Under a new expansion programme, agent banking is set to bolster ongoing efforts to improve financial inclusion in Nigeria.
In late March the Central Bank of Nigeria (CBN) announced it had reached an agreement with deposit money banks, licensed mobile money operators and super agents (those that subcontract other agents) to roll out a 500,000-strong agent network under the new Shared Agent Network Expansion programme.
The network aims to provide basic financial services, such as funds transfer, bill payments, airtime purchases, government disbursements, cash-in, cash-out services and remote enrolment of bank verification numbers (BVNs), to 60m financially excluded Nigerians by 2020, particularly focusing on the underserved Northern Region.
Agent banking, the provision of financial services by a third party on behalf of a licensed bank, is a key driver of the wider National Financial Inclusion Strategy launched in 2012. The lower costs and restrictions that characterise agent banking are expected to help meet the strategy’s target of reducing the percentage of Nigerians excluded from financial services from 46.3% in 2010 to 20% by 2020.
Of the total 96.4m-strong adult population (18 years and above) in 2016, 58.4% were financially served, according to EFInA, an organisation promoting financial inclusion in Nigeria. However, of this proportion, 10% did not have access to banks or financial services but instead utilised the services of informal savings pools or money lenders.
In addition to costly financial services and lack of financial products for lower-income people, the low penetration of bank branches in the country, particularly in rural areas, is a significant barrier to financial inclusion, according to the CBN.
There were 5.4 branches per 100,000 adults in 2016, according World Bank data. While this is in line with the sub-Saharan African average of 5.3 in that year, it is well below the South African figure of 10.2 branches per 100,000 adults, for instance.
Access to financial services is a strong contributor to economic growth and wealth creation, and is therefore key to addressing Nigeria’s high poverty rates. According to the World Poverty Clock, 82m Nigerians – or 42.4% of the population – were living in extreme poverty as of December 2017.
To simultaneously penetrate the underserved areas and overcome the cost of establishing branches, the CBN formally introduced the model of agent banking in 2013. Since then, a number of banks have sought to expand beyond the traditional brick-and-mortar infrastructure, using agents as a way to reach under-banked Nigerians.
Innovating to increase access is expected to benefit banks, which are increasingly looking to tap the potential of the retail market as corporate banking becomes ever more saturated.
“Banks need to be focused on giving consumers a means to interact with them,” Charles Kie, managing director of Ecobank Nigeria, told OBG. “The real conversation is not about banking penetration but about financial services availability for consumers.”
In March Lagos-based Unity Bank extended its agent banking system to the north-western states of Kano and Jigawa. New customers can open an account with the bank using its digital portal, Unity1 Online, which is designed to reduce procedural steps and waiting times.
Later that same month Keystone Bank announced the launch of KeyServ, a new agency banking system, in partnership with the Nigerian Postal Service (NIPOST) and local financial technology firm i-OneC. Keystone will utilise NIPOST’s extensive network across the country to offer more Nigerians a range of services, such as opening bank accounts, bill payment, cash-in, cash-out services, ATMs and balance enquiries.
Similarly, ICT company Basic Information & Communication Systems (BICS), which is focused on financial inclusion solutions, announced in late March that it was also collaborating with NIPOST, alongside global firm Software Group, to set up an agent banking network. Through its network, BICS aims to provide employment for over 10,000 Nigerian youth and reach 20m underserved citizens within two to three years.
An important milestone of the CBN’s efforts to improve the country’s financial inclusion was the rollout of its BVN system in 2015. The system uses biometric technology to record a customer’s face and fingerprints, after which the customer is provided with a BVN, enabling them to open accounts without other forms of identification. This eases access to banking – especially for those who cannot read or write – while also reducing risk of fraud.
BVN enrolments are a key component of agency banking, and as of mid-April there were almost 33m registrations, according to the Nigeria Inter-bank Settlement System, a financial company owned by the CBN.
Another step forward in the use of agent banking came in 2016 with the CBN’s granting of two super-agent licences. These were awarded to financial firms Innovectives and Interswitch, extending the regulatory framework and supervision of agent activities.
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