| dc.description.abstract | The financial sector has experienced significant changes due to innovation. The introduction of wireless devices such as mobile phones to commercial banks' clientele has changed how business is conducted (Lule, Omwansa, & Mwololo, 2012). Commercial banks have had an opportunity to mitigate the challenges being experienced due to less stability in the financial sector by adopting effective strategies that focus on meeting customer expectations through competitive products and services geared towards meeting customer demands and minimizing costs (Shanmugham & Sohail). The Ugandan business environment has changed and it has been characterized by stiff competition among the players and the banking industry is no exception. Competition amongst the commercial banks as well as entry of mobile phone operators in the money transfer business has pushed banks towards becoming more innovative. The growth of agency banking has opened a new frontier to study the financial benefits or losses to the banks operating agency banking as well as those aspiring to operate this model. In January 2016, the Ugandan Parliament passed an amendment to the Financial Institutions Act of 2004. This act allowed banks to offer agency banking services in the country. New entrants and banks with lower footprint need not invest in slow-to-scale brick and mortar branch networks. Instead, they can focus on capturing market share based on better products, customer experience and price, while leveraging the (operationally) lower-cost agent networks. World over, agency banking has been adopted and may carry variant names. In Brazil agency banking arrangements refer to bank partnerships with non-banks, typically retail commercial outlets (Kumar, Nair, Parsons, & Urdapilleta, 2006). Most of the major banks in Colombia are using bank-based agent banking channels to deliver services and reach new clients. However, the users of these financial services are not the poorest segments of the population and the adoption of the agent model has been slower than in other countries in Latin America, most notably Brazil (CGAP, 2010). Having been influenced by the success of the agency model in developed nations, the agency model is gaining ground in Africa. The first version of the agency banking model in South Africa was introduced in 2005 (Bold, 2011). It was later implemented by commercial banks with freedom to use third-party providers (Kiura, 2014). In Ghana, the model was launched in the year 2008 (Flaming, McKay, & Pickens, 2011). Nonetheless, the model failed to gain traction due to a complex regulatory affiliation between telcos and banks. In light of this, the Bank of Ghana was forced to regulate the industry. In Tanzania, a commercial bank or financial institution having a license and wishing to conduct business through an agent must first obtain written permission from the Bank of Tanzania. After approval, a compliance and due diligence process is in place, which is followed by audits and regular spot checks just to safeguard the financial industry (McKay & Peter, 2014). Despite the opportunities brought about by agency banking for both the customers and commercial banks, only a few have adopted this innovation due to problems such as inability to transact huge transactions, transaction limits and insecurity. Many people find that agents lack capacity to handle large transactions of cash and under-spend on security measures, thus, negating potential clients’ confidence in them. (Kiragu, 2011). Many people still prefer to queue in commercial banks banking halls despite the fact that many outlets of agency banking being opened in the country. This formed a key point which led the current study to investigate the adoption of agency banking in Uganda. | en_US |
