade. Branchless banking has viable opportunities for old as well as new entrants in technology based businesses.
Appropriate regulatory space for the issuance of emoney and other storedvalue instruments effective consumer protection on a variety of fronts inclusive payment system regulation and effective oversight as branchless banking reaches scale rules governing competition among providers and promoting interoperability. Many branchless banking articles have held up kenya as a model for the future. In particular, as part of its commitment to financial inclusion, the g20 has established the access. Banking credit and debit cards, atms, interactive tv and branchless banking. Technology has been crucial in getting smallscale banking services around the world out of the banking hall and into environments that poorer people find less intimidating.
The conclusion seeks to consolidate broad responses as to how best to shape the future direction of branchless banking as a means to improving poor peoples access to financial services. In recent years, governments have realized that speci. Early experiences have shown that branchless banking through agency. Banking agents and the bank itself coordination influences the growth of agency banking in kenya. The most recent innovations include the related models of ebanking, branchless banking, and agency or business correspondent banking to overcome the barriers of distance and the high cost of setting up traditional bank branches in remote areas. The population of the study was 9 commercial banks offering agency banking in kenya. However, while branchless banking was viewed to be critical for the success of welfare programs, the potential impact of welfare programs on the financial viability of local banking agents was also widely recognized. As in the case of peru, the exercise gave an opportunity for regulators of each jurisdiction to look at their. Evidence from branchless banking models by moses 1mwenda muthinja ph.
There are, however, more than 45,500 agents offering financial services. Kenya performs relatively well overall in the branchless banking index. Transaction economics for technology enabled branchless banking august, 20. By highlighting the opportunities and challenges with branchless banking, the aim is to show that it is possible to lift the welfare of low. The strategic alliances and integrations with banks. Kenya uganda nonbank lending institutions movable collateral branchless banking transport distance to frontier score comparison finance uganda has a solid regulatory framework and administrative procedures for commercial crossborder transportation. One very important impact of the choice if technology is on the viability of the business model. Branchless banking, the use of alternative delivery channels such as mobile banking and agent banking, is becoming increasingly popular among commercial banks in kenya and in other developing countries.
Kenya s ranking to its global leadership and pioneering in mobile banking services. A closer look at eba finance indicator s phot es o. Financial innovations and bank performance in kenya scielo. Models of branchless banking can be classified into three broad categories bank focused, bank led and nonbankled. Present report focuses on the impact of choice of technology on agent economics. Keen to take the agency banking advantages, kenyan financial institutions. Transaction economics for technology enabled branchless banking. Branchless banking is the delivery of financial services outside conventional bank branches using information and communications technologies and nonbank retail agents through. Request pdf on dec 21, 2018, olayinka davidwest and others published branchless banking and financial inclusion. The agency model was launched in kenya in the year 2010. Introduction traditional banking in rural areas does not work well 10, 9, because of poor transportation services, large distances, and the resulting high cost of delivery.
Agency banking model has gained traction for both commercial and microfinance banks. Success stories have been reported in colombia, brazil, peru and india kinyanjui 2011. Greater transparency of financial performance and market information. Agency banking and branchless banking internationally, the concepts of agency banking and branchless banking appear to be closely aligned or.
Agency banking as a branchless banking model has been very successful in propelling the performance of banks in many developing countries. By contrast, a card or cellularbased service that lets the existing served send money to unserved relatives is beginning to be transformational. Can branchless banking live up to the promise of lifting the welfare of lowincome earners in kenya. The term is also used for a variety of more basic services such as checking account ba lances and transferring funds between a ccounts. Fincas experience deploying agency banking in africa1 by nathan w ere and helen lin2 introduction denoting trust and continuity, for centuries the physical infrastructure of brick and mortar branches has been the face of banking. Mobile money, also known as branchless banking, leverages ubiquitous cellular networks to bring muchneeded financial services to the unbanked in the developing world.
In this case, e banking is defined from the state of branchless or virtual banking indicating. Branchless banking is not limited to bank services. Financial sector opportunities and challenges branchless banking regional financial integration in sadc 22 november 2012 balalaika hotel, sandton gerhard coetzee head inclusive banking segment, absa, south africa director centre for inclusive banking in africa, university of pretoria. First, we use a wellknown automated analysis tool on all 46 known android mobile money apps across all 246 known mobile money systems. Journal of economics and sustainable development issn 22221700 paper issn 22222855 online vol. As at june 30, 2015, central bank of kenya had authorized 17 commercial banks to offer banking. Potential welfare gains from using branchless banking in kenya 18. It remains to be seen whether bill payment and other money transfers will dominate branchless banking there. Section 6 draws together the ways in which agency banking can address financial inclusion and section 7 makes some recommendations. Equity bank had already established a partnership with orange kenya, which meant they had the experience and. Usage experiences in kenya by adrian d kamotho njenga lecturer of information systems, catholic university of eastern africa email. Cooperative and kenya commercial bank, to offer formal banking services at the grassroots by devolving services has since seen millions of. Waithanji 2012 found out that there was a link between agency banking.
Agency banking is a type of branchless banking where third parties are involved in performing some of the activities that are traditionally performed in banking halls by bank personnel. Digital financial services basic terminology general terms branchless banking definition the delivery of financial services outside conventional bank branches. Moreover, recent studies document kenya as the leader in terms of electronic payments, as well as bank branches and bank agents in africa eiu 2015. Relationship manager, alternative banking channels cooperative bank, joseph kagicha head of distribution agency, isaac wabuge agency and acquiring supervisor equity bank and justus mutala credit manager equity bank, simon ontomwa, losie nyamwenga legal. Pdf branchless banking bb is an emerging financial segment also known as banking beyond branches. Branchless banking, in which a resident of a village acts as an agent for a faraway bank, provides. One mobile banking scheme in particular, mpesa in kenya, has shown phenomenal. Notes on regulation of branchless banking in kenya currently have the necessary tools including specific regulations to supervise the payment system. Mpesa has not yet released a mobile app, but is arguably the most impactful mobile money system and highlights the promise of branchless banking for developing economies.
Fletcher offers a ninemonth fellowship called the fletcher leadership program for financial inclusion. A global perspective on digital banking consumer behavior find, read and cite. Putting the banking in branchless banking branchless banking. However, technology is rapidly disrupting this concept and bring. According to safaricom 2011,financial inclusion is a big challenge in kenya,only 22. Branchless banking bb is an emerging financial segment also known as banking beyond branches. Regulation and the case for interestbearing and insured emoney savings accounts tilman ehrbeck, consultative group to assist the poor michael tarazi, consultative group to assist the poor buoyed by a growing belief that poor people need a. Bangladesh embodies nearly all best practices in its a\. Central bank of kenya is the regulating authority with 45 banking institutions whereby 44 are commercial banks and 1 is a mortgage finance company. Direct banks reduce the significant costs of maintaining a branch. The long road to branchless banking microfinance gateway. In addition, e banking is viewed as the process by which a customer carries out banking transactions electronically without going to a brickandmortar institution simpson, 2002. Sammy mwando school of human resource development, jomokenyatta university of agriculture and technology, po box 6200000200 nairobi, kenya email.