Banking is headed for a great shift after Finance minister Uhuru Kenyatta indicated that the law governing the industry would be amended to allow for branchless banking.
The move will allow savings and credit societies (Saccos) and microfinance institutions to act as agents of commercial banks by leveraging on information and communication technology.
It will mean that bank customers will be allowed to transact through internet and the mobile phone at the nearest agent point thereby cutting on costs and saving on time used to travel to banking halls.
Mr Kenyatta noted that despite of the progress the country had made in the banking, many Kenyans remain unbanked due to deposit-taking institutions’ limited reach.
“ In this regard, I propose to amend the Banking Act to allow banks to extend their footprint through agencies with wide distribution networks,” he said.
Recent innovations like mobile telephony firms Safaricom and Zain’s M-Pesa and Zap have deepened the banking services while expanding the outreach to the previously unbanked population.
However, the expansion of the services have been held back by the lack of a legal and regulatory framework to monitor and arrest crimes like money laundering and terrorism.
Players in the banking sector last month held an international conference in a bid to draw experiences and expertise from the various parts of the world in order to craft relevant laws.
Central Bank governor, Njuguna Ndungu, said the national payments system will be reviewed to strengthen the regulator’s oversight over the payments, clearing and settlement system.
Proceeds of Crime and Money Laundering (Prevention) Bill, 2008 that has been gathering dust on the shelves will also be enacted to strengthen the legal and regulatory framework to check anti-money laundering schemes.
Mobile banking is viewed by industry players as the next frontier in growing banking services that remain dismally low.
According to study conducted in 2006 by FinAccess, the Public-Private Partnership, 38 per cent of the population have no accounts in any financial institution.
Historically, many banks that have ventured into the rural areas have encountered high operational costs and risks making it hard to make attractive returns. This has limited the reach of the banks, with most of the branches concentrated in urban areas.
It is estimated that building and equipping a single bank branch costs $70,000 (Sh6 million). With the new development, some of the banks that have been investing heavily in expansion are they are expected to shift strategy to searching for viable agents to drive their products.
“We conducted a study on why banking is low in some areas and discovered that it is because of the cost of access and not the cost of maintaining an account,” Equity Bank chief executive officer, James Mwangi, said recently.
The fast-growing bank’s core customer base constitutes income earners.
Kenya will be following the footsteps of other countries such as South Africa, Russia and Nigeria that have with varying success expanded their banking services leveraging on the ICT.
Brazil’s branchless banking model remains the most successful in reaching the rural population.
Many companies in the world have been experimenting with a new business model that integrates the mobile phone into banking services, with Safaricom and Zain being recognised in international forums as success stories despite the legal and regulatory hurdles they have had to overcome.