Regulation of Banking and Payment Agents in Kenya

Abstract

its populace. This has been accomplished on the back of the rapid expansion of banks across the country, particularly in rural areas, and the transformational introduction of mobile money transfer services in 2007. However, the battle for financial inclusion remains far from won, and Kenyan policymakers and regulators continue to develop and implement innovative models to expand financial inclusion. To this end, the agent banking model was rolled out in 2010 to enable banks to contract with third-party agents, just as telecommunications companies have been doing since 2007. This policy memo explores the tensions between the payment agent model run by telecommunications companies and the banking agent model. It starts by outlining the supply and demand sides of Kenya’s financial sector. The barriers to financial inclusion, including income, literacy levels, product characteristics, and geographical distance, are articulated. This memo analyzes the geographic distance barrier in special detail. The areas of tension cited by banks include differing requirements for payment and banking agents with respect to business track records, liability, and exclusivity. This memo recommends a review of the requirements for both types of agents to allow for proportional regulation, based on risk and types of services provided.