Regulating Banking Agents

Abstract

This focus note posits that banking agents are an increasingly vital player in the push to offer financial services to the global poor. Agents, seen as extensions of the banking system, accomplish this by offsetting costs that poor customers incur when they establish low-value accounts, expanding the mobility of bank services, and expediting the lending process for borrowers. Using banking agents allows banks the flexibility to expand their services in a branchless manner; a common scenario is agents absorbing these services into their small, independently-owned businesses. In doing so, agents help banks eliminate the costs that they would otherwise need in order to sustain the physical assets involved in running a full-fledged branch. Mobile phone-based banking is another popular method. Since this business model is one that takes on multiple aesthetics, the nuances of the business relationships within different geopolitical arenas are further explored, with the location of banking agents being a chief concern. Approaches to legitimizing agents vary from country to country and are determined by the beliefs and values of their respective regulators. The authors attempt to answer four major questions at the core of this discussion: (i) Who can be an agent?; (ii) What roles can agents play in the provision of financial services?; (iii) On what commercial terms can banks engage agents?; and (iv) What is the extent of bank liability for agents? This note provides recommendations in response to the pivotal questions surrounding the role of agents, which the Financial Action Task Force (FATF) is also in the process of clarifying.