Players in the microfinance industry are looking forward to the establishment of branchless
banking so that they can reach more people countrywide without the cost of erecting brick
and mortar outlets.
The planned changes to the legislation governing the setting up of financial institution
branches, which will allow for the establishment of branchless banking or agency banking, is
expected to provide microfinance institutions with a leverage to extend their reach at
minimal cost.

“The establishment of branchless banking will allow us to reach more people, especially in
the rural areas where the majority are unbanked,” says Lydiah Koros, the chairperson of the
Association of Microfinance Institutions (AMFI).

Ms Koros says agency banking will transform the industry by offering financial services
through easy -and simple- to -use devices such as point of sale (PoS) terminals and at the
customers doorsteps . Current rules on the establishment of branches for commercial banks
and MFIs require brick and mortar, steel and glass structures before services can be
rendered.

This pushes up the costs of operation as financial institutions are forced to put up
structures in order to roll out services. “The new regulation on agency banking will boost
MFIs as we don’t have the wherewithal resources to put up branches across the country to
match our rapid customer growth base”, says Ms Koros who is also the Chief Executive Officer
of Faulu Microfinance. This development comes as Kenya prepares to host the Africa-Middle
East Micro-credit Summit in April.

The meeting, which will be attended by over 2,000 delegates from over 40 countries from
Africa and the Middle East, is expected to show case Kenya’s best practice and innovation in
offering of microfinance services to the poor.

It’s the first to be held in Africa and has received sponsorship of Sh9 million from Craft
Silicon, a local leading software solutions vendor.

Muhammad Yunus, who is credited with with the introduction of microfinance services through
Grameen Bank in Bangladesh will be among the summit attendants. Kenya’s MFIs successes have
been highlighted across the world, with many countries adopting the model to enhance
financial penetration.

The Central Bank of Kenya (CBK) is in the process of reviewing the Banking and Microfinance
Acts to allow for the formation of banking agency where non-banking players will be allowed
to offer financial services on behalf of both commercial banks and MFIs.

Saccos, retail chains such as Nakumatt, Uchumi and Tuskys, petrol stations and grocery shops
can be agencies. The main target for MFIs is the bottom of the pyramid members, making their
reach critical in enhancing banking and financial services.

However, some quarters such as the co-operative movement has opposed the introduction of
agency indicating that it would interfere with their business. Despite the call not to
implement the changes, CBK has indicated its desire to introduce the service to enhance
banking penetration.

This change is expected to enhance the operation of MFIs following the introduction of new
regulation allowing MFIs to become deposit taking institutions. There are 45 registered
MFIs of which two of them Faulu Kenya and Kenya Women Finance Trust as the only deposit
taking microfinance.

CULLED FROM BUSINESS DAILY, NAIROBI, KENYA.

 

 

 

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