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Central Bank Reveals Agency Banking Regulations

Justine Bagyenda, Executive Director Supervision BoU, gave the attached key note address at the Agent Banking Conference organized by Stanbic Bank Uganda yesterday at Kampala Serena Hotel.
Justine Bagyenda, Executive Director Supervision BoU, speaking at the Agent Banking Conference organized by Stanbic Bank Uganda at Kampala Serena Hotel.

As Uganda prepares to welcome Agency Banking, — an effective branchless form of banking, — Bank of Uganda has revealed that regulations drafted recently to guide the sector are almost ready to come into force.

Agency banking (also known as agent banking) is a form of banking that enables licensed financial institutions to extend services to customers through third parties, usually retail outlets and other businesses.

It allows banks to use fellow banks, shops, kiosks and field agents to open accounts, receive deposits, effect withdrawals and carry out other transactions with a purpose of deepening financial inclusion.

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The model together with other new forms, i.e Islamic Banking and Bank Assurance are provided for under The Financial Institutions (Amendment) Act as emended in 2016.

Bank of Uganda’s Executive Director Supervision Justine Bagyenda revealed yesterday that the Regulations for Agency Banking are now ready to be gazetted.

These were drafted last year by the central bank, in consultation with the Uganda Bankers’ Association (UBA) and the Ministry of Finance, Planning and Economic Development.

Bagyenda made the revelation while representing BoU’s Governor Emmanuel Tumusiime Mutebile at the Agent Banking Conference organized by Stanbic Bank Uganda on Tuesday at Kampala Serena Hotel.

According to Mrs Bagyenda, the provisions of the Agent Banking regulations specify the obligations of the financial institutions in selection, training, management and supervision of agents.

Under the regulations, financial institution shall enter into an agreement with the agent it wishes to appoint and obtain Bank of Uganda’s approval before the appointment.

The agent must have been operating a business for at least a year and should have held a bank account for the last consecutive six months.

The particular financial services to be offered by each agent must be specified in the agreement because these will vary according to the sophistication and capacities of the agent. For instance an established supermarket outlet in a town could offer more services than a small shop in a village trading centre.

The Agent Banking regulations also provide for prohibitions such as; agents cannot conduct foreign exchange transactions, cannot carry out cheque transactions and cannot charge fees.

Financial institutions are also not allowed to enter into exclusivity agreements with agents meaning that an agent can serve more than one financial institution.

Financial institutions are supposed to put in place robust Information Technology and Communication systems for agent banking because the service will mainly take the form of digital financial services. Transactions are expected to be real time.

Banks are also obliged to report periodically to the Bank of Uganda on agent business.

Agent Banking has been in operation in a number of countries such as Kenya, Brazil and Mexico, where it has been greatly praised.

Mrs Bagyenda told the conference that the Central Bank expects Agent Banking to be a catalyst for financial inclusion and the deepening of the financial sector.

“The unbanked will be brought into the banking system, thus increasing the outreach of financial services, particularly in the rural areas by addressing the major barriers to banking including; access, affordability, identification, etc,” she said.

“By being closer to where the people reside, the problem of distance to mainly urban centers where currently bank branches are located is solved. Banks will also not need to set up expensive branches. This will reduce the cost of delivering banking services, and it will result in reduced cost of banking to customers.”

Bagyenda also noted that the recent introduction of National Identity Cards will go a long way in solving the identification problem, which is a major consideration given the need to comply with Anti-Money Laundering and Combating Terrorist Financing Legal and Regulatory Framework.

Stanbic Bank which organized the conference is leading the way in the introduction of Agency Banking in Uganda.

Recently, the bank revealed that they had identified about 1000 agents to deal with as soon as the proposed new agency banking is legalized.

The bank’s CEO Patrick Mweheire expressed confidence that the new banking model will “revolutionalise the financial sector”.

“To Stanbic and the entire financial sector, agency banking will cut the cost of doing business which will improve performance and pave way for gains in terms of new jobs and other benefits,” he said.

He said that 25% of Stanbic’s branches make loses which negatively impacts on its financial performance and compromises their ability to design and implement new products and tailored services for better customer services.

“It is cheaper for us to reach everyone through agents instead of opening a branch everywhere that costs a minimum of Shs2 billion,” he said.

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