Perceived Effect of Agency Banking Model on Performance of Commercial Banks: A Case of Equity Bank Limited, Kenya

Abstract

Agency banking is delivery of financial services outside convectional bank branches; through non-bank retail outlets, that rely on such technology as point of sale devices or mobile phones for real time transaction process. Having been implemented with varying degrees of success by a number of developing countries, particularly in Latin and Brazil, it has also been employed by fmancial institutions in Kenya to provide 'real-rime' service to existing customers so as to enhance profitability through increased customer base and efficiency in service providence. However some of the banking institutions which have employed this concept continue to witness long queues in the banking halls, high level of dormancy of accounts while the bank's services have been brought right at the customers' door step. It is yet to be known the level the impact of agency banking on the bank's performance. The purpose of this study was therefore to determine the effect of agency banking model on performance of commercial banks in Western region. Specifically the study sought to: Establish the level of agency banking by Equity bank in Western Kenya branches; determine the relationship between agency banking cost and profitability of Equity Bank Limited; determine the relationship between agency banking risk and the customer base of Equity Bank Limited and determine the relationship between agency banking policy on the bank and its performance. The study was anchored on conceptualized framework. A descriptive survey design guided the study. A Census survey was employed. The study used both primary and secondary data. Validity and reliability of these instruments was checked using expert review and Cronbach's Alpha respectively (alpha =0.789). Data was analyzed using regression analysis. The study revealed that: the level of agency banking by equity bank agents was established at 74.07%; agency banking cost revealed a positive significant association on the profitability of Equity Bank Limited (b=0.710, r=0.183, t=6.72, p<0.05); the level of risk involved in agency banking had negative and significant effect on the customer base of the . bank(b=-0.407,r=-0.267,t-0.950, p<0.05) and the relationship between agency banking policy and bank performance indicated a moderate positive association(b=0.490,r=0.660,t=1.060, p<0.05). It is imperative for the bank branches to participate in the agent recruitment process so that the banks can leverage existing relationships that branches have established. There is need for the banks to train their agents in making correct transactions and enforcement of anti-money laundering standards. The agents should secure operating systems capable of carrying out real time transactions, generating an audit trail, and protecting data confidentiality and integrity to mitigate on the agency banking risks. The study is expected to be of help to commercial bank policy makers in identifying the key challenges involved in agent banking operations and coming up with strategies that will improve performance.