A Study on the effect of agency banking on performance of banks in Kenya

Abstract

Agency banking is a new trend that is quickly catching up in the Kenyan Banking sector. The banks in the country are bringing their services closer to the people without opening bank branches and in ways that are familiar to the people. Banks are using retail merchants and post offices to establish this. The main objective of this study was to establish the effect that agency banking has had on the banks performance in terms of cost and number of bank accounts as well as the challenges experienced. The data for this research was collected from the forty three Kenyan banks using questionnaires. The findings of this research suggest that agency banking is improving bank performance since the banks are now able to increase their bank accounts while maintaining or reducing their capital costs. The findings also suggest that there a number of challenges that are experienced in the agency banking field that have kept some banks from adopting agency banking. The key challenge that has been observed is the risk involved in agency banking and this has also been confirmed by the increase in risk management costs that been observed by the respondents who have already adopted agency banking.