Impact of Agency banking on the performance of commercial banks in Kenya Proposal latest

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EFFECT OF AGENCY BANKING ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA
CHAPTER ONE: INTRODUCTION 1.1 Background of the Study The agent banking model is one in which banks provide financial services through nonbank agents, such as grocery stores, retail outlets, post offices, pharmacies, or lottery outlets (Alliance for Financial Inclusion, 2012). This model allows banks to expand services into areas where they do not have sufficient incentive or capacity to establish a formal branch, which is particularly true in rural and poor areas where as a result a high percentage of people are unbanked. Agent banking is quickly becoming recognized as a viable strategy in many countries for extending formal financial services into poor and rural areas. In recent years, agent banking has been adopted and implemented with varying degrees of success by a number of developing countries, particularly in Latin America (World Bank, 2010). Brazil is often recognized as a global pioneer in this area since it was an early adopter of the model and over the years has developed a mature network of agent banks covering more than 99% of the country’s municipalities. Other countries in Latin America have followed suit, including Mexico (2009), Peru (2005), Colombia (2006), Ecuador (2008), Venezuela (2009), Argentina (2010), and Bolivia (2006). Other countries around the world have also utilized the agent banking model to expand financial services, including Pakistan, Philippines, Kenya, South Africa, Uganda, and India According to the Oxford Policy Management Ltd (2011), many Sub-Saharan African countries still face a severe financial development gap relative to not only the advanced economies but other peer developing economies. A key obstacle to financial development is the lack of financial access among the financially disadvantaged. Financial access would certainly promote economic growth at the broadest scale. Kenya is a developing country with a total population of 43 million people and has a slightly lower than average income inequality amongst developing countries (Adera, 1995). Guideline on Agent Banking in Kenya are issued under Section 33(4) of the Banking Act, which empowers the Central Bank of Kenya (CBK) to issue guidelines to be adhered to by institutions in order to maintain a stable and efficient banking and financial system in 1
Kenya (CBK, 2010b). According to the provisions of these guidelines, an agent means an entity that has been contracted by an institution and approved by the Central Bank to provide the services of the institution on behalf of the institution in the manner specified in the Guideline. Agent banking business means the business carried out by an agent on behalf of an institution with the aim of providing a delivery channel for offering banking services in a cost effective manner. The bank enters into an agreement with the agent where the agent distributes the services of the bank at an agreed terms and conditions.

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