• Tuesday, November 28, 2023
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Micro-finance banks see agency banking cost effective


After a critical analysis of the cost of establishing branches, micro-finance banks (MFBs) operating in the country have decided to pitch their tent on agency banking, they consider cost effective.Although the cost of setting up agent bank is yet to be established, from the operators point of view it will cost about N100 million to establish a branch network.

As part of strategies towards establishing agency banking, the National Association of Microfinance Banks (NAMB) recently sent some delegates to India to study how agency banking is being practised there. The delegates after touring specific areas in India came back with the affirmation that agency banking is very effective in India.

“We need to put in place necessary modalities, just as we have held meeting in that regard, we are going to hold a workshop. And as soon as we get the modalities, we will ask our members to commence,” Olufemi Babajide, chairman, NAMB, South West zone, said in a telephone conversation.

“We should be very cautious when it comes to issues like this. We will hold a workshop this month. We are going to compare what it looks like in India and by the time we commence, we will be error free,” he said.

However, there are indications that the slow pace of implementation of agent banking in the country may be traceable to lack of trust by the public and operational issues such as identification and recruitment of agents; training of agents; agent management and risk mitigation, analysts have said.

Agent banking is the provision of financial services to customers by a third party (agent) on behalf of a licensed deposit-taking financial institution and/or mobile money operator (principal), according to the Central Bank of Nigeria (CBN). The third party or banking agents can be post offices, retail shops, pharmaceuticals, lottery outlets, among others.

One of the objectives for the agent banking guidelines, according to the CBN, is to enhance financial inclusion, and provide for agent banking as a delivery channel for offering banking services in a cost effective manner.

Godwin Ehigiamusoe, managing director, Lift Above Poverty Organisation (LAPO) Microfinance Bank Limited, told BusinessDay that “challenges of agent banking in any operating environment relates to regulatory framework, perception and capacity/skills,” saying a review of the guidelines released by the CBN showed that it was enabling with possible refinement here and there.

“As a new concept in our operating space, it could take sometime and a great deal of sensitisation and confidence building to get the people to relate with financial institutions through their ‘agents’ or bank agents. Will the people trust a bank agent ordinarily?” Ehigiamusoe pondered.

According to him, another challenge will be actual implementation. Operational issues such as identification and recruitment of agents; training of agents; agent management and risk mitigation may present some challenges particularly, at the beginning.

He added that threat to banking agents arising from the knowledge that they handle cash was real, as he saw agent banking as an initiative to expand the reach of financial institutions to persons who left out of the formal financial system.