Thousands of businesses in the country have an opportunity to make extra income if at all they are appointed as commercial bank agents. At the time of amending the law allowing commercial banks to appoint agents, the focus was on how to increase financial services to the people. However, there lies a business opportunity for about 1,500 agents that could end-up earning a commission from commercial banks.

What is Agency banking?
Agency banking is where a commercial bank appoints a third party (agent) to transact business on its behalf. The agent could be a petrol station, a supermarket, a permanent mobile money agent, a retail shop and hardware shop, among others. Those agents have the opportunity to share income with commercial banks especially on fees and commissions.
“You know banks make a significant amount of money from transactional fees. When you withdraw cash, the bank will charge you something.

When you pay your bill at a bank, the bank will charge you something. Agency banking is now making this cake shareable to many other players across the retail foot print,” explains Mr Shem Kakembo, the head of Channels at Stanbic Bank, explained to Prosper on the sidelines of the Stanbic Bank Agency Banking Conference.
In 2016, commercial banks made a total income of about Shs3.3 trillion. Of that, 21.5 per cent (Shs710b) was made from non-interest income.

Fees and commissions – where agents will mostly benefit – contribute almost half of the Shs710b. An agent, in essence, works as a channel – just like mobile money – and based on the agreement with a commercial bank can agree on how to share revenue.
“If you have a shop that has been selling groceries, this can be an added business on the side to grow your business as an additional source of revenue, which will also attract additional flow. As people come to deposit or withdraw money from their bank account, they can do a few more things at your business,” he adds.

How it all started
In January 2016, Members of Parliament (MPs) adopted proposed amendments to the Financial Institutions Act (2004). Those amendments included the proposal for banks to adopt agency banking to increase access to financial services. At the time, several bank executives noted that the amendments would “revolutionise banking in Uganda because agency banking allows us to be everywhere.”
“In countries such as Kenya, Brazil, and Mexico, among others, where Agent Banking is being conducted, there have been enormous benefits for the public.

We, therefore, expect agent banking to be a catalyst for financial inclusion and the deepening of the financial sector,” explained Ms Justine Bagyenda, the executive director supervision at Bank of Uganda (BoU) at the conference on agency banking.
To create the environment to increase financial services access, several more opportunities are being made for other businesses. The number of bank customers has been growing but the number of bank branches has not been growing that fast. In the whole country, we have 500 branches from all the 24 banks for a total population of about 36 million. Agent banking is considered an opportunity for the banking sector to link more people to more areas in tandem with the financial inclusion agenda.

Higher returns
One challenge the telecom sector faced in rolling out mobile money was exclusive agreements where an agent would sign with a specific company. In the regulations that should be gazetted this month, BoU has stated that there will be no exclusive agreements between agents and commercial banks.
“Financial institutions are also not allowed to enter into exclusivity agreements with agents meaning that an agent can serve more than one financial institution,” Ms Bagyenda explained.
In order for banks to mitigate the possibility of exclusive agreements, through the Uganda Bankers Association (UBA), about 20 banks have, so far, expressed interest in a shared platform. That allows an opportunity to be an agent of several banks and earn much more in commissions from several banks.

What it takes
“The agent should have been operating a business for at least a year and should have held a bank account for the last consecutive six months. The particular financial services to be offered by each agent must be specified in the agreement because these will vary according to the sophistication and capacities of the agent. For instance, an established supermarket outlet in a town could offer more services than a small shop in a village trading centre,” Ms Bagyenda said.
The regulator also emphasises that temporary structures – commonly used by mobile money kiosks – are not eligible to be bank agents. There are costs to be incurred by agents. In order to transact, agents will be required to buy float. Float, according to GSMA, is the balance of e-money or physical cash or money in a bank account that an agent can immediately access to meet customer demands to purchase (cash in) or sell (cash out) electronic money. This is exactly how mobile money agents also operate.

Investment
The capital investment for agents is being estimated at a minimum of about Shs2m to Shs3m.
“The agent might not make a lot of improvements at their shop, but they will need to put money aside to invest in the agent banking business. It is about Shs2m to 3m for them to have a solid business case because as soon as you buy the float, customers will learn about it and the bank will support marketing activities towards the agents. When customers come to you, they expect to find money and float,” Mr Kakembo explains.

Lower costs for banks
Growing the number of branches in the country has been the way of trying to reach more customers. However, because of the costs involved, access to these services has remained high. The estimation is that to open a branch of about five staff members, it could cost the bank about Shs300m, inclusive of about Shs60m in operational costs per month. For a larger branch, it can cost between Shs500m and Shs900m, with operational costs of about Shs200m. The costs for the bank are often on staff salaries, utilities, rent, cleaning services, security and air conditioning among others.
With the agent, the cost drops significantly. The start-up cost of the agent is about Shs3m.

The banks will be responsible for training, marketing, ensuring the network is available and providing the gadget for use. That makes the variance in the cost significant, saving the bank a significant amount of money.
“Agency banking is low cost but it neither costs much nor makes much money by itself. It allows banks to serve more customers on the same infrastructure. Equity Bank in Kenya hasn’t increased its branches in Kenya since introducing Agency Banking – yet it has significantly increased its customers,” explains Mr David Cracknel, at Microsave.
The working assumption is that with lower costs of operations for banks, more people will be able to access financial services.

How agent banking works in Uganda

Bank of Uganda
Approves agents submitted by commercial banks.
Responsible for regulating commercial banks
Makes the regulations

Commercial banks
Enter into agreements with agents
Hold customer bank accounts
Supply agents with gadgets
Provide agents with float
Identify agents
Advance commissions to agents

Agents
Buy float from commercial banks
Carryout deposit taking and withdrawals
No exclusivity to one bank
Not employee of a bank

Customers
Access bank services from agent
No extra charge for using agent

mmuhumuza@ug.nationmedia.com