MicroSave has been advocating that banks need to get into agent-based banking as a high potential business for several years now … as well as warning why most banks are so slow to do so.

Earlier in the year we highlighted the remarkable progress that Equity Bank has made as it rolls out its agency banking, and how more transactions are now performed at agent's than in the bank’s branches. This blog presents data from work done by MicroSave in 2012 to look at how agent banking worked for a bank in India. This bank runs its own agent network, supervised from, and working closely with, the branches as a “distributed banking” system. MicroSave has already calculated the type of savings that a bank might make at the aggregated level, concluding that the annual average cost of saving a customer through the branches (around Rs.400-500 or circa $8) could be slashed to Rs. 65-125 (circa $2). Similarly Kabir Kumar and CGAP concluded that in Latin America, “Transaction costs at agents range roughly from $0.27 to $0.58 per transaction and are 50% the transaction costs at branches and ATMs”

In 2012 we were able to look at this on a detailed, disaggregated basis. Conducting sophisticated activity-based costing we were able to look at the relative costs of conducting different transactions through branches and through business correspondent (BC) agents. As can be seen from the graphs, most but not all costs decreased.

It is important to note in this case that the agents were conducting traditional BC (cash in/out) transactions as well as business facilitator (BF) type transactions (selling to and referring potential loanees as well as fixed depositors (FDs), collecting loans and recovery of loans that had been written-off). Indeed, this combined BC/BF role may well be essential for agents to break even given the extremely low commissions paid to agents in India for cash in/out transactions.


Furthermore, we calculated that the activities that could be undertaken by the BC agents were currently taking 51% of bank branch staff time as shown in the diagram below.


This means that if BC agents are deployed efficiently, a large part of the staff time could be freed up to focus on conducting high value-low volume transactions, as well as marketing to and servicing high net worth individuals. This, of course assumes that there is scope in the market for growth in services to high value customers. In the relatively remote area of rural India where we conducted the analysis, these customers were indeed present and a combination of the efforts of both branch staff and their BC agents yielded spectacular increases in business at both the branches and through the BC agents.


As a result the BC agents were earning an average of Rs.5,716 (circa $100 ) a month - five times the national average for BC agents in India. And the 20% most successful agents were earning more than Rs.10,000 (circa $175) a month.


As highlighted above, three quarters of this revenue comes from two key activities: marketing loans, doing the initial paper work and referring loanees to the branch for final review and authorisation; and marketing/ servicing deposits (in particular fixed deposits).

Yet despite the clear business opportunity to serve the low income market segment, most banks remain reticent and unwilling to commit to agency banking.

  • Is it because banks are still unable to see the business potential or believe that the returns are higher elsewhere?
  • Or is it that banks are fundamentally uncomfortable with a distributed banking model and running an agent network?
  • Or is it that bank’s key management bandwidth is fully occupied with the battle to serve the higher value market and the burgeoning middle classes?
  • Or is it that the lowest quality staff is assigned to financial inclusion and agency banking as it is typically viewed as a corporate responsibility or mandated requirement?

Who knows – but the first banks to wake up and sieze the opportunity have the potential to dominate the urban and rural mass markets … as Equity Bank is demonstrating.

(Authors: Graham A.N. Wright, Puneet Chopra, Nitin Garg, Amit Garg, Shivshankar and Premasis Mukherjee)

  1. Another reason specific to banks with extensive existing branch infrastructure is the time to decrease the cost in the branch infrastructure. Thus deployment of agents does not immediately translate into cost savings as a lot of the branch costs take time to decrease in terms of redeployment of people, canceling or changing real estate rental agreements, changing functionality and more. This then leads to a slower deployment of agent based banking to make sure that the savings are realized.

    • @Gerhard. You are absolutely right of course – but in many cases banks do indeed have the growing branch-based business amongst high(er) net worth individuals … and as we saw in the case highlighted, they were being squeezed out of the branches by the crowds … until agents were used to de-congest them.

  2. Pingback: Great Business for Banks – So Why Are The...

  3. In a meeting I had with a Bank CEO (30-years of banking experience) in Nairobi,he identified the major issue ‘finding the right profile BC’ – he had his own very specific ideas around what that profile must look like because in his words – ‘they must not run out of cash by 9 am’.
    Moving to one of the neighboring countries, I find that some banks do not have the confidence in their Core Banking System to address the different technology forms like E/M-Banking. There might be a shortage in skills in general that is hampering their progress.
    My experience in Enterprise Finance in 4 different African countries was, in each country the lesson to be learned was different – we will experience the same with ‘financial inclusion’. Each country needs to be respected!!

    • Good point Gerhard – but I wonder if there is not a more profound underlying issue, that most banks are pretty much comfortable with their traditional model of low volumes of high value transactions serving a burgeoning middle class … and pretty much uncomfortable with both running a dispersed agent-based system and the prospect of high volumes of low value transactions.

  4. The comfort-zone are there without a doubt. Some realise they need to change but they need the confidence in the their tools, resources and skills to start that journey.

  5. This is a great piece of analysis. At the outset, congratulations Graham & the team. Purely, in my personal opinion and experience, Banks are slow in building agency banking because of “lack of or feeble” intent. It is the question of intention than anything else. Today we have the best possible technology, low cost delivery channel and institutional capability to design and develop appropriate products. Unfortunately, traditional large sized banks lack a sincere intention to offer best possible service to last mile. Reason? Last mile customer is of low value with erratic cash flows which means ultra low revenue and increased risk for large banks . This is a business call and noting wrong in the approach followed by dominant players. This , in fact triggers an interesting debate whether we should have a few large size or many small size banks with local regional flavours and intentions different from traditional big banks – may be cooperatives or MFI banks could be an answer . I believe, ecosystem players should conduct an honest analysis of the situation , it is definitely not a difficult task to find right answers to the question of deceleration in building agency banking.

  6. Thanks Graham for this insightful piece on agency banking. I am the Director for financial inclusion for Fidelity Bank in Ghana and we are the only bank with a licence to do agency banking in the country. We have started with promising results. We are committed to agency banking and we know it has great potential for Ghana and Africa. The points you raise are very useful. Do you know of any other African examples we can learn from?

  7. Another major challenge of Agency banking has to do with the ownership structure of the banks especially the microfinance banks. The owners of the banks are unable to see through that agency banking on the long run will drive turnover in business and an organically growing profitable bank. There is conflict of interest between the passion to grow businesses at the grassroot which is predominantly in the rural areas than clustering in urban areas.
    Privately owned or individually owned banks especially microfinance banks are concerned with high profitability on the short run hence they prefer higher end of the microfinancing banking which is the medium scale enterprises and neglect the micro enterprises which form a larger population at the grassroot level.
    The cost of having an ideal IT technology necessary for driving agency banking is very high for microfinance banking institution -the main engine for grassroot financial inclusion. Cloud computing should be the solution to give reach and coverage to support agency banking as this will reduce the cost of engaging the ideal IT infrastructure as compared to individual navigation and negotiation by banks.
    If banks will embrace agency banking there will be remarkable positive change in the economy of nations and a drastic reduction in poverty level as a drastic drop in unemployment.
    The regulators of banks must create friendly and encouraging agency banking policies to attract voluntary participation of banks especially the microfinance banks.

    Thank you

    Bimpe (Bowen Microfinance Bank,Lagos)


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