At least six banks have expressed interest in using agents to reach out to people outside the formal banking institutions, Bank of Uganda has said.
This financial year, government is expected to amend the Microfinance and Deposit-taking Institutions (MDIs) Act 2003, Bank of Uganda Act 2001, and the Financial Institutions Act (FIA) 2004 to introduce agent banking. It is intended to deepen financial inclusion in the country.
In a statement sent to The Observer recently, BOU's Director for Communication Christine Alupo said: "The law in its current form does not permit agent banking.
More than six have expressed interest in carrying out agent banking, but this is not yet allowable under the current laws."
Although she would not name the banks, she said the market was cheerful about this type of banking. But Centenary bank could well be one of those Alupo was talking about. Asked about the prospect of agent banking in Uganda, Centenary bank's Managing Director Fabian Kasi suggested they couldn't wait to roll it out.
"Definitely it [agent banking] is a good thing; we have been waiting for it," Kasi said today. "It will help us reach more people without investing very much in the brick and mortar."
Hellen N Lutakome, head of brand and marketing at Standard Chartered bank said with agent banking, retailers such as supermarkets, gas stations and others would act as agents or intermediaries between the bank and the people, providing more convenience and access to financial services.
Agent banking refers to where an established bank appoints a third-party entity to act on its behalf in a bid to reach out to more that would otherwise be left out. It can be on mobilising deposits or on boosting demand for credit. Agents can be Saccos or small groups that bring together different people.
More often, these groups can act as a guarantor for the individuals borrowing - thus bridging the collateral gulf that impedes more people from accessing credit. According to BOU, agent banking will have a huge impact on deepening access to finances.
"Based on the Kenyan and Rwandan experience, the impact is going to be huge."
In Kenya, as of last March, 14 banks had appointed 24,645 agents. They have executed about 93 million transactions worth 500bn Kenya shillings since 2010, according to the Business Daily, a Nairobi-based newspaper.
Equity bank in Kenya, the paper said, reported in March that their agents were carrying out more transactions in a day than its tellers and ATMs. For instance, the bank's agents conducted three million transactions that month, compared to 2.3 million by branches. Already, some top banks are using agent banking instead of setting up many branches and ATMs across the country.
Most of them are still reluctant to talk about it because at the moment, the law does not allow it. But industry observers have no doubt agent banking could reach out to more people than anyone other mode of banking can.
"With the current trends in financial services, financial inclusion means much more that just banking the unbanked," said Stephen Kaboyo, the managing director for Alpha Capital. "It is more the convergence of various bank and non-bank players that provide services at a lower cost, wider reach and greater convenience to all end consumers of financial services. Therefore agent banking opens up new opportunities."
BOU has already submitted proposed amendments to the law (FIA, 2004) to support agent banking to the ministry of Finance Planning and Economic Development. The bill is currently under review. There challenges, though. Alupo said there was a need for a functioning system of identification, and for the legislators to urgently amend the law that will enable the practice of agent banking.
"In terms of opportunities, [they] are enormous and we believe this is the fastest route to achieve greater financial inclusion in the country," she said.
There are already successes in the use of the non-traditional banking shown in the use of mobile money. As of last December, according to BOU, transactions valued at Shs 19 trillion were done through a phone. Fourteen million Ugandans used mobile money last year, fourfold the number of people with banks accounts.
While reading the 2014/15 budget, Finance Minister Maria Kiwanuka said mobile technology and agent banking have been key drivers of improving financial inclusion over the year.
"Government will deepen the financial sector by accommodating alternative banking approaches, including mobile banking, agent banking, bank assurance, and Islamic banking. To this end, Government will present to Parliament amendments to [the] Financial Institutions Act," she said.