One of the most critical components of a successful strategy to deliver financial inclusion is the establishment of a network of agents that can act on behalf of financial institutions and other service providers to deliver their services to the poorest Nigerians, living in the most remote and currently underserved areas. The higher the population, the more agents are required, and Nigeria, as the most populous country in Africa, and on track to be one of the most populous in the world, has a clear and urgent need.
This requirement has been made even more urgent over the last decade as the model adopted by financial services institutions to serve their customers have changed. From an approach where the branch was at the centre of customer engagement and so required extensive branch infrastructure across all regions of the country to one which is increasingly light on fixed assets and heavy on technology. At the same time, poverty levels in Nigeria have been rising, as the population grows and the economy fails to match its pace of expansion.
Technology alone cannot fill the gap that the branch leaves behind, or never filled. To provide services to people who are currently excluded from the financial system, you need to be able to interact with them in person to provide, at a very basic level, a location where they can put cash into the system in exchange for a service or simply as a deposit into an account. Until every Nigerian has a mobile money, or bank account, this requirement will continue to exist and it is representative of the challenge that is faced in many other countries.
Agent networks can act as branchless banks or serve as a proxy for banks without branches in certain areas. From wherever they operate, they enable customers to transact – often by turning cash into e-money and back again. Agents play a critical role not only in handling transactions but in identifying, acquiring and educating new customers, as well as delivering a customer experience that keeps customers coming back. They are typically most valuable in rural areas and places that don’t have formal financial institutions to bring financial services to those people, but also offer value in large bustling metropolises where branch access also constitutes a challenge and agents can significantly enhance operational efficiencies.
The concept of the agent network first appeared in Nigeria, in 2009, and the first Mobile Money licences were issued by the Central Bank of Nigeria in 2011, including guidelines on agent network operations. As well as the responsibilities of agent bankers and other parties involved, it also states the requirements that need to be realized before a license can be issued. The guidelines also highlighted two types of agent networks that would operate in Nigeria, namely; bank led agent models and non-bank led agent models. The bank-led model is for agents that have direct ties to formal financial institutions or commercial banks. The non-bank led model is for agents with direct ties to mobile money operators that have been duly licensed by the CBN.
There are currently 31 mobile money operators with licenses issued by the CBN. However, despite a number of different amendments to the regulations, including the introduction of guidelines on shared agent, and super-agent structures, Nigeria’s financial inclusion targets have not been met, and since 2014, Nigeria has declined on both the World Bank and EfINA’s assessments of progress towards financial inclusion. Clearly, something with the current model is not working. Despite significant levels of investment, and multiple funding rounds, the largest agent networks do not exceed more than 10,000 active agents, with the vast majority of those actually operating, delivering services in semi-urban or urban areas. While financial inclusion numbers in these areas, in particular the South West region, have improved to levels aligned to national targets, inclusion in more rural and poor regions like the North West and North East have deteriorated aggressively.
In July 2018 the CBN and a number of commercial banks released a document that addressed the need for a Shared Agent Network Expansion Fund Initiative. This initiative is supposed to introduce an extra 500,000 agents by 2020 to cater to a further 60 million Nigerians in rural and underdeveloped areas.
While laudable in its objectives, and the size and scope of its ambition, once we dig beneath the surface of the headline, there are questions that need to be asked about the operational realism of the project.
This is because the banks or new independent operators need to create almost entirely new business units to establish and manage agent networks from scratch. This is a disincentive for banks who already have multiple levels of operations and costs and will need time and new investment to achieve the scale required. To put it in context, if it has taken millions of dollars of investment and over 7 years for the existing licence holders to build networks of just 10,000 agents, how long will it take to achieve 500,000? Is the target to do so by 2020 really viable? The business plans that the Shared Agent Initiative project team, steered by the banks, have envisaged is a process that adds over 20,000 agents every quarter, shared between existing operators who are being asked to add 3-4,000 new agents every 3 months.
But what has actually changed in terms of regulation and the business models being applied? While some finance is being made available from the Central Bank’s SME financing scheme (which was never intended to provide funding for this purpose), to provide low cost debt to agent network operators, the scale of the financing is woefully inadequate compared to the scale of the challenge. The SANEF initiative was announced in February 2018, and we are now in August. How many agents have been added? How is progress being tracked? Less than 5% of the target of 500,000 agents are currently active in Nigeria.
With the Central Bank’s issuance of a circular recently requiring banks and agent bank license holders to report daily transaction levels through agent networks, this should be easy to assess. Those numbers need to be made public, and progress needs to be monitored closely. We do not have time for failure. To achieve the 2020 goals of Nigeria’s financial inclusion strategy we need immediate improvements.
The challenge that SANEF faces goes beyond achieving simple numbers. Agent networks must be carefully calibrated to ensure strong profitability of the agents in order to be sustainable. You cannot just create 500,000 agents; they need to have transactions, and expansion must be carefully calibrated so you are growing customers as you grow agents. Each agent needs 100-200 customers transacting regularly in order to be profitable. If they do not have this volume of business, they will turn their attention to something else, creating a poor perception of the business for future initiatives. We must ensure that we do not damage future sustainability in our haste to achieve unrealistic numbers using the wrong structure. Doing so not only fails to achieve commercial objectives, but fundamentally reduces the potential impact that the project can have on Nigeria’s declining rates of financial inclusion, and so deepens our existing challenge.
What may be Nigeria’s biggest hindrance to the expansion of mobile money and shared agent networks is the insistence on using bank-led models as the main driving force behind shared agent networks. In other countries that have successfully implemented mobile money, like India, Ghana and Kenya, a key difference is that other industry players, who have already invested in customer facing infrastructure in the target areas, are invited to participate. FMCG companies, e-commerce players, telecoms providers and distribution networks participate. For them, it is simply a business expansion. But for the financial services industry, it must be built from scratch. It is simple logic, that expanding and leveraging existing infrastructure will deliver results faster than a Greenfield project. If Nigeria is truly serious about achieving the goals of its financial inclusion strategy in the time frame it has set out, it needs to open up the sector to other players, and allow the fastest possible expansion of the industry.
