How to get a historic bilateral deal to share agent banking infrastructure

By Kimathi Githachuri, Scale2Save Local Technical Specialist

On a warm quiet morning in Uganda last October, FINCA kicked-off retail cash-in and cash-out transactions through agents of its traditional rival, Centenary Bank. It was a low-key event, muffled by COVID-19 restrictions, that did not reflect the extraordinary nature of the occasion. For the first time in the history of African banking, two erstwhile competitors were, on their own accord – without regulatory prodding – choosing to share service-distribution infrastructure, for the benefit of end-user low-income customers, in a bilateral arrangement.

Enticing two competing financial institutions to work together is not an easy task. Particularly if the proposal is about convincing rivals, who operate in the same geographic environment, to share infrastructure in a way that might advance the interests of one of them.

It is therefore no wonder that eyebrows were raised when, just a couple of months to the onset of the pandemic, the WSBI Scale2Save programme made the proposition to FINCA Uganda and Centenary Bank to consider sharing agency banking infrastructure.  Smarting from the rejection of a similar proposition made to two of its partners in one of other five focus countries, the Scale2Save team was better armed to respond to the anticipated preliminary objections.

Who are the partners?

Centenary Bank, on the other hand, is the country’s leading commercial microfinance bank, serving more than 1.8 million consumers.. It built its reputation earlier on in rural development banking and servicing the Catholic Church, which is its single largest shareholder. The bank has evolved and now attends to the needs of a wider range of retail and corporate customers through an expanded product portfolio. Centenary was amongst the first banks in the country to roll out agent banking operations, and currently boasts the largest network of agents of any bank in Uganda.

Centenary Rural Development Bank Ltd, as the Bank is officially known, is a founding member of the Agency Banking Company (ABC), a multi-laterally shared agency banking implementation managed under the Uganda Bankers Association (UBA), the umbrella lobby for financial institutions in Uganda. It contributes more than 50% of its existing 5,000 strong agency banking network under the ABC arrangement – thus already enabling multiple financial institutions access to its own successful channel. Due to the restrictions already mentioned above, FINCA is not allowed to participate in this effort.

What is in it for the Partners?

An agency banking operation would provide FINCA the opportunity to compete with other FSPs on equal footing for new customers and extend service distribution to existing customers.

Under the Scale2Save programme, access to the agency banking channel provided by Centenary affords FINCA the opportunity to expand its digital banking footprint, effectively completing the customer journey puzzle; where customers are on-boarded using its mobile banking channel and access to, and deposit of, funds using an agency banking network that is already ubiquitous and fully operational.

The motivation for Centenary Bank to offer its investment – which conservatively costs anything from a million US dollars to roll out – to be unreservedly accessed by a third-party institution and its customers is that it gets to optimise the capacity of its agents, which offers improved returns for the agents, as well as some marginal revenue increment to the bank.

Under the Scale2Save programme, Centenary can also test, re-design and recast its technology and operational capability to support other micro-finance deposit taking institutions (MDIs) like FINCA, using its proprietary agency banking channel. This is an arrangement that the ABC is currently not able to facilitate.

 What were the Enablers?

Organisational Chemistry: During the negotiations of the Centenary-FINCA deal, we were lucky that both organisations’ CEOs had great camaraderie, which had a reverberating effect on the rest of the rank and file in the two institutions, leading to great working chemistry. Outstanding issues that would ordinarily get in the way of the preliminary and technical engagements were quickly resolved.

Product and Technology Design: Discussions included technical design elements and commercial components touching on pricing and market engagement. Eventually, a decision was made to limit provision of FINCA services to cash in and cash out payments only. Both parties considered third-party customer on-boarding at the agent a touchy issue – both from a competitor as well as regulatory perspective – and was therefore excluded as part of the initial offering.

Regulatory Support: Against the expectations, Bank of Uganda was refreshingly supportive of the agreement, and advanced specific advisory that would balance the aspirations of the partners, while ensuring that the provisions of the law and regulations were adhered to. Finally, the central bank gave its approval.

The Net Effect

Six months into the launch of the service, transactions through-put have an over 95% success rate – considered high for such a novel deployment. More than USD7million worth of transactions have been made by FINCA customers in at least 1,500 Centenary Bank agents spread across the country. Up to 80% of these transactions have been deposit transactions, underscoring the critical role distribution plays in mobilising deposits and catalysing savings. Besides improved access in remote locations, FINCA customers can maintain a healthy credit score while meeting their credit repayment obligations.

In addition, Centenary Bank agents are happy to benefit from additional transactions, which could eventually encourage further investments in the agency banking channel. Centenary Bank also gets the benefit of a proven test case on supporting MFIs/MDIs and other unregulated entities in mobilising deposits and customer support for their financial services.