The journey toward financial inclusion begins with trust. For individuals unfamiliar with formal financial systems, having low-cost and reliable ways to deposit and withdraw money — cash-in, cash-out (CICO) services — is essential. These accessible solutions build confidence, encouraging people to store money in digital formats and explore other financial tools.

When empowered to engage meaningfully in the economy, individuals can fund small businesses, drive entrepreneurship, and contribute to local development. Financial inclusion enables communities to go beyond survival and build resilience, helping them weather economic shocks, reduce poverty, and foster sustainable growth. These opportunities create a ripple effect, strengthening economies at the individual and community levels.

Despite its established importance, access to financial services remains a critical challenge in many developing countries. Inadequate infrastructure and barriers like low incomes and high fees leave many in Africa disconnected from formal financial systems. The scarcity of bank branches, ATMs, and digital networks, coupled with long distances to urban centres in some cases, restricts access to communities living in geographical and economic peripheries, perpetuating economic inequality and limiting growth opportunities.

To illustrate, only 49% of adults across sub-Saharan Africa own a formal bank account, though this figure varies widely between countries. For instance, in Ghana, 62% of adults have bank accounts; in Nigeria, the figure is 64%; and in Kenya, where mobile money has been a key factor in expanding access, it's 79%. Similarly, the availability of Automated Teller Machines (ATMs) per 100,000 adults varies significantly: in Nigeria, there are approximately 16.2 ATMs; in Kenya, about 6.9; and in Ghana, around 11.4. It is crucial to note that Africa is vast, and the financial landscape is not uniform, as evidenced by the number of ATMs in South Africa, which had 43.6 ATMs per 100,000 adults in 2021. In contrast, developed countries tend to have a higher density of ATMs; for example, high-income countries have an average of 62.7 ATMs per 100,000 adults.

Internet usage also highlights these challenges. As of 2022, 70% of Ghana's population used the internet, compared to 35% in Nigeria and 41% in Kenya. Nigeria and Kenya fall significantly below the global internet usage rate of 64%.

Such disparities highlight the importance of innovative solutions like agency banking. We've seen how effective it can be in places like Nigeria and Kenya, and it has the potential to improve financial access in other developing countries as well. By relying on a network of authorised agents equipped with point-of-sale (POS) devices, agency banking can offer essential services such as cash deposits, withdrawals, bill payments, and money transfers.

Imagine it like a water distribution system. Instead of everyone having to walk several kilometres to a central source of water (the bank), smaller taps (agents) are installed throughout every area. These taps provide the same clean water (financial services) directly to people where they live, saving time and effort while ensuring everyone can stay hydrated (financially included).

Agency banking in action

The agency banking model has gained traction in Nigeria due to its ability to offer convenience through proximity and responsiveness. It's no surprise that the most popular use for agency banking in the country is withdrawing and depositing cash. This has particularly seen an adoption uptick in the West African nation following commercial banks' capping of withdrawals at ?100,000 ($64).  

Recent IMF data highlights this trend, illustrating the rapid expansion of non-traditional access points across sub-Saharan Africa, with mobile money agents nearly doubling from 2019 to 2023.

In Kenya, an agent network played a crucial role in the growth of M-Pesa by significantly expanding its reach and accessibility. By establishing a widespread network of local agents, M-Pesa was able to provide services in various communities, including rural areas where traditional banking infrastructure was limited. These agents facilitate transactions, enabling users to deposit, withdraw, and transfer money conveniently. The trust established between agents and the community also encouraged more people to adopt M-Pesa as a reliable financial tool, further enhancing its popularity and effectiveness as a savings vehicle.

Today, agency banking operates under the framework established by the Central Bank of Kenya, allowing commercial banks to partner with third-party retailers who serve as authorised banking agents. Over 30,000 retail outlets are currently operating as bank agents. Here, agent banking has complemented the success of mobile money platforms, as the proximity of households to agents is a significant factor in decisions to adopt mobile money. This further enhances access to financial services and expands credit availability and savings options for small business owners.

While agency banking adoption has been slower in Ghana than in other developing nations, it has steadily grown since arriving in 2013. Partnerships between financial institutions—such as traditional banks, fintechs, and telcos—and local agents have enabled rural populations to access microloans and savings accounts, contributing to economic empowerment.

While a lack of access to financial services stems from various challenges, including poor infrastructure, low incomes, and a lack of trust in traditional banking systems, agency banking offers a compelling solution by decentralising service delivery and making it easier for people to perform transactions without the need to visit a bank branch or ATM.

Challenges and opportunity for growth

Despite its success, agency banking faces unique challenges, especially in the areas that need it most — rural and peri-urban communities. These challenges can be grouped into three key areas: operational difficulties, financial constraints, and regulatory inconsistencies.

Operational Challenges: Given the limited presence of banks or ATMs in remote locations, agents often face logistical hurdles, such as restocking cash supplies. Additionally, they are prone to risks such as hardware or software failures, which can halt operations, and low levels of formal training, which hinder their ability to serve customers effectively. Fraud and counterfeit bills also pose significant risks, exposing agents to financial losses.

Financial Viability: First-movers — or organisations pioneering agency banking in new markets — often face significantly higher costs. These include training agents, educating users, and building trust in communities unfamiliar with formal banking. However, after these initial investments, competitors can easily enter the same market and benefit from the groundwork laid by the first mover, often at a lower cost. This can discourage private entities from taking on the financial risks of entering underserved regions.

Regulatory Barriers: The lack of consistent regulatory frameworks across African markets leads to fragmented implementation. In some regions, agency banking faces stricter oversight, increasing compliance burdens, while in others, inadequate regulation creates gaps that expose agents and customers to higher operational risks, such as a lack of recourse mechanisms in cases of fraud.

Still, agency banking offers significant growth opportunities. Financial institutions can tackle these hurdles by investing in training programs that confidently equip agents to offer a wider range of services. Upgrading network facilities and using advanced technologies, like biometric authentication and enhanced POS systems, can boost efficiency and security while minimising fraud risks. Strengthening cash logistics networks is also essential to ensure agents in remote areas have the liquidity and support they need to meet customer demands.

Successful innovations in markets like Kenya showcase the potential. Biometric systems have increased security and reduced fraud, while countries like Ghana and Nigeria are exploring ways to link agent banking with digital wallets and e-commerce. These initiatives aim to expand services beyond basic transactions, providing access to credit, pensions, and insurance.

The Role of Governments and Public-Private Partnerships

Private sector-led agency banking has expanded successfully in urban areas, but rural expansion remains challenging. Unlike cities, rural areas have lower transaction volumes, dispersed populations, and weaker economic activity, making agent operations less profitable. Rural areas often have unique financial systems that differ within and across countries. Expanding into these markets requires tailored strategies rather than a direct urban replication.

Regulatory barriers further limit private investment. In countries like South Africa, agency banking networks are dominated by large retailers and supermarkets, as banks prefer partners with existing infrastructure and the ability to meet compliance requirements. As a result, large retail chains operate in more commercially viable areas, with little incentive to expand into deep rural regions with low economic activity. Similarly, operational and compliance requirements may make it difficult for smaller organisations to enter the market.

To address these limitations, governments and regulatory bodies must play a key role in promoting agency banking by creating public-private partnerships (PPPs) that combine private innovation with public resources. India's Business Correspondent (BC) model is a great example of how these collaborations can expand financial services to underserved communities.

The Business Correspondent (BC) model, launched by the Reserve Bank of India in 2006, utilised agency banking to address the distribution of welfare payments, ensuring payments went directly to the right beneficiaries and improved financial access in rural areas. Tying welfare payments to the system helped educate the market on using financial services, which would have otherwise fallen on private first movers, easing their entry into underserved regions.

The BC model became even more efficient with the introduction of Aadhaar, India's biometric ID system. Aadhaar-enabled tools like eKYC helped agents quickly verify customer identities, cut onboarding costs, and speed up service delivery. Interoperable agent networks enabled multiple banks to utilise the same infrastructure, extending services to remote areas.

By implementing smart policies, leveraging technology, and fostering shared resources, millions of underserved individuals gained access to essential financial services, providing useful insights for other regions.

Conclusion

Agency banking represents a transformative approach to bridging the financial inclusion gap in developing countries. By decentralising access to essential financial services, it empowers underserved communities, fosters entrepreneurial activity, and cultivates trust in formal financial systems. As illustrated by its successes in Nigeria and Kenya, agency banking provides immediate convenience and promotes long-term economic resilience by enabling individuals to manage their finances effectively.

However, realising its full potential requires ongoing collaboration between financial institutions, regulatory bodies, and local agents to address infrastructure limitations and low financial literacy. Through the power of agency banking, we can create more inclusive financial ecosystems that drive sustainable growth and ultimately improve the quality of life for millions in developing regions. The time to embrace and expand these innovative solutions is now, as they hold the keys to unlocking opportunity and fostering economic empowerment for all.