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Other banks say the government needs to urgently pass regulatory framework
Stanbic has identified about 1000 agents to deal with as soon as the proposed new agency banking is legalised, according to the Chief Executive Officer of Uganda’s largest bank, Patrick Mweheire.
In an interview with The Independent, Mweheire said the new banking model will “revolutionalise the financial sector”.
“To Stanbic and the entire financial sector, agency banking will cut the cost of doing business which will improve performance and pave way for gains in terms of new jobs and other benefits,” he said.
He said that 25% of Stanbic’s branches make loses which negatively impacts on its financial performance and compromises their ability to design and implement new products and tailored services for better customer services.
“It is cheaper for us to reach everyone through agents instead of opening a branch everywhere that costs a minimum of Shs2 billion,” he said.
Mweheire urged government to speed up work on the regulatory framework for agency banking model because Stanbic is “already ahead of what the regulators are doing.”
Under the agency banking model soon to be legalised, licensed financial institutions will be allowed to use an agent to provide special financial services on their behalf outside the conservative avenues of bank branches, Automated Teller Machines (ATMs), and even mobile money.
The agents being considered under the arrangement include village and town shop owners, mobile money agents, pharmacies, consumer goods distributors, petrol station operators, and more.
Financial institutions, such as commercial banks, will fit these premises with machines to enable customers to deposit and withdraw money either in cash or cheque.
The entire process will be regulated by the central bank – Bank of Uganda – and the coming new regulations will stipulate what services and activities the agent can undertake on behalf of the financial institution.
BoU ready to regulate
Christine Alupo, the director of communications at Bank of Uganda (BoU) told The Independent on Feb. 17 that agency banking regulations were finalised by the BoU last year and cleared by the Minister of Finance Planning and Economic Development.
“The last step is for them to be gazetted which is being handled by the Ministry of Justice and Constitutional Affairs (Solicitor General),” Alupo said.
The Financial Institutions Act amendments of 2016 give the Central Bank (Bank of Uganda) powers in consultation with the Minister of Finance to make regulations in respect of agents and agent banking.
Alupo says the biggest impact of agency banking will be in terms of increased access to banking services because agents will be located closer to the people, many of who still endure long distances to bank branches.
“So we believe it will enhance the level of financial inclusion in the country,” she said.
She added that with agent banking, costs of distribution networks will come down and that this will eventually be reflected in charges for financial services.
The key advantage of this segment of banking is that it will work through existing retail outlets such as supermarkets and fuel stations and avoid the costs of setting up brick and mortar operations.
Alupo said bankers will still have to meet some key costs especially those related to technological platforms for extending their services but, she said, these are expected to be significantly lower than the costs of maintaining branches at the moment.
She said BoU strongly urges financial institutions to maximise the efficiencies of the agent banking model and offer cheaper financial services to Ugandans since they stand to benefit from the gains of a bigger banked population.
According to Alupo, the agent banking model makes a robust attempt to mitigate theft through the technological set up.
She explained that, in its normal operations, when one makes a deposit with an agent, their account with the bank is debited by that amount. Similarly when one withdraws from an agent, their account with the bank is credited.
“Essentially the transactions with customers make up the agent’s cash flow for their own retail purposes,” Alupo said.
