> 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
Facebook
Twitter
2 comments
Comments feed for this article
February 21, 2013 at 7:39 am
Graham A.N. Wright
The role of the post office in branchless banking remains an open question. They offer both “branches” (in most cases, better staffed and more locally accessible) and “banking”. The cash-in/cash-out problem that bedevils all branchless banking efforts in rural areas is only partially solved with local shopkeepers and other bank-authorised agents.
Given a choice, those currently without bank accounts, or with inconvenient dormant accounts, might open and more actively use postal accounts if the post office were close by and able to offer full banking services. These services would have to include credit, unavailable for example in India, and more timely cash management in any region that depends on internal or external remittances, plus of course guaranteed deposits.
The post office may inspire more trust than most mobile operators, technology providers, or vendor of soft drinks and snacks, but the safekeeping of money requires a level of security and confidence that most depositors only accord to banks.
For more see : http://microsave.org/sites/files/technicalBriefs/briefingNotes/BN_98_Should_We_Bank_on_Phones_or_the_Post.pdf
February 21, 2013 at 10:35 am
John Gitau
Thanks Jeff for your information. I think the appreciation of Post Office system as a financial inclusion vehicle will depend on each country’s level of development. In Kenya, Post Office has long being associated with letters. This is a dying mode of communication. Adding Bank after post office doesn’t help in seeing them as banking units(now Kenya Post Office Saving Bank). Again, in our context, post offices were government run and became infamous for their inefficiency.
I suppose in Kenya Mpesa agents and local shops are our best bets on branchless banking and I agree with Graham’s thinking. In rural Kenya, almost every village has an Mpesa agent as a money centre. I still don’t see the reason why Mpesa agents shouldn’t be empowered as the last frontier of financial inclusion. An Mpesa agent is independent as far as working capital is concerned and the business premises they are located can run other financial services(just like they sell airtime, Mpesa, telephone lines and all other Safaricom products.). With M-swari now, saving and credit services are available and open to all Safaricom customers. Outstanding is Insurance, investment, pension and I can see Safaricom partnering in the near future with an Insurance company, pension provider and a dynamic investment advisor. With such a functionally loaded Safaricom agent, why would any villager need a bank?
Graham, correct me if I am wrong, that the ubiquity of cash availability systems has reduced insecurity fears. I remember when ATMs appeared, people used to fear using them lest criminals will be lurking about to rob them. That fear has gone and queues are common at ATMs. Same with Mpesa. Robberies were more common initially but as more Mpesa agents mushroomed, fear faded. Even in the most hostile neighborhoods, it is common to see several Mpesa agents going on with their money business without fear of robbery( it happens less often than expected in such open cash handling setups). I guess each agent devises own security mechanism. Therefore, a villager will not walks many miles to access a Post Office Bank just because they want to have their money secure in a brick and mortar edifice. A phone is good enough these days, in fact gives a better security feeling since even if the phone is stolen, money is secure. Indeed, security is a mind stuff.