The Ugandan financial sector is awaiting the final changes in a regulation that will allow the banking sector to propel into Agency Banking. With Agency Banking a third party, an agent, can provide bank services outside of bank offices. Providing services through agents grant banks access to an untapped market potential; rural communities.
It is estimated that currently over nine million adults in Uganda need to travel more than an hour to access a bank branch. For these people, Agency Banking is a convenient solution. In neighbouring countries such as Tanzania, Kenya and Rwanda Agency Banking has already been successfully introduced, proving thousands of low-level income households access to financial services.
Agents, typically small shop owners such as pharmacies or grocery stores, will be able to offer many of the common services currently provided at bank branches such as balance inquiries, cash withdrawals and cash deposits.
According to a research recently conducted by MicroSave on behalf of Financial Sector Deepening Uganda (FSDU), for Agency Banking to become a success in Uganda there are a few important issues that need to be addressed for people to try this new service:
- Pricing needs to be appropriate
- Customers need to know that agents can be trusted and that transactions will be safe
- Technology and IT systems needed to make transactions needs to be working and reliable
- Agents will need to have enough balance on their account as well as cash in their till to deliver these banking services
- Both agents and customers should be trained on usage of agency banking and
- Opening a bank account should be simple and relatively easy.
UNCDF is supporting all major banks in Uganda who are eager to start Agency Banking as soon as the regulation is approved. This is expected to happen any time soon. Agency Banking will allow banks to on-board new customers, especially in rural areas, reduce account dormancy and operational costs from running an expensive network of branches as well as to increase their deposit base.
Currently UNCDF is assisting with six banks with technical assistance on their go-to-market strategy. Some banks are targeting specific agricultural value chains while others are focussing on specific geographical areas in Uganda.
UNCDF also supports these banks in a pilot period to test their systems, policies and procedures. Most of these banks need to procure complete new IT systems to offer these new services and need to adapt many of their current procedures or create new procedures; for example to recruit and manage agents.
David Cracknell, at MicroSave who recently conducted a study for Financial Sector Deepening Uganda on the readiness of the market for Agency Banking says that: “It is very exciting so see what is beginning to happen. Agency Banking is going to change the landscape of financial services in Uganda, both on the demand and supply side. Agency Banking can boost competition and can therefore potentially reduce costs for customers. We need to facilitate this cashless ecosystem by taking away friction points that currently people experience.” And that is exactly what UNCDF is doing.
This is the first blog on Agency Banking in Uganda. In the months to come we will share more about ongoing projects with six major banks in Uganda and their journey to start Agency Banking.
