Literature Review on Agent Banking System

“The Affect of Agent banking on the Performance of money deposit at banks in Nigeria” by Nkiru patricia & Daniel (2014) found that Agent banking is such kind of tools that brings the remote people in the umbrella of banking facilities which consequence performance of the banking industry should be optimal. As a result if the agent banking system is adopted by the Nigeria, the profitability of bank would be confirmed and the growth of the economy will be increased. So undoubtly it can be said that by adopting the agent banking system, the banks situated in the Nigerian country’s development would be confirmed by ensuring profitability. A late study on “The revolution financial sector of Bangladesh, Agent Banking” – Razib Siddiquie” discovered that the blessing of agent banking system brought success in Latin America and Africa as well as the developed country named UK, Australia etc are also periodically developing for the reason of adopting agent banking system. Because by adopting this system the cost of operating and establishing an agent to the remote area where branching activities do not reached. So establishing agent instead of Brach reduces more cost for a bank where an agent also gives similar service to the customer. So operating cost would be less and banks profit is also increased where it also invest more the rest of the money.

The process of agent banking system is simple. According to Bangladesh bank guideline, software that makes the agent connected to the core server of bank. Any activities are done by the agent who directly transfers to the core server of that particular bank. Customer can also use that transaction statement to anywhere for his or her own purpose.

“Prospect of Agent Banking in Bangladesh”- Mirza Sami (2016) has mentioned that the practice of agent banking service is not common in Bangladesh where since December 9, 2013, after publishing the guideline of Bangladesh bank on agent banking; some of the bank adopts this system for the reason of its benefits. The main objective of the agent banking is to gather the rural people into the banking facilities where Branch cannot reach. This new techniques create a win-win situation in the banking industry where in one side banking industry introduce a cost effective service on the other hand with low cost and easily customer can get banking service at any cost to any place around the country. Besides each level of people of the Bangladesh get financial services that not only develop the standard of living of Bangladesh but also boast up the wheel of the economy of Bangladesh.

Recent report on “Customer satisfaction influenced by the Agent Banking System-Masila Christopher (2015)” showed that the emergence of agent banking system customer are more satisfied with the service where after statistically calculation the score of mean is 2. 0. It means that they are more satisfied with the agent banking service. Besides they also disclose that they can get maximum branching service from the agent and do not need to face any hurdle during the time of taking bank service. They also disclosed that the authorized person who are appointed in the agent bank are highly qualified person and people can get their desired service at any time whenever they go to the agent.

“How The Economics Changes with small account by Agent Banking - Clara Veniard (November 2010)” - Financial service provider spend more to those account which account’s amount is low and do not frequently make transaction with that particular account that arise more cost or expenditure to provide the service or maintaining those account. But with the emergence of the agent banking system, remote people can also access their accounts for the purpose of doing transaction or receive and making transfer of their fund by their accounts. But when the new transaction model named agent banking system emerged, they can get easily saving service, with lots of variety level of financial offers by ensuring the less fixed cost and encourage the people to get this service which consequences bank can ensure more revenue.

Branchless baking using for poor people: Risks, reward and regulation – Timothy R. Lyman (October, 2006) - feel that instead of using branches and its field officers, branchless banking is far better to get maximum financial service which is provided by branch with cheaper and lower cost. Branchless Banking is better convenient and efficient to provide financial service to those people who cannot live in the region of the branch. Baking and payment service is made through fertilizer retailers, gas stations, grocery stores etc. So now people can made their transaction through safer channel. Doing transaction through informal channel arise some risk and loss of fund from the people. But with the inventing of the legal and formal channel people can make payment, transfer and deposit their fund easily which is safer than other informal channel. Besides they get protection against the loss of fund from informal alternatives and easily access to the formal channel.

Agent banking, The Competitive Strategy for Commercial Bank-Nefa Chiteli (2013), discover that agent banking is one of the greatest tool of competitive strategy for a bank. Because by initiating the agent banking as system as open banking system that make continuous interaction between customer and bank with the region where they operate their operations. In this modern era every organization tries to adopt something as competitive advantages within the dynamic changes of the technology. By adopting the agent banking system, bank try to spread its operations and try to get access to more people with its service. Nowadays some of the bank uses it as competitive advantage of their banks within some challenges and prospects.

Threats of Agent Banking-Fred Gichana (2015) exposed that agent banking spreads banking service wings around the country. The level of spreading is increasing day by day. But it is urgent to renovate the technological infrastructure strong with a view to expanding the financial service. Besides it is urgent to make strong the financial literacy among people and authorized person to continue the service and that makes the entrepreneur encouraged to do the business. It is necessary to make all the people financially capable otherwise the pace of agent banking service will be slow down and development cannot be ensured properly. Individual enterprise should be developed in the field of technology so that they can make the adaptation with the new changes and sustain in the dynamic changes of the technology for continuing the agent banking service.

“Exploration of Corporate Strategy, Johnson G & Scholes (1999)” denotes that in this modern era, organization always try to find a way to develop or innovate their competences with a view to sustaining in the market by ignoring old one. So organization tries to modify its competences due to some internal & External Factors. Because organization cannot avoid the pace of the industry and need to adopt the current situation and operate their activities in line with the situation otherwise it cannot sustain in the industry. In consequence, organization needs to formulize its competitive advantage and enhance it capabilities that make difference from its competitors. The environment of Kenyan business changes due to the changes among related sector like increased privatization, higher customer demand, intense competition etc where bank try to adopt new policy to sustain in the industry. Agent banking is the one of the policy to sustain among the competition to ensure maximum service.

“Linking Strategic Practices and Organizational Performance to Porters Generic Strategies by Allen (2006)” discover that whenever firm or any organization tries to construct its cost leadership strategy, it may concern about its market and product design more efficiently with a view to attempting to reduce the cost of providing service from manufacturing to final offerings. If organization does not maintain low cost by any process they try to bring tools of operations from other organization that helps to maintain low cost. If organization makes the cost level low, it helps to offer the service with low cost than other competitors that helps to creates competitive advantage for that particular organization which helps to make increasing growth of market shares. If organization consistently make stable its service price low, then increase of market share will be consistent as well as profitability can be confirmed for a long time. So it can be said that authorized person try to make always low price by continuously following up the efficiency of the cost structure and the follow up or maintain low cost is the first job for any organization. New entrants or new business cannot make cost effective strategy because they cannot maintain vast production, distribution or cannot achieve the economies scale.

According to “Agency Banking Creates financial inclusion in Kenya Nirobi by Wainaina G. (2011)”- reports shows that agent banking establish a strong geographic coverage in that particular area where financial inclusion can be confirmed in the rural area of the country. In previous rural people need to travel long distance to take financial service from bank’s branch which will not inconvenient to them as well as transportation cost and hurdle faced by them. But after inventing agent banking system in Kenya, the rate of financial inclusion will increase more and more where the percentage of unbanked people getting low day by day. They can get similar services from agent point where branch also can serve it. In consequences the growth of the economy will be confirmed where in previous they are followed to some informal channel for making transaction which is not only a greater risk but also generate more cost to them. But agent banking service provides them a bulk of services where people can get their desired banking service from the remote area. For the emergence of agent banking, rural area of Kenya nowadays develops day by day. People can operate their business properly which consequence new businesses were established and employment for the rural people could be confirmed and their standard of living was going to be better. Eventually the economic growth was optimistic day by day with ensuring other sector development.

“Agent Banking In Latin America by Celina L (2012)” this report shows that dynamically changes of a country’s economy with the blessing of agent banking system by ensuring financial inclusion. According National banking & securities commission of Mexico, Published by Alliance for financial inclusion, and the changes of banking industry was significant within the last 4 years in the Latin America. A report on the trend of Brazil, Colombia and Peru showed that agent banking system had been implanted with a low pace during the starting two year. But whenever in Mexico, the country adopts the agent banking system after one year, means in the second year, there has been rapid growth of agent banking and its accounts rather than Columbia and Pure agent banking growth. The govt. of Mexico allows different kinds of financial institutions for the purpose of operating agent banking service where through those type of institution a lots of savings account have been opened. In consequence, the financial inclusion will be emerging on the face of the economy of Mexico. So this way Mexico city emergence as a successful country as a leader of agent banking in the Latin America.

“Agency Banking Go through into hurdles by Kinyanjui K (2011)” showed that Kenyan financial organization went through a aggressive entry into the agent banking service which consequence a great advantage taken from the agent banking system which gives cost savings service and financial inclusion for the customer. But recent studies showed that in the agent banking service agent has lack of capacity to manage huge level of transaction with proper security. Because day by day the wing of agent banking is spreaded. But Agents are unable to mange this due to some challenges. Challenges are due to the rise of cash transaction in agent outlet, the agent sometimes is not capable to handle the huge cash transaction with proper sercurity.

MCKAY and Pickens (2011) exposed that though the branchless service growing fast, but the attraction of criminals to agent is increasing day by day. In brazil, an interview is organization on 93 agent which report shows that in Brazil agents were being harassed and feared due to robbed where they confess that they had been robbed so many time, at least one time during the last three years. The amount of loss is big. According to statistics showed that agent were losing US $500 on an average over the last three years. This message is the burden and alarming for the country where likewise agent banking is very much prosperous tool to develop a country economy but it this scenario will continue, the agent or entrepreneurs will be discourage to do the agent banking service as an agent.

“Branchless Banking, Who assumes the risk by Tarazi M (2010)”stated that loss occur from the threat of agent banking cannot be measure in number and agent behavior cab not easily monitored which consequence an unpredictable risk was occur and service providers are not able to lessen the level of risk. The level of damage could be high enough in future day by day. Some of the economist and researcher suggested that the principle institution which is directly liable for monitoring and managing the agents, should be liable for any damages in the operation of agent banking and have the rights to take any action against those particular agent. But these types of initiatives will be productive when the size of the agent will be large in terms of capitalization. But the agent which provides service to the poor people by opening a small shop or office, the behavior of that agent individually cannot be monitored as well as the type of agents are much low who pay back the amount against any damages occur. If the threat of agent banking was continuing like this due to some lack of technological platform the customer confidence day by day would decrease. So institution should monitor all the time to maintain security, safety and efficiency of those tools that utilize for preventing the agent banking system from threats. For any business trust is an important issue as like for agent banking. Proper Customer protection, threat of loss, and fraudulent activities should be maintained by strong business model so that the agent banking system will be run smoothly and achieve its goal properly.

“Agency Theory when some agent is trustworthy, Accounting and finance working paper by walker M (2003)”, this report states the relationship between the agency and the principle authorize person. Agency relationship occurs when one or more principle maintains a relationship with a particular agent as individual or organization so that the agent can maintain interest on behalf of the principle. An agent and a principle meet a common agreement for the purpose of acquire mutual benefit. In the case of agency relationship, principle delegate some responsibility and authorities to the agent with a view to achieving some goals. By delegating some duties and responsibilities establishes some trust on agent for the purpose of executing all the activities for the purpose of achieving goals. Delegation of the responsibilities creates productivity and efficiency among the agents in the workplace. So overall there is a solid trustworthiness produces where principle assign the duties and responsibilities where agent work for the interest of the principle with achieving some benefit. Besides principle has the right to sack or remove the agent from its operation for the reason of the interest.

Utilization Agency banking performance on selected Nirobi Banks by Musau S (2013) described that lacking of cash at the cash point was now burden problem in the economy according to the country situation. It express that customer felt worried whenever they go to the cash point to cash in or out especially during the time of cash out. Agent do not have sufficient fund to meet the customer demand. That alarming issue make customer worried and lost the customer loyalty and trust. Besides, this alarming message has been shared aggressively worldwide by word of month. As a result customer confidence in agent banking will be grown down respectively. It has been seen that liquidity crisis in agent point tolerable for low income client but in occasion the scenario will be dangerous if the agent point is facing liquidity crisis in that particular time. In this report author denotes about the contribution of agent banking among performance and non performance bank. With the practice of agent banking, both performing and no- performing banks creates financial inclusion in the economy which escalate the growth of the economy.

“Principle and Agent Relationship by Schuler D (2002)” stated that an agent always follow the principal instruction. Agent does not act in such a way that is against the principal interest. The agent should execute his or her duties with lots of diligence care and with proper skill. More importantly, an agent must be loyal to the principal. Besides, agent should be clear his place in such a way that he or she accomplish the duties and responsibilities without occurring any conflict in terms of interest of them. Moreover, agent must inform continuously in clear cut information with all the fact that has an effect in the relationship of agent-principle relationship. Besides principle also look forward to the interest of the agent so that no conflict cannot be occurred like as providing frequent financial and non financial incentives periodically. On the other hand principal also think about the agency cost benefit matter before going to the agency principal relationship. There are many related cost will be considered here like monitoring cost is the first issue. If the cost of monitoring will be more than natural it will be ridiculous to make a relationship with that agent. Economist suggested that for calculating monitoring cost principal do not look into the cost of bearing the agency rather how much effort is given to the agent for the reason of the controlling. The cost also defined in another way which is the agency loss which occurs due to the conflict between agent and principle of their interest. The agency loss also create operating cost for the principal which ultimately increase the overall cost for the of the company.

“Branchless Banking in South Africa by Bold. C (2011)” the report is conducted in Brazil and the outcome is that some countries were facing problem due to some restriction on the location settings of the agent. Which consequence the regulation of location settings become large obstacles for agent banking operations. Brazilian government instructed to all financial institution to maintain the agent banking point in to the municipal area. On the other hand, the author found that in India, there is a regulation for establishing the agent point in a certain location which is within 15 kilometers around the base branch in the rural area and 5 kilometers in urban area. These types of regulation create big problem because the financial intuitions did not find the appropriate place for the establishment of agent point. Location restriction creates more problems in the case of spreading the agent banking wings. As a result this policy hinders the financial inclusion growth in India.

“Regulating the Banking Agents by Tarazi M & Breloff. P (2011)” stated that regulators impose some regulation as for proper & fit which is requirement to become agents. This regulation is required to verify the agent’s reputations, no criminal records and no cases of financial insolvency in any case. But fit and proper regugulation arise some problem. According to the study it can be found that to maintain all the regulation and compliance, that case make impose a significant cost for the reason of gathering all the document according to the guidelines. . As a result central bank regulation hamper the agent banking growth and spread of the market become slow down which ultimately negatively impact not only on the commercial banks but also on the economy? So it will be suggested that the regulation should be formulize in such a ways so that operation of agent banking will be smooth. There is no chance of increasing operating cost which ultimate affect on the service charge that also increased. Besides location restriction should be set in such a way so that remote customer get touch with the agent banking service as well as financial institution do not face any hurdle of establishing the agent point. Besides other regulation should be formal and clear cut to all so that agent should be set properly. Because an unprofessional agent creates some direct risk which occurred more losses. So central bank not only set rule & regulations to agents but also instructs principal about how to manage the agent, which way a principal set the guidelines of operating and what are the control mechanism and which way agent should be encouraged by some financial and non financial issue that will be checked first of all and eventually what will be the agreement between principal and agent that should be specified and clear.

“Factor influencing the adoption of Agency banking by commercial banks in Kenya by Wambugu J. K. 2011” this study indicated some factors that helps to spread out the operation of agent banking service like more customer coverage, huge source of revenue, low fixed cost of service, diversification of market, remove customer from the crowded banking service. So this kind of major factors stipulate banking industry to adopt agent banking service. Agent banking system makes the banks capacity more which helps to increase revenue and limit the cost of service. “Financial Inclusion in developing countries by Kendall et al (2010)” report stated that. 9 accounts for per adult in developing countries and 28% banked are adults. They mentioned that increasing of financial inclusion is a important policy which make access to financial products that makes difference in the real life of the people. In 2008 report prepared by the European Commission manuscript defines that financial inclusion lead to people to access in the financial market, use financial service at their need for the purpose of leading a normal social life.

“Efficient Banking sector accelerate the growth of the economies by koivu (2002)” stated that to ensure the economic growth, a good banking environment is more significant works as a pillar. The essence of suitable way of entering or accessing financial resources apart from conventional system or norms has seen in the modernization with more expansion in the banking industry. Agent banking brings that benefit which helps to accelerate the financial growth of the economy where deprived people can now capable to access financial resources which make develop their social and financial life.

Nowadays rural people can transfer money not only form one place to another place around the country rather they can shift the money form one country to another country as a foreign remittance. That helps to create business more and more within that particular area of rural people that ensure employment growth to the country.