Although the Central Bank of Nigeria (CBN) is yet to blow the final whistle to signal the commencement of the proposed agent banking in Nigeria, there are indications that the potential of the new policy to capture a large segment of the hitherto unbanked people is driving banks to embark on a flurry of activities, reports Festus Akanbi
Financial experts including top echelons of the Central Bank of Nigeria (CBN) at the weekend threw their weight behind the planned introduction of agent banking by the apex bank in view of the failure of the current banking sector template to accommodate low-income earners, especially the rural dwellers.
THISDAY checks showed that although the commencement date of the proposed policy, which is said to have taken into consideration the banking needs of the informal sector operators, is still being awaited, feelers from the industry suggested that banks may have commenced discussions with potential agents in order to hit the ground running as soon as the CBN gives the go-ahead.
Banking agents can be pharmaceuticals, supermarkets, convenience stores, lottery outlets, post offices, and many more. It was gathered that, some financial institutions are already in discussion with potential partners on how to capture a large chunk of the informal sector through the new offering. A source disclosed that the mostly affected banks include those that recently closed down some of their unprofitable branches in some locations in the country.
The new arrangement is considered as an opportunity to reach out to their former customers left in the cold during the bank branches rationalisation exercise.
As banks perfect their arrangements with their agents, the CBN has expressed the confidence in the ability of banks to avail themselves of the opportunity being offered by the new arrangement.
According to the Deputy Governor, CBN Operations Directorate, Mr. Tunde Lemo, "Banks not CBN will mobilise additional savings through increased banking penetration when Agent Banking is introduced. It's all part of the financial inclusion strategy of the CBN."
He said the date for the introduction of Agent Banking would be announced shortly by CBN Governor Sanusi Lamido Sanusi.
From recent interactions with financial sector players, it became abundantly clear that low-income earners save and are not really bad debtors. However, given the fact that most of the people that fall into this category are domiciled in the rural areas where infrastructure is either non-existent or in a sorry state, it has been pretty difficult bringing them under conventional banking structure since most of the banks find it difficult to maintain presence in remote parts of the country.
Some of the excuses put forward by banks for their failure to site their branches in all nooks and crannies of the country include the problem of logistics and cost of operation.
They argued that reaching poor clients in rural areas is often prohibitively expensive for financial institutions since transaction numbers and volumes do not cover the cost of a branch. Those who canvass this excuse refer our correspondent to the recent closure of some unprofitable branches by a number of banks, saying banks have learnt their lessons to put profit maximisation above all considerations.
The immediate fallout of this is a situation whereby a large number of potential bank customers are cut off from the system.
One financial expert who has been following the trends in the Nigerian banking sector is Head Research and Intelligence, BGL Plc, Mr. Olufemi Ademola. He recalled that the CBN recently launched a National Financial Inclusion Strategy detailing the action plans of the monetary authority to raise the level of financial inclusion to 80% of the adult population by the year 2020. The strategy, according to him, is to facilitate access for the otherwise disadvantaged groups like farmers, women, aged citizens, the self-employed, the unemployed, and MSMEs considered by formal banks as costly, risky and unviable.
"The thrust of the new strategy is to build on existing channels and models. In addition, the CBN is adopting a combination of approaches including consumer protection, mobile financial services, branch network, the mini branches model, microfinance banks, tired- KYC (Know your customer) standards, the retail agent model, financial literacy, soap operas, and movies," the BGL official said.
Enhancing Financial Innovation & Access (EFInA), a financial sector development organisation that promotes financial inclusion in Nigeria, in a 2010 survey on access to financial services in Nigeria identified poverty, distance, financial illiteracy, affordability and eligibility as the major barriers to financial inclusion in Nigeria. The survey also reported that the average distance to a bank in Nigeria is more than 10km. It also noted that due to a high level of illiteracy, many Nigerians do not have a clear understanding of the operations of financial institutions and the services provided. In addition, account opening documentation and transaction processes are often cumbersome and fees are sometimes prohibitive, thus making many of the people ineligible to operate a bank account.
The monetary authority aims to utilise the cashless policy being implemented to further drive the achievement of the financial inclusion targets. The strategy is to focus on technology-driven low-cost channels that can be deployed easily to ensure that access is significantly increased in a way that is profitable for both the providers of financial services and end users.
Last year, the CBN rolled out a Financial Inclusion Strategy that aims to ensure that a clear agenda is set for increasing both access to and use of financial services within the defined timeline, which is by 2020.
According to the CBN, Financial Inclusion is achieved when adults have easy access to a broad range of financial products designed according to their needs and provided at affordable costs. These products include payments, savings, credit, insurance and pensions.
However, what appeared to be the first major step to deepen banking in the country was taken by the apex bank a fortnight ago with the release of guidelines on agent banking. In a 25-page document titled: "Guidelines for the Regulation of Agent Banking and Agent Banking Relationship in Nigeria" posted on its website, the CBN said the move is to enhance the delivery channel and offer banking services in a cost effective manner.
Agent Banking to the Rescue
Agent banking is the provision of financial services to customers by a third party (agent) on behalf of a licensed deposit taking financial institution or mobile money operator. A banking agent is a retail or postal outlet contracted by a financial institution or a mobile network operator to process clients' transactions. Rather than a branch teller, it is the owner or an employee of the retail outlet who conducts the transaction and lets clients deposit, withdraw, and transfer funds, pay their bills, inquire about an account balance, or receive government benefits or a direct deposit from their employer.
Banking agents help financial institutions to divert existing customers from crowded branches providing a "complementary", often more convenient channel. Other financial institutions, especially in developing markets, use agents to reach an "additional" client segment or geography.
The CBN listed the categories of agents to include super-agents, sole-agents, sub-agents, bank-led model and non-bank-led model.
"The approach for monitoring super-agent would differ from other agent types in view of the probable higher risk, liquidity management and consequences of failure. In the case of super agents the CBN shall require full disclosure on persons or entities that control more than 10 per cent or more of the share capital or has powers to exercise significant influence over the management," it explained.
According to the CBN, for any firm to be established as an agent bank, the Financial Institutions would be required to carry out its respective due diligence on such a firm. The CBN therefore maintained that, "All financial institutions shall have due diligence policies and guidelines that define initial agent engagement, regular monitoring and supervisory checks, trigger points and corrective measures. Financial institutions shall also specify the permissible activities agent may undertake within each agent category.
"The entity must have been in legitimate commercial activity for at least 12 months immediately preceding the date of the application to become an agent and the business must be a going concern. An entity shall not be eligible for appointment as an agent if the carrying out of agent banking business by the entity shall contravene any written law, regulation or the objects of the entity.
It said further: "The financial institution shall make a clear, informed and documented decision on the use of agents for rendering banking services to its customers. Development of an appropriate agent banking contract and appointment of eligible agents based on set out criteria."
The agent banking mechanism is for financial services providers (banks and mobile-money operators) to utilise banking agents in the rural areas to sell financial services including monitoring and enforcing repayment of credits, on commission basis. Two classes have been created. There will be super agents who should meet stronger financial requirements and monitoring due to the higher risk that a default could cause the banks, and sub-agents that work directly through the super-agent but are only required to meet acceptable KYC standards.
The second is a sole agent who does not delegate any agency power to sub-agents. All agents will sell, monitor and enforce repayments working together. The activities that can be provided by the agents will be determined by the principal financial institutions. The CBN also has a listed a number of approved activities and prohibited activities which are subject to regular reviews.
But in spite of the excitement being generated by the coming of banking agents, the BGL official said the impact of the unreliable state of infrastructure in the operation of agent banking should not be ruled out.
He said, "While the state of the nation's infrastructure can affect the optimal take-off of the scheme, I do not think it is such a significant set-back.
The mechanism will rely largely on the mobile money platform for distribution. Although commuting from rural areas to major towns where branches of financial institutions are located may be a challenge, it is not significant to completely derail the strategy. Alternatives can always be provided for any other major infrastructural challenge."