Starting Agency Banking Business in Kenya

Overview

Starting An Agency Banking Business in Kenya i.e. services offered by the banking agency businesses include withdrawals, deposits, account opening, checking among others. Let’s look at what it involves as represented by neighborhood businesses offering services on behalf of banks and in return are paid a commission.

Offering of agency services by banks started in 2010 when the CBK issued the Kenya Guideline on Agent Banking. Whereas banks initially used agency services as a way of ‘branch expansion’ and reaching as many consumers as possible, nowadays agents banking is also about cutting the costs of the banks. Banks want to push consumers away from banking halls which are more expensive to run than the agents. This means that banks want to have customers enjoy a similar if better or more convenient experience than they do in the banking halls. This has made banks invest in training and monitoring of the bank agents.

Equity was the first bank that fully embraced agency banking, and its success made others follow suit. Nowadays, all major banks offer bank agency services or its equivalents like mobile and Internet banking. Although a number of banks have now developed equally efficient models as Equity, it still maintains the lead in terms of number of agents. The most preferred banks for agency business are Equity, Cooperative, Family and KCB. Preference is in terms of the number of customers they have, the demographics of the customers and the support in terms of marketing.

The Banking Agency Process

The exact process of applying and being granted a bank agency will vary from bank to bank. All banks follow a common general template which we detail here. Starting Agency Banking Business needs a thorough understanding of all the requirements in order to successfully start the business.

First, visit the nearest branch of the bank of which you want to become an agent. You will be told of the agency requirements. The information will be provided by customer service representatives or whoever is in charge of the banking agency within the branch. It’s advisable to visit the branch nearest to the location you want to set up.

Secondly, have a look at the requirements and conditions. If you fulfill the basic requirements, get all the required documents. You will need to apply for some of them from respective institutions.

For instance, where a bank requires a certificate of good conduct you will need to apply for it from the CID headquarters. Where a credit report is required, you will need to apply from a Credit Reference Bureau such as Metropol and so forth.

Note: Some bank agency department staff will advise you beforehand if you meet the requirements and there is banking opportunity in your location. For some you have to go through the process to the end. When in doubt ask.

Once you have all the documents and information ready you can now fill the necessary forms as provided by the bank. On filling and returning the forms, a bank agency representative will visit your premises so as to appraise it. Among the factors that they consider are the location of your business, the set-up, how secure it is, the kind of foot traffic you are likely to attract, what other businesses are there in the area, are there ‘enough’ banks agents in the area and such other factors. The agency representative will make a report which will then determine whether you are granted the agency or not. If the review is positive and you fulfill all the required conditions and pay the required fees, you are presented with the necessary material to start the agency services. These will include a POS, books to record transactions, branding materials among others.

This is a general template; particulars could vary. For instance, in some cases bank representatives will approach a business selling the idea of becoming an agent. The ease of the process also tends to vary from bank to bank and branch to branch. In some banks staff are not very helpful and agency representatives not easy to locate as they are mostly in the field. You have to make lots of effort to reach them. While in other the process is easier and friendly. The reality is that whereas banks have laid down procedures and processes they are not always followed to the letter.

Requirements and Commissions

Although specific requirements vary slightly from bank to bank, they are generally the same. This is because the requirements have been developed by the Central Bank of Kenya in conjunction with the banks.

Some banks will be a little flexible and not necessarily follow the requirements to the letter. For planning purposes use the following requirements as a guide.

Generalized Requirements

A strategic business physical location
Copy of National ID
Certificate of Good Conduct (Individuals / Partners)
Two Passport Size Photographs
Copy of PIN
CV of Business Owners
Commercial Activity for Minimum of 18 Months (Previous 2 years business permits)
Valid / Current Business Certificate
Current / Valid Business Permit
6 Months Business Statements of Account - Certified
Credit Reference Bureau
Bankers Cheque for Kshs. 1,000 IFO CBK (Renewable annually)
Agency Application Fee – Kshs.1,000
Minimum working capital of Kshs.100,000
Witnessing by Commissioner of Oath (Necessary forms from application
Permanent Structure
Turnovers for the last 6 months
Personnel dedicated for agent banking
Physical security
Nature of commercial Activity
Completed CBK application forms
For companies and partnerships: Articles and Memorandum of Association, board resolution for partnership and companies and audited financial records for the past 12 months for companies

Note: The above requirements are generalized for all banks that offer agency banking as a business. Check with bank you’re applying to for exact requirements.

Before starting the application process make sure you fulfill the above. The next step involves filling the actual agency banking application forms where you will attach all the above and two passport photos. The bank representative will also visit your premises and fill in appraisal form basically saying what s/he thinks of your outlet and its ability to represent the bank in the area. This will be used by the banks to determine your suitability and grant you the agency or not. If successful you sign a contract which details your obligations and liabilities among other things.

Commissions

As an agent you will be paid commissions based on the value of different transactions. The commissions are as follows:

Cash Deposit Commission Example (Equity Bank)

Deposit Amount	Customer Charges	Agent Commission
100 – 5,000	0	10
5,001 – 10,000	0	15
10,001 – 20,000	0	20
Above 20,000	0	30

Cash Withdrawal Commissions (Co-operative Bank share with agency at 50% of fees)

Amount (Kshs.)	Fees
100 – 5,000	50
5,001 – 10,000	70
10,001 – 20,000	80
20,001 – 30,000	120
40,001 – 50,000	140
50,001 and above	250

Other Services

Service	Fees
Funds transfer to any account	50
School fees payment	card – 50, cach – Free
Bills payment	50 any amount
Balance enquiry	10
Mini statement	20

Observations

In all cases you have to pay a CBK license application fee of Kshs.1,000. This is paid to the Central Bank.
Also, for all the banks you pay Kshs. 5,000 to lease a POS terminal. You renew the lease annually.
The duration between application and approval varies from bank to bank and case to case but will range between a month and three months. In some cases, it can take up to six months.
At the end of the day the banks are looking for trustworthy individuals to run the agencies to protect themselves and their reputations.
They want someone responsible enough to handle cash, keep records and offer great customer service. That’s the purpose of some requirements like Credit Reference Bureau report and certificate of good conduct.
They also want to maximize the revenue of the agents so that the agency remains a worthwhile investment, otherwise if the business is too crowded in one area monthly commissions go down and agents are demoralized.

Factors Affecting Success

Location
Float
Service
Variety of agencies
Bank which you represent (popularity)

Role of Banks in Agency Banking

For the banks the main activities with regards to bank agencies are:

Recruitment
Training
Branding
Liquidity Management
Operations, Support and Monitoring

These processes are run through the bank branches or regional offices. The bank is the first point of contact for those who want to become agents. Almost all banks will have an agency manager, supervisor or equivalent at the branch level.

For some banks a supervisor is in charge of a specific number of agents say 40 - 50 like in the case of Equity Bank. For others operations are run from a regional office. When the banking agency regulations were first developed agents were required to only represent one bank. However, that changed when the CBK allowed agents to represent up to five different networks or mobile money operators. Consequently, once you get the agency of one bank; it’s a validation of sorts and makes getting that of another bank easier. Like we stated banks recruit agents either through their own staff who approach potential agents or through businesses approaching banks and offering to become agents. In the former case a bank could identify a high traffic business say a supermarket or big retail shop and seek to capture its customers. The bank could also observe there are no agents in a certain area and the nearest branch a distance way or overwhelmed and seek to entice business to with the agent business opportunity. In either case you have to meet the requirements as set by the law and the bank.

Once you have started operations the bank will keep monitoring your performance; this in terms of the service you offer, whether you are able to sell services other than withdrawal and deposits, whether you have enough float and any other such factors. Specifics vary from bank to bank, and in some cases, branches will set some specific targets for the agents.

You should also remember it’s possible for your agency contract to be terminated for breach of contract. Such breach of contracts could include poor liquidity that is lack of float, poor customer service or even at times not meeting some goals.

Bank agency business is about maximizing space for those with an already existing business. This is by earning extra income through commissions. An agency business also helps attract foot traffic to your business helping you sell other products. For a new business it’s about having a new source of revenue. An agency business will not succeed if you are in a location with low foot traffic or high foot traffic but of the wrong kind, not made of customers who can transact with the bank you provide agency banking for.

Banking Agents Frustrations

Low float
Low commissions in areas with high competition, low foot traffic, or banks which are not popular
Downtimes that make some services unavailability
Delays in payment of commissions among some banks
Bureaucracy in reconciling among some banks
Poor support among some banks

A Quick Note on Capital

Starting Agency Banking Business at the very minimum for each bank for which you are an agent you require a minimum capital of at least Kshs.125, 000 which can be broken down as follows:

Float – Kshs.100, 000
POS - Kshs.5,000
CBK Agency Application Fee – Kshs.1,000
Other Fees – Certificate of Good Conduct, CRB Report, Commissioner of oaths etc., bank statements etc. – Kshs.10, 000
Miscellaneous including branding – Kshs.10, 000

Note: The assumption made here is that your business is already running and you don’t require any licenses. If you are setting a new business from your present location then you will require to pay for licenses. This means if you want to represent four banks you must have at least Kshs. 450,000.

Warning: This information can change based on guidelines are presented from the Central Bank of Kenya and the commercial banks themselves. Check with the respective bank you want to represent for the full and detailed information on the agency banking service.

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