Agent banking: New wheels for financial inclusion, cheaper transactions.

Another guideline for newer banking model – agent banking, was released by the Central Bank of Nigeria (CBN) recently. Will this really deepen the confidence in the financial system, financial inclusion drive and ensure cheaper transactions. CHIJIOKE NELSON checks through the document.

AGENT Banking and Agent Banking Relationship guidelines have been issued by the Central Bank of Nigeria, as part of series of guidelines in the financial system. The regulatory authority, in the document, also said the initiative would ensure the enhancement of the financial inclusion and provision of agent banking as a delivery channel for offering banking services in a cost effective manner, as part of the objectives of this newer banking model. This is very well laudable achievement and additional movement towards our dream financial system. In fact, the agent banking model has been in the waiting since last year, due to assessed lack of legal and regulatory framework and adequate infrastructure to support its operations.

The development is also more laudable because despite the challenges that are being raised and as certain as the challenges can be, the courage to desire, dream and leap to be like others is still alive in the mind of average Nigerian leader, afterall there is “no harm in trial” as some claim. Every supporter of Nigeria project would want to see a time when “as it is done in the West, it was actually done in developing country, even Nigeria”. The system has been operational in some African countries, even in Kenya, though there were arguments over its sustainability in the country, given the challenges facing e-payment channels in the country. The truth is that dreams are realisable when reality is associated with it. At this point, the question might be: Have we added anything to the infrastructure on ground to welcome the “new born”?

There is no doubt that the agent banking model will be largely supported by internet (online real time) or have a link with the already erratic telecommunications network. But I don not want to say that the strategy is “let us reel out all that is ‘reelable’, when the time comes, they will all align themselves or normalize.” CBN is really trying to bring to fore all that we needed to be like others, thus fulfil its legal mandate, which it cited as follows: “In exercise of the powers conferred on the Bank by Section 2 (d) of the Central Bank of Nigeria Act, 2007 and Section 57 (2) of the Banks and Other Financial Institutions Act (BOFIA), Laws of the Federation of Nigeria, 2004 to issue guidelines for the maintenance of adequate and reasonable financial services to the public, the Central Bank of Nigeria.

According to guidelines, Agent Banking is the provision of financial services to customers by a third party (agent) on behalf of a licensed deposit taking financial institution and/or mobile money operator (principal). The principal shall at all times be a licenced deposit taking Financial Institution (FI) and/or Mobile Money Operator (MMO), while an agent is an entity that is engaged by a financial institution to provide specific financial services on its behalf, using the agent’s premises. Other chains of relationship in the model were also defined.

Third Party Service Providers shall mean parties other than the principal and agent who are in contract with either the principal or agent, specifically relating to the existing agent banking relationship. Agent Banking Database shall mean the database of all approved agent banking relationships, locations, agents and principal that exist in the country, while a super-agent is an agent that has been contracted by the principal and thereafter, may sub- contract other agents in a network and retaining overall responsibility for the agency relationship. A sole agent is an agent who does not delegate powers to other agents but assumes agency relationship/responsibility by himself. A sub-agent is a person to whom some or all aspects of the agent banking have been delegated by a Super-Agent. The bank-led model is a general agency arrangement where only a bank may act as a principal in forming agent banking relationships.

The regulatory guidelines noted that receipts shall include all forms of durable and verifiable acknowledgements, including paper, email and SMS, while the real time includes the processing of instructions on an individual basis at the time the instructions are received rather than at some later time. Perhaps, this part of the guideline envisaged the ugly trend that existed with ATM operations, where a cardholder is with the card, while someone (fraudster) is withdrawing from the account somewhere else.

It also stated that any financial institution that wishes to engage in agent banking shall submit an application for approval to the CBN, which shall clearly state the extent of agent banking activities and responsibilities of the relevant parties involved and submitted to the Office of the Director, Banking & Payments System Department, CBN, Abuja.

This is the point where all would expect a measure of civility from the operators of the agent banking. Recently, CBN axed over 200 bureaus de change in the country. The decision, according to industry sources, may have hinged on capital requirement inadequacies, while others were looking at the uncoordinated approach of BDCs’ operations in the country. CBN had earlier said that its latest appraisal of the policy initiative revealed gross abuses of the enhanced official funding of the Class ‘A’ category of the BDCs and the negation of the expected benefits to the economy, while noting also that it had been inundated with complaints from foreign countries that some Nigerian travellers indulge in cross-border transportation of large sums of foreign currencies in cash, which were also associated with BDCs. Will the operators this time play by the rule of the game? It’s sad to say that some people in the country are only thinking about how to scutle any initiative for their selfish gain, while others in the process of the financial inclusion drive, would want to take advantage of the less informed in the society in their areas of operations.

Information and documentary requirements by the CBN for agent banking licence include name of the applicant; postal address/email; business address; engagements, geographical spread and benefits to be derived; qualifying criteria for engaging agents; feasibility study for the agent relationship; board approval; a document that shall outline the strategy of the FI, including current and potential outreach; competence; integrity. Others include Service Level Agreements (SLAs) and agent banking contract risk management, internal control, operational procedures and any other policy and procedures relevant to the management of an agent banking arrangement.

It added that the responsibility for the selection of agents lies solely with the FI, subject to the following allowable agent structures, while licensed institutions are advised to renew all agent agreements biennially except otherwise required and collect updated information yearly.

The CBN shall, at least on an annual basis, monitor FI/agent relationships; compliance with laid down guidelines and regulations. Where the need arises or in response to specific issues, the CBN shall conduct monitoring visits to any agent(s). This may also differ according to agent structure.

“There shall be a comprehensive process/framework for managing risks associated with reliance on third parties. The FI shall ensure the expansion of the scope of the bank’s internal audit function to address the increased complexity and risks inherent in agent banking activities and ensure appropriate staffing of the audit department with personnel possessing the right skills.

“The FI shall take steps to update and modify, where necessary, its existing risk management policies and practices to cover current or planned agent banking services. The FI shall take steps to ensure the integration of agent banking applications with the main banking systems so as to achieve an integrated risk management approach for all banking activities.

“The FI shall train agents to enable them adequately perform operations and provide the services agreed upon, including training relating to the proper identification of customers, customer service, confidentiality of information, record keeping and financial education,” among others, the document said.

The agents are prohibited from performing certain functions, including carrying out a transaction where a receipt or acknowledgement cannot be generated; charge the customer any fee; give any guarantee; offer banking services on its own accord; continue with the agency business when it has a proven criminal record involving fraud, dishonesty, integrity or any other financial impropriety; provide, render or hold itself out to be providing or rendering any banking service, which is not specifically permitted in the contract; and open accounts, grant loans or carry out any appraisal function for purposes of opening an account or granting of a loan or any other facility except as may be permitted by any other written law to which the agent is subject.

Others are to undertake cheque deposit and encashment of cheques; transact in foreign currency; provide cash advances; be run or managed by an FI’s employee or its associate; sub-contract another entity to carry out agent banking on its behalf except where there is a super-agent structure in place; and FI may in the contract document specify other activities, which the agent is prohibited from undertaking.

Generally speaking, this idea seems to be good for the nation’s economy, even as it has been in other climes. However, it cannot be overemphasized to say that the authorities should organize a “plan B” in case of the risks of robbery and hacking/bugging of the process to the detriment of the operators and clients. There should be a strict supervision in order to detect any anomaly on time and nip it in the bud. The issue of negligence and overconfidence on the part of the authorities, as evidenced in the rot that pervaded BDCs operations for a long time, should not be entertained. The truth is that if the initiative would make meaningful economic impact, it has to start with confidence building, seamless operations, cost effective strategy and all-inclusive approach. The core objectives of this initiative must be realized and very well, if the regulators are to count it as part of their feats.

Culled from Guardian Nigeria