While banking services of one bank is already available at all community centres, a step further has been taken. The Central Bank recently approved agent banking which allows financial institutions to offer their services outside the traditional bank premises.
In our case, the government’s postal service, private courier services, agents of telecom operators, registered retail merchants, insurance companies or agents, and pharmacies, among others would be eligible to become a bank’s agent.
These agents would be allowed to accept cash deposits and withdrawals, process loan applications, and accept cash for government and utility services, among others.
In effect, this significantly expands the availability of banking services. A general store in a remote community could provide banking services. A retired civil servant returning to the village could perhaps become an agent.
More people, specifically those in the more remote communities where the banks are not present, will have access to financial services. The cost of banking becomes cheaper both for customers and for the banks.
This will lead to the economy expanding. More people will be saving. Easier access to loans will encourage more entrepreneurs to set up businesses or expand existing ones.
In all, the implications are positive.
However, there are some risks associated with agent banking. One is security. The banks have security systems in place including armed guards. Some of the agents will probably have to deal with large sums of cash. What kinds of security arrangements they adopt will probably require examination, monitoring, and scrutiny by the banks.
In relation, there are also operational risks such as fraud being committed by an agent, or data not being backed up, or hackers breaking into the database of an agent. There is also a liquidity risk associated with agents. This occurs when an agent does not have enough cash if a large withdrawal is required.
Therefore, it is critically important that the banks closely monitor that all guidelines are being strictly followed. In turn, the Central Bank must also closely monitor the banks and ensure that in the end, the customers are not the ones who pay the price for any lapses in the system.