USE OF AGENTS IN BRANCHLESS BANKING FOR THE POOR: Rewards, Risks, and Regulation

Abstract

This Focus Note offers insights on these questions by examining the experience of five pioneering coun-tries—Brazil, India, South Africa, the Philippines, and Kenya—where agent-assisted branchless banking that targets poor customers is already a reality. This Focus Note introduces the main issues involved in regulat-ing branchless banking, particularly regarding the use of retail agents. The authors hope these five countries' experience will be useful for financial sector policy-makers and regulators in other countries and for firms interested in these new approaches. However, because branchless banking is still very new, and our sample of countries very small, we make no attempt at general-ized principles that regulators should follow, much less provide definitive answers to common questions. Instead, we hope to offer a few early lessons to be tested and elaborated upon as the concept of branch-less banking for the poor takes hold. This Focus Note begins with some background on branchless banking through retail agents and its two main models: the bank-led model and the nonbank-led model. It then examines the new or enhanced risks these branchless banking models raise and explains how bank-ing regulators have responded to these risks so far in the five countries studied. It concludes with considerations for prudent but access-oriented regulators and policy-makers regarding branchless banking for the poor. Branchless banking represents a new distribution channel that allows financial institutions and other commercial actors to offer financial services outside traditional bank premises. Some models of branch-less banking—for example, Internet banking and automatic teller machines (ATMs)—can be seen as modest extensions of conventional branch-based banking. 5 Other models—such as the ones examined in this Focus Note—offer a distinct alternative to conventional branch-based banking in that custom-ers conduct financial transactions at a whole range of retail agents instead of at bank branches or through bank employees. 2