4418 - International Journal of Economics Commerce and...

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International Journal of Economics, Commerce and Management United Kingdom Vol. IV, Issue 4, April 2016Licensed under Creative CommonPage 1 ISSN 2348 0386THE ROLE OF AGENCY BANKING IN GROWTH OF BANKING SECTOR IN KENYA: A SURVEY OF BANK AGENTS IN NAIROBI COUNTY, KENYA J. M. MwendaSchool of Business, Jomo Kenyatta University of Agriculture and Technology, Kenya [email protected] S. Ngahu School of Business, Jomo Kenyatta University of Agriculture and Technology, Kenya [email protected] Abstract The rural areas and slums face the challenge of accessing the services offered through conventional mortar and brick banking. Hitherto, it remained largely unclear the extent to which agency banking had impacted on growth of banking sector in Kenya. Due to the foregoing it was important to evaluate the influence of agent banking on banking sector’s growth. The study specifically analyzed the effect of economies of scale and financial services accessibility on banking sector’s growth. The study was carried out amongst bank agents across Nairobi County. A descriptive survey research design was adopted. A total of 1076 bank agents were targeted. Stratified random sampling method was employed to obtain a sample of 66 respondents. The study used structured questionnaires to collect data. The research instrument was pilot tested in order to determine its validity and reliability. Data analysis adopted both descriptive and inferential statistics using SPSS. The study revealed that economies of scale and financial services accessibility positively influenced growth of the banking sector. Economies of scale were the most important to growth of banking sector. The study concluded that agency banking is very relevant to enhancing growth of the sector. Therefore, the study recommended that banks should exploit economies of scale brought about by agency banking. Keywords: Agency Banking, Bank Agents, Banking Sector, Economies of Scale, Financial Services Accessibility, Growth
© Mwenda & Ngahu Licensed under Creative CommonPage 2 INTRODUCTION The economic development of countries is partly attributed to the extent of financial inclusion amongst the citizenry. There are a number of strategies that financial institutions have embraced to enhance financial inclusion; agency banking is presumably one of them. It is thus important to examine the various attributes of agency banking and how they influence financial inclusion. According to the Alliance for Financial Inclusion (AFI, 2012), agency banking describes a banking model where banks provide services through non-bank agents, such as grocery stores, retail outlets, post offices, pharmacies, or lottery outlets. This model allows banks to expand services into areas where they do not have sufficient incentive or capacity to establish a formal branch. This is normally the case in rural and poor areas where a high percentage of people are unbanked. Agency banking is quickly becoming recognized as a

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