Over the past decade, financial institutions have altered their view of unbanked rural populations from an impossible challenge to a fragment of society with real untapped potential.
But how do you deliver banking services to hard-to-reach communities? People who live where there is little infrastructure yet still need to buy goods, pay school fees and save for emergencies?
Recent technological developments have shown that banks can offer financial services without growing their branch network or installing more ATMs.
Financial institutions are now working with agents – local entrepreneurs who have established a business – for example a retail outlet, to provide basic banking services in the customer’s own neighbourhood.
This dynamic is known as agency banking. It enables banks to increase their reach with greater cost efficiency and it isn’t just the banks that benefit: jobs are created, local businesses grow and money flows through communities.
Equity Bank Congo uses agency banking to reach customers in far-flung corners of the country who would otherwise be excluded from the banking ecosystem.
In Nigeria, Diamond Bank – recently acquired by Access Bank – developed an agent network with a focus on serving women. With 70% of women unable to access bank accounts or other basic financial services, Diamond Bank designed innovative savings schemes and rural credit that delivered financial services to women in their own communities.
The results have been impressive with 600,000 new accounts opened. This goes to show that women value the convenience and reassurance of agents who they trust, as they know them personally. This secret lies both in the power of personal relationships and word-of-mouth.
The power of digital
Digital technologies, such as the mobile phone, are central to successful agency banking models. According to the GSMA, a global organisation representing the interests of mobile operators, there has been an increase in both the number of active agents and the values they transact. In 2012, agents processed US$4.2bn in transactions. By 2017 this figure had jumped to US$17.2bn. Over the same period, the number of agents also increased significantly from 538,000 to nearly 2.9 million globally.
However, technology alone is not a quick fix. Across our work at FSD Africa – a UK-Aid funded organisation working to transform Africa’s financial markets – we see time and again that human relationships are key to unlocking financial services for unbanked populations. From a customer’s perspective, financial services become tangible and legitimate when delivered through trusted and well-known agents in their respective communities.
Recognising the importance of human relationships, banks are also turning to roving agents. These agents, with their door-to-door customer service, have reinforced the relationship between the bank and its customers, resulting in a more customer-centric design and provision of financial services.
Nigeria’s Diamond Bank has roving agents dubbed ‘Beta Friends’, who directly market and sell savings and loan products to unbanked market traders, growing the bank’s customer base. Beta Friends visit market traders at their places of trade and help them open bank accounts and make transactions. They also assess loan applications, make recommendations to the bank’s credit officers and collect repayments.
Roving agents allow customers to save time and costs associated with having to visit a branch or an ATM. Women, caregivers and others unable to travel to bank branches also benefit from this model.
More than banking
FSD Africa has supported banks in Nigeria, Ghana and the Democratic Republic of Congo to establish successful agency banking models, bringing services to over two million unserved and underserved customers.
To scale up the model, international development organisations should pitch in to provide funding and technical support. Equally, financial and insurance institutions should invest in agency research and training.
Over the coming years, agency banking will play an important role in financial inclusion, which is critical to the long-term reduction of poverty and economic growth in Africa. It’s now down to the commitment of all stakeholders to enable access to the financial products necessary to support and grow this band of game-changing innovators.