7438-9714-1-PB - European Journal of Business and...

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European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.5, No.21, 2013 27 The Role of Agency Banking in Enhancing Financial Sector Deepening in Emerging Markets: Lessons from the Kenyan Experience Dorine Ayuma Barasa, Jomo Kenyatta University of Agriculture and Technology Dr. Fred Mugambi Mwirigi, Jomo Kenyatta University of Agriculture and Technology Abstract Agency banking has increasingly gained importance in developing countries over the last decade. However the extent to which agency banking can be used as a tool to deepen the financial sector remains largely unknown. Also, the true benefits of the agency banking model to customers, the banks and the bank agents also remains largely unstudied. This study sought to analyze these benefits and provide some insights into the actual performance of agency banking with regard to enhancing access to banking services by the unbanked. The study was conducted among 40 registered outlets with a respondent sample of 400 people. Systematic sampling technique was used to pick the respondents who were requested to fill structured questionnaires. The study incorporated descriptive data analysis tools and the likert scale to determine the weight of the factors. The study concluded that agency banking has played a pivotal role in enhancing the penetration of banking services in unbanked markets. Besides, agency banking also enhances the access of the full range of banking products within a less than formal setting. The study concludes that the agency banking model has not only helped to demystify banking among low income populations but it has also placed beneficiaries on sure path towards become financially secure. The study also found that banking agents also double up as the backbone of electronic money banking since they perform transactions over a bank device, to enable clients to convert cash into electronic money and vice versa. This is an important role in enhancing financial sector deepening. Keywords: Agency Banking, Financial sector deepening, Market segmentation. 1.0 Introduction Agency banking has become an important avenue for growing access to banking services in technologically upward developing economies. In Kenya, for example, banking technology and other related technologies have grown rapidly in the last decade. At the center of these technologies are money transfer technologies that have given rise to innovative products like Mpesa which is a mobile phone-based savings and money transfer product operated by Safaricom, one of Kenya’s premier telecommunications firm. The rapid growth in ICT that is being experienced in developing economies, especially in Africa, has triggered new innovations in all sectors, one of which is agency banking. Agency banking is the process of using an agent to deliver banking products to peripheral customers. According to the Central Bank of Kenya (2010), an agent is an entity that has been contracted by an institution and approved by the Central Bank of Kenya (CBK) to provide the services of the institution (a bank) on behalf of the institution. The types of entities which can act as agents in

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