The Effect Of Agency Banking On Financial Performance Of Commercial Banks In Kenya
Seventy percent of Kenyan population have no access to any formal banking services therefore agents play a crucial role in ensuring accessibility of financial services by customers in areas where banks cannot be able to establish branches. Through agents, banks are able to increase their market share, mobilize deposits and generate income through transactions fees at low cost. The equipment needed by agents to effectively operate differ from bank to bank .In some banks; an agent only needs POS card reader, mobile phone, barcode scanned and PIN pads while others may use personal computers. All these are normally connected to the bank’s core system servers. Expanding access to financial services holds the promise to help reduce poverty and spur economic development but as a practical matter, commercial banks have faced challenges expanding access to poor and low-income households in developing economies, and nonprofits have had limited reach. Innovations therefore such as agency banking intend to improve the quantity and quality of financial access. The main objective was to determine is to establish the effect of agency banking on various performance indicators of commercial banks in Kenya. The study was based on agency theory in which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent. Agency theory is the study of the agency relationship and the issues that arise from this, particularly the dilemma that the principal and agent, while nominally working toward the same goal, may not always share the same interests. The research was conducted using a descriptive survey which involved analyzing of secondary data. The study was carried out on 16 Commercial banks offering agency banking in Kenya. The methodology used entailed use of inferential statistics using statistical package for social sciences (SPSS) package. Inferential statistics was based on Pearson correlation analysis and a multiple regression model. Multiple regression models were used for it allows simultaneous investigation of the effect of two or more variables. The study found a positive correlation between volume of cash deposits, Withdrawals, Number of agents and ROE. In addition the study found a negative correlation between levels of liquidity and Return on Equity. The study concluded that Agency banking has experienced tremendous growth and complexity of the transactions been handled. The nature of transactions performed by agents confirmed that most of the agents are not knowledgeable of other operations that the banks can offer. The study recommended that banks should allow agents to perform core activities like vetting loan applications and collecting loan repayment, it is recommended that the banks transfer the basic knowledge to the agents to enable them perform these extra activities. Measures to secure the agents should also be taken by the banks to empower the agents transact greater volumes and value. The risk to the agent is too high and most will shy away from been key dealers due to insecurity therefore that study recommends that the banks should assist agents overcome this challenge to ensure greater penetration in areas that would otherwise be deemed insecure to operate from.
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