Banks, deposit-taking micro-finance institutions, and mortgage finance co. in a new banking model
Banks,
deposit-taking micro-finance institutions, and mortgage finance companies can now
roll out their agency banking services after the Central Bank of Kenya unveiled
the rules under which the new banking model will be operated.
The rules are meant to minimise risks inherent in the agency banking
system by providing a clear regulatory framework.
“This will ensure that the introduction of third parties into the
banking business will not compromise the supervision, safety, and soundness of
the banking sector,” reads part of a statement signed by K. Pere, the director
of Bank Supervision at CBK.
The introduction of agency banking is meant to expand access to
financial services, especially in rural areas where it has been expensive for
banks to maintain a presence, owing to smaller volumes.
Banks will tap into the network of Saccos and micro-finance institutions
to access their front office services while guaranteeing customers’ deposits.
Agency banking is expected to boost the current penetration rate of
banking services, estimated at 27 per cent.
Lack of access to formal financial services has made many to turn to
mobile money services like Zap, M-Pesa, and Yu Cash, with a combined record
subscription of over 10 million as of March 2010 according to Business
Daily.
The government hopes to capture billions of shillings that remain in the
informal sector through the system, as well as deepen the range of financial
services available to the poor.
Executives said agency banking could offer a new growth impetus the
financial sector needs.
“This is what 80 per cent of the banking population requires. Demand for
banking services can be created through agency relationships ultimately
boosting the top line revenues for banks,” Mr James Mwangi, the chief executive
of Equity Bank, said in an earlier interview.
For bankers, agency banking means cutting down on operational costs as
the pressure to establish a wider presence through their self-funded branches
eases out.
In the regulations, CBK has put an emphasis on protecting consumers who
will access normal banking services like making deposits, withdrawals, and
taking and paying back loans from the representatives of the main financial
institutions.
CBK will approve individual agents, who can be owner-operators, a
partnership or a company.
Further, the regulator has instructed the main institutions to closely
supervise their agents, adding that it will also have full and round-the-clock
access to the internal systems, documents, reports, records, staff and premises
of the agents as far as the agency banking business is concerned and that it
shall take all the necessary measures.
Agents may brand themselves as they wish, but will make it clear to
customers that they are not banks, mortgage or micro-finance firms.
In a bid to make the sponsor institutions closely regulate their agents,
CBK has crafted a clause in the contract between the two parties that will
compel the main institutions to take full liability for all actions or
omissions of the agent.
“This responsibility extends to actions of the agent even if not
authorised in the contract so long as they relate to banking services or
matters connected therewith,” the regulation circular reads.
Settlement of transactions is another major highlight of the
regulations, with agents required to adopt technologies to ensure that the
transactions they conduct are immediately reflected in the main financial
institutions’ records.
Payment system
Further, they will only carry out transaction as long as they have
funds.
In what could entice investors to join the agency business, CBK has
allowed agents to serve multiple banks provided they have capacity and signed
separate contracts.
Agents will be expected to check against money laundering by reporting
abnormal transactions and to identify their customers on two factors, like IDs,
PINs, passwords.
“The most important thing in the payment system is settlement of
transactions which the National Payment System Bill will help strengthen,” Mr
Mwaura Nduati, the head of national payment system at CBK, said in an earlier
interview.
He added that the Bill, once enacted, will help address the integration
of the innovative payment systems in the country, including mobile money
transfers and online banking in a bid to boost overall financial access.
