How agency banking aids financial inclusion, reduces unemployment in Nigeria

By Nurudeen Akewushola

Olayinka Abbass, 32, who is a father of four, had worked with First Bank, a Nigerian multinational bank, for 10 years as a cashier before he was laid off in 2019. As a form of compensation, he was paid N280,000 and that’s the money he used to launch his first agent banking outlet.

The highest salary he received as a staff of the bank was N83,000 but now as a Point of Sales (POS) agent, he earns estimably N150,000 monthly. Abbass is not only self-employed, he now has three POS centres and is earning more money than he did as a cashier, while at the same time serving his community by bringing bank services to their doorsteps.

Due to the limited number of financial institutions in Nigeria, many localities in the country find it hard to access financial services. In fact, with an estimated 201 million population, the number of bank branches and cash centers including microfinance banks was 7,564 as of 2019, according to a 2019 report of the National Financial Inclusion Strategy. However, Agency Banking, a model which allows banks to contract third-party retail networks, takes financial services to customers in unbanked or underbanked areas through a third party (agent) on behalf of a licensed deposit-taking financial institution and/or mobile money operator.

Agency Banking is one of the retail channels in which several commercial banks use to make their banking services reach a large number of people. In this system, a banking agent establishes a retail outlet in a certain locality and conducts financial transactions such as transfer of funds, withdrawal of funds, sales of recharge cards, and bills payments to the people.

Founded in 2013 as part of the Central Bank of Nigeria (CBN)’s strategy to foster financial inclusion, the system saves people who are in urgent need of performing monetary transactions from traveling far distances to the banks.

Individuals and business owners who live in underdeveloped and developing areas with no banks within their range can perform transactions at their convenience. Small scale business owners and traders can deposit their daily earnings without stress and people who need money for various needs will be glad to go to where they can be quickly served within the shortest period of time.

With such an alarming demand, the number of bank agents skyrocketed over the years and is still growing. According to Nairametric, in 2019, roughly 440 million POS payments were registered across Nigeria and the reason is easily detectable.

Abbass explained that the nearest bank or Automated Teller Machine (ATM) Machine to his location (Mabera) in Sokoto State, is about a 30 minutes journey and most people in the locality prefer banking with him since it saves them time and energy to journey far distances.

“Sometimes when customers go to the bank, they have to join the long queue before they can have access to their money. For people living around here, they have to transport themselves to ATM points which is about 30 minutes journey from here and even when they get there, the ATMs may not dispense, so that’s the problem I have been able to solve so far through this business and people around this location are actually subscribing to it.”

Why POS?

The Nigeria Inter-Bank Settlement System statistics shows that the volume of POS transactions ballooned from 438.6million in 2019 to 655.7 million in 2020 showing 50% increase from 2019.

The total number of bank agents in Nigeria rose from 38, 416 agents in 2018 to 266,039 agents as of 2019 according to Statista, a database company in Nigeria.

The 2019 National Financial Inclusion Strategy report shows that far distance from localities to formal banking institutions, eligibility, low financial literacy, poverty, and high cost of service are the major hindrances to financial inclusion noting that agency banking is a key driver of efforts to increase financial inclusion in Nigeria.

Asked why he prefers using a POS Machine in transacting, Ibrahim Sulyman, a civil servant, who was performing a transaction at Abbass’ POS kiosk explained that it’s readily accessible and saves him the cost of going to ATM points.

“I decide to choose POS because ATM points are kind of far from this place, instead of boarding N200 cab to transport myself to ATMs, I would rather choose POS because it’s very very close to me. Apart from that, I don’t have time, I cannot wait in the long queue at the ATM, they(POS agents) would only charge me just N100 or so and I’m not bothered by that,” he said.

Sulyman further recalled how he was saved from suffering in 2019 when he was in dire need of cash and his ATM card was nowhere to be found.

“ [Gaskia]! Anywhere I’m, I like using POS, even before now, there was a time when I was living in Daji which was farther from the city than here. That time, I lost my ATM card and it was the POS that I was using throughout. Anytime I need money, I would just transfer the money to the guy and he would give me cash in return.”

In Usmanu Danfodiyo University Sokoto, there are four bank branches with ATM points each but their availability doesn’t guarantee accessibility.

Aisha Ibrahim, a student of the school, explained that she uses the POS often when there is a long queue at the ATM points and when the ATMs in the school are out of service.

“There were times I would be in the hostel and I would find it hard to enter school and withdraw, I would just make use of the POS centre at the Muslims Students Society of Nigeria and I would be able to withdraw without stress. Also, you know there are times like the end of the month now when students will be at the ATM points and it usually happens at times when all the ATM points will be out of service at the same time, POS is always my last resort in this kind of situation.”

From Self Employed to Job creators

Soliu Sekoni of Sekoni POS centre graduated from College of Education Ilorin in 2014. He started working for a private school where he was being paid N8,000 monthly as salary. Unsatisfied and in search of a better job, he started driving keke marwa (also known as commercial tricycle) and that was where he gathered the money he used to launch his first POS agent Banking outlet in 2017.

Now, he runs four POS centres where he employs sub-agents to manage and deliver to him at the end of the day.

Opportunity to make additional income is the major motivation for becoming an agent according to Enhancing Financial Innovation and Access (EFINA) 2020 agents survey. Apart from its ease to promote easier and safer access to financial services, agent banking also provides alternate streams of income for micro, small and medium enterprises (MSMEs) while promoting financial literacy and inclusion.

According to World Bank estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, noting that SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development.

The 2017 Nigerian Bureau of Statistics report shows that small and medium scale enterprises (SMEs) in Nigeria have contributed about 48% of the national GDP in the last five years. With a total number of about 17.4 million, they account for about 50% of industrial jobs and nearly 90% of the manufacturing sector.

Apart from the fact that Agency banking is creating employment as a large number of people are becoming bank agents, it’s also one of the small-scale business enterprises creating jobs for thousands of people in the country.

Precious, a student of University of Ilorin and one of the beneficiaries said working as a part-time sub-agent enables her to raise funds for her basic needs during the break.

Agency Banking: Any Glitches?

According to EFInA bank agents survey, shortage of cash is the leading challenge facing the activities of bank agents in Nigeria. The agency notes that six out of 10 agents run out of cash usually weekly since the most patronized agent service is cash withdrawal.

Abbass is not excluded in this predicament though explained that some financial institutions provide soft loans and grants for the agents to thrive in this business.

“One of the major problems is that the business is capital demanding. The more your customers, the more the need for cash. Though some financial institutions usually support agents with soft loans, it has been very helpful. Another way we usually fight this is through connection with other POS agents, we exchange cash for transfer amidst ourselves,” he said.

“The POS Business is very risky, the more you earn the more you are prone to attack and fraud,” says Hassan Abubakar, a graduate of Usmanu Danfodiyo University Sokoto who launched his agent banking business with the stipend he gathered while serving as a corp member. He explained that challenges facing his work are fraud and insecurity in the country saying that bank agents are the interest of robbers and fraudsters. He further appealed to the government to provide more security for the agents, adding that; security challenges facing their operations, online frauds such as fake alerts, stealing of customer’s details, and other online banking frauds are the malpractices that mar the credibility of POS transactions in the country.

Information obtained from NIBSS also shows that no fewer than 8,920 fraud attempts worth N597 million were successfully carried out by fraudsters in the banking industry via various transaction channels as at third quarter of 2019. A breakdown of the channels shows that N40.964 million was lost in 40.988 million fraud attempts through POS; N79.497 million was lost in 80.499 million fraud attempts across the counter; N136.542 million lost via 142.278 million attempted frauds through ATMs and N144.440 million lost in 158.087 million attempted fraud through mobile banking during the period.

In 2019, it was reported that a popular bank agent simply identified as Bimbo was defrauded by a customer who stole someone’s account details to withdraw from her POS outlet. Because of that, her account was banned by the bank and she had to bear the loss by repaying the N160,000 withdrawn from the person’s account using her outlet before the ban on her account was lifted.

As agents lose thousands of naira to fraudsters, a lot of unscrupulous bank agents have also been using the medium as leverage to defraud customers.

One of the ways gathered from the victims’ accounts is that fraudsters use the ATM card details which include the 16 digit number and authorization code to gain access to victims’ accounts and perform a series of transactions without the owner’s consent. The owner of the card will only be seeing persistent debit alerts without knowing the source .

Extending Access to Financial Services Through Agency Banking

The EFInA Access to Financial Services in Nigeria 2020 Survey shows that, while more Nigerian adults are financially included, the National Financial Inclusion Strategy targets were not met.

The agency recommends that financial service providers(FSPs)/stakeholders should consider exploring the agents’ capacity to extend more financial/non-financial services to users especially in rural areas, noting that growth in digital financial services and agent banking drive faster progress toward financial inclusion, particularly for excluded groups such as women, rural areas and northern Nigerians.

“Agency banking does a very good job in extending financial inclusion to underserved areas, local areas and the areas that financial institutions considered risky or the financial institutions do not have the capacity of building better infrastructure—Agency banking expands their reach in that regard,” said Seyi Kolawole, a management consultant at PricewaterhouseCoopers (PWC) Nigeria.

Seyi further explained that insecurity especially in Northern Nigeria is the topmost problem battling the activities of bank agents in the country calling on the government to provide a more enabling environment for agents so that the strategy can thrive in the country.

He further pointed out that lack of trust in agents by the public is another challenge hampering the acceptance of agency banking in Nigeria and noted that there should be more awareness creation for the public and adequate training for the agents to be good ambassadors of their brands.

“Activities of agency banking relies on service providers and you would realize that most of the local areas do not have the adequate service to facilitate agency banking. This can be solved by more investment on the part of the service providers and telecommunication companies and more synergy and understanding between financial institutions and service providers to ensure seamless transactions,” he added.

He explained that Nigeria’s population is massive and there’s still a lot of room for financial inclusion to be expanded, advising the government and relevant stakeholders to invest more in the strategy for better results.

He further advised agents to look for grants and soft loans to boost their business since it’s capital intensive.

“A lot of banks and micro lending institutions are willing to support start-up capital. A lot of these entrepreneurs should not shy away from approaching the bank. There is a push to support the MSME sector on the part of these financial institutions and agency banking entrepreneurs. Requirements have been relaxed to aid this cause.”

Kolawole therefore called for more collaboration between financial institutions and service providers and advised the key stakeholders to identify the areas that are lagging behind and speed it up noting that it will go a long way in enhancing financial inclusion in the country.

“It’s time for actions, it’s essential that we act more and collaborate more and bring the affected parties on the table, also hear from public how the services can be made to be more effective and how the issue with trust can be eradicated, does the public need more sensitization on how the services can be better? How can the government help in promoting this faster and how enabling a business environment can be provided for the agents,” he concluded.