Ugandans living in areas without a commercial bank branch are now able to access formal bank services.
This follows the launch of a shared agent banking platform by the Uganda Bankers’ Association (UBA) on Wednesday, so as to increase access to formal banking services and increase financial inclusion.
The platform, an initiative of UBA, allows connectivity between member banks to enable agents serve customers of any other member bank to minimise duplication of agency networks to maximize points of presence to ensure coverage across the country.
The shared agency banking platform is anchored by three technology companies including Eclectics, Fintech Company of Uganda, and Efficiencie Uganda.
Electrics provides the software platform, Efficiencie provides the pinpads, Bluetooth printers and phones to be used by agents while fintech company provides the Point of Sale gadgets.
The platform has seven participating banks including Stanbic, Barclays, Bank of Africa, Diamond Trust Bank, DFCU, Housing Finance and GT bank.
What is Agency banking?
Agent banking is the delivery of financial services outside conventional bank branches, where a licensed deposit taking financial institution contracts a third party operator, known as an agent, to provide a range of financial services on its behalf.
It is a low-cost model that is expected to deepen financial inclusion by providing a bridge between banks and customers.
The agent could be a petrol station, a supermarket, a permanent mobile money agent, a retail shop and hardware shop, among others.
Agency banking is provided for under the Financial Institutions Amendment Act, which was approved early last year.
According to Bank of Uganda deputy governor Louis Kasekende, the shared platform speaks to the third pillar of the National Financial Inclusion Strategy (NFIS) of building digital financial infrastructure to reduce access barrier to financial services.
He added that it is also an enabler for driving penetration, deepening and broadening the range of financial products and services uptake.
The NFIS was launched in October last year by the Ministry of Finance, together with the Bank of Uganda to among others enable Ugandans have increased access to, and use of a broad range of quality and affordable financial services by 2022, so as to reduce financial exclusion to 5%.
Benefits of agent banking
The UBA executive director Wilbrod Owor said the platform is expected to reduce the cost of operation for the commercial banks, increase financial exclusion, reduce access barriers to financial services and broaden financial products such as formal savings, credit services and insurance usage.
“The ultimate objective of the initiative is to extend of banking services and bring on board the bigger proportion of Ugandans to the formal banking system,” he said at the launch of the platform at UBA office in Muyenga on Wednesday.
He added that 14 additional banks are also at different stages of the integration process and securing the necessary regulatory approvals.
The launch of the shared agent banking platform means that banks will no longer need to set up the brick-and-mortar branches but only appoint agents to transact business on their behalf. An agent can transact on behalf of all member banks, conducting minor banking services like cash deposits and withdrawals.
Agents will benefit from fees and commission per transaction handled.
The 2017 Demand and Supply Side Survey for agency banking a survey commissioned by the Financial Sector Deepening Uganda (FSDU) and conducted by Microsave indicates that about 58% of Ugandan adults are unbanked.
This is not because they do not want to have bank accounts but because they do not have access to banking services as banks consider opening bank branches, especially in rural areas, not cost-effective.
The survey also indicates that about 9.3 million Ugandan adults travel over an hour to reach the nearest bank branch.
Agent banking is, however, expected to change the narrative as banks will now be able to cost effectively extend services to remote areas to ease and increase access to the excluded Ugandans and boost financial inclusion.
The Eclectics group managing director Paul Mbugua said the platform is secure and interoperable and will facilitate access to real time transactions.
What it takes to be an agent
According to the Agent Banking regulations, for one to become an agent he must have been approved by the Bank of Uganda – the regulator of the financial services industry.
To be approved, the aspiring agent should be operating a licensed business, which must have been in operation for at least a year.
The business must have a physical address, adequate and secure premises and the owner must have held a bank account for at least six consecutive months.
Additionally, the particular financial services to be offered by each agent must be specified in the agreement. The services to be provided will vary according to the sophistication and capacities of a particular agent.
Agents will also be required to buy float –the balance of e-money or physical cash or money in a bank account that an agent can immediately access to meet customer demands to purchase (cash in) or sell (cash out) electronic money.
Commercial banks will, however, be required to identify, sign off, train agent and also supply them with gadgets, provide capital float and advance commissions.