> Posted by Jeffrey Riecke, Communications Assistant, CFI

Opening a new bank branch is expensive. It requires a substantive up-front investment, and to stay open, the institution has to maintain an ample volume of business. This poses a challenge when trying to reach the financially excluded – many of whom live in relatively remote rural areas, and many of whom don’t have financial needs that draw a high volume of banking transactions. Mobile money is one way to mitigate this cost of bricks and mortar. But it is not the only way.

In pursuing financial inclusion, more and more countries are turning to the post office to offer on-the-spot financial services. Using this preexisting network, financial institutions are teaming up with postal services, outfitting the post offices so that they can conduct financial transactions, and training postal employees. Post office banking is only one variation of agent banking, which is increasingly practiced around the world, turning supermarkets, convenience stores, pharmaceutical retailers, and even lottery outlets into banking outlets.

It was just announced that Airtel – the second largest mobile phone provider in Madagascar – is expanding mobile money services to 170 post offices throughout Madagascar. Previously, clients’ deposits, withdrawals, and payments could only be made at Airtel and Bank of Africa locations. Only five percent of people in Madagascar have formal bank accounts.

Across the Indian Ocean, as part of its first financial inclusion plan, Borneo is also set to harness the power of its post offices. Reasons cited for using post offices instead of bank branches were security and cost. About 87 percent of Borneo’s population live in rural areas, and only 280,000 out of its five million people use formal financial services.

Nigeria’s national financial inclusion strategy involves a roll-out of agent banking. The central bank released draft regulations for this financial services area a few weeks ago. In 2010, the average distance for a Nigerian to a bank was more than 10 kilometers. In addition to extending financial services to those without access, agent banking would help financial institutions regain customers that they might have lost over the year through the closings of unprofitable bank branches. Nigeria’s financial inclusion strategy, released late last year, seeks to reach 80 percent of the population by 2020.

In executing these post office and agent banking schemes there are unique challenges and risks associated with third-party, off-site agents conducting transactions on behalf of banks and other providers. Among them are client protection elements related to quality of treatment, problem resolution, and data privacy, among others.

Image credit: Carpkazu / Wikipedia

Have you read?

35 Central Banks Commit to Financial Inclusion

10 Things CGAP Got Right or Wrong About Financial Inclusion

India’s Branchless Banking: Hype, Hopes, and Promise