THE INSTITUTE OF FINANCE MANAGEMENT

RESEARCH PROPOSAL

RESEARCH TITLE: THE IMPACT OF

AGENCY BANKING SERVICES ON
FINANCIAL PERFORMANCE OF
COMMERCIAL BANKS IN
TANZANIA: A CASE OF NMB BANK PLC IN THE CITY COUNCIL OF
DODOMA

1.Candidate Name: Simon Lacha

2. Registration Number: DTC/MFI/18/98503……………………..
3.Programme: Masters of Finance and Investment
4. Department: Accounting and Finance
5: Supervisor’s Name: Dr.Ngole

December2019

Declaration

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I, Simon Lacha declare that, this proposal is my original idea and that, the proposed

research has not and will not be presented or conducted elsewhere in a similar manner,

for either award or as a research project.

Signature of the candidate: ……………………………...

Date…………….………………..……….

Certification

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The undersigned certifies that, he has read the proposal and satisfied that this is the

original work of Simon Lacha who has registered for a postgraduate degree

programme, at the Institute of Finance Management (IFM).

…………………………………………..

(Name Supervisor)

Signature of Supervisor ……………………………….Date: …………………………

ABREVIATIONS AND ACRONMS

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ABS Agency Banking Services

AfDB African Development Bank

ATMs Automated Teller Machines

BOT Bank of Tanzania

CB Commercial Banks

CCD City Council of Dodoma

IFM Institute of Financial Management

PCB Private Commercial Bank

PLC Public Limited Company

URT United Republic of Tanzania

CHAPTER ONE

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 INTRODUCTION

1.0 Introduction
The economic development of countries is partly attributed to the extent of financial

performances by commercial banks. There are a number of strategies that financial

institutions have embraced to enhance financial performances; agency banking is

presumably one of them. It is thus important to examine the various attributes of agency

banking and how they influence financial performances (Mwenda & Ngahu, 2016: Tindi

& Bogonko, 2017).

Agency banking services offer many impacts on the financial performances to the

commercial banks. According to Veniard (2010), agent banking systems are up to three

times cheaper to operate than branches which helps much to improve profit maximataion

and liquidity for the two reasons; first, agent banking minimizes fixed costs by

leveraging existing retail outlets and reducing the need for financial service providers to

invest in their own infrastructure and second, acquisition costs are lower for mobile-

enabled agents and mobile wallets.

1.1 Background Information

Commercial banks play a vital role in the economic resource allocation of countries

where they channel funds from depositors to investors continuously with one of the

modes of operation been agency banking (Karimi, 2018). Financial innovations such as

those available in ATMs, phone banking, Internet banking, debit cards, credit cards,

agency banking and smartcard applications are taking place at an overwhelmingly fast

pace in the global banking industry (Muiruri & Ngari, 2014).

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Globally, commercial banks have numerous outlets to serve customers. Reducing

turnaround time in transactions as well as safe keeping of money earned are among the

targets of the commercial banks (Mungai, 2017). To improve service delivery,

commercial banks have opened up agencies that are agency banking, that are local

businessmen and women to collect funds for them. The official start of applied

technological advancement in the banking sector was in 1995, witnessed by the first

electronic bank (Saropa, 2013).

Worldwide, at least six countries have more than 100,000 agents banking, with the

highest number in Brazil 377,275 in January 2015 (Dias, 2015). The trend of agent

banking is evident. In many nations, such as in Australia where post offices are used as

bank agents, France utilizingcorner stores, Brazil making use of lottery outletsto provide

financial services (CGAP, 2011). Agency banking offers a variety of banking services

which comprise activities such as bank account opening, depositing cash, withdrawing,

money transfer among other activities (Mungai, 2017).

In Brazil, private and state owned banks deliver financial services through retail agents

including small supermarkets and pharmacies, post offices, and lottery kiosks (Chiteli,

2013). Brazil is often recognized as a global pioneer in agent banking services since it

was an early adopter of the model and over the years has developed a mature network of

agent banks covering more than 99% of the country’s municipalities (Muasya &

Kerongo, 2015). In Brazil in the year 2008, agents transacted 75% of the volume (agents

made 1.6 billion transactions) and 70% of the value (agents transacted a total of US $

105 billion) of total bill payments (CGAP, 2010). Again in Brazil, rural agents transact

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more deposits and withdrawals as a percentage of total transactions (38%) than their

urban counterparts (8%) (CGAP, 2010).

Also in Brazil, although permitted to offer several types of services less than 30% agents

actually handle bank accounts. Most specialize in receiving bill payments, which

account for approximately 75% of all agency transactions. Withdrawals and deposits

account for 12.6% and are nearly equally divided into savings and current accounts.

Only 0.16% of transactions are account opening and 7.3% are government transfers

(CGAP, 2010). Agency banking in the country became very successful inspired adoption

in Latin America, Asia, India and Africa.

In India, an average of 8.4 deposits and 3.1 withdrawals were carried out by individuals

FINO (a technology firm and one of the first pioneers of agency banking in India) agents

each day in 2010. With 10,000 agents Nationwide this translates to approximately 84000

deposit and 31800 withdrawals each day. With an average deposit size of USD 3.5 and

withdrawals size of USD 7.39 per agency this translates to USD 301,000 worth of

deposits and USD 221,000 of withdrawals processed each day (CGAP, 2010).

In the African continent, a number of challenges have been highlighted to be affecting

access to financial service and products and basically they include; uneconomically

banking incomes, dispersed population, distance lack of financial products and service

knowledge and ignorance on issues relating to banking (Nyota & Muturi, 2019). Then,

for financial institutions to position themselves successfully, they must seek to address

the special needs of the unbanked whereby one among the best approaches is through

application agency banking services (Muasya & Kerongo, 2015).

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In Kenya, the introduction of agency banking was meant to facilitate and enhance access

to affordable financial services especially to the poor, low-income households and micro

and small enterprises, which largely comprise those segments which are un-served and

under-served by the financial sector (Anyumba & Makori, 2018). According to Ndungu

and Njeru (2014) in the country since 2010, a total of 19,649 agents had been contracted

facilitating over 58.6 million transactions valued at Kes. 310.5 billion.

Moreover, on 30th June 2013, the Central Bank of Kenya (CBK) had authorized 13

commercial banks to offer banking services through third parties (agents). The increased

number of agency banking services (ABS) and value of transactions demonstrate the

increased role of agent banking in promoting financial performances in terms of profit

maximization (CBK, 2013). According to Mwangi (2013) in an evaluation of the role of

agency banking in the performance of commercial banks in Kenya concluded that,

infrastructure cost and security influence the performance of commercial banks

attributable to agency banking to a very great extent.

In Uganda, agency banking services offers the potential to increase and deepen financial

performnces across the country. Following regulations passed in July 2017, banks in

Uganda uses agency banking as an extension of services traditionally offered in bank

branches whereby third parties (agents) offer these services on behalf of banks to expand

their presence, particularly in rural areas where brick-and-mortar branches are often

expensive (Panturu, 2019). A study by Ruyooka (2019) reveals that, the introduction of

agency banking helps to boost the revenue collection of the commercial banks, increase

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their profitability levels, create more efficient and real time systems, and improve their

overall financial performance.

According to Ciprian (2019) states that “the introduction of agency banking in Uganda

has increased and deepened financial perforamnces aspect, where banks can now use

agency banking as an extension to services traditionally offered in bank branches” while

Jagongo and Molonko (2014) noted that transacting through bank agents has proven to

be cost-effective especially to people who live in rural areas that are far away from

banks.

In Tanzania, agent banking services was firstly introduced and permitted by BOT in

2013 to allow licensed financial institutions to extend their financial services to

unbanked and under banked individuals in the community. By 2014 the overall number

of agents banking outlets were 1652 in which increased by 180% compared to 591

outlets number as of 2013 since its first introduction (Bank of Tanzania , 2013) and as of

June 2018 agent banking business continued to expand with approximately 13,679

banking agents (BOT, 2017)

According to Finscope (2013) report about 76% of the Tanzania population is extended

with financialservices, the coverage which is higher by about 44% of the level attained

in 2009. This increase of financial service level is associated with the introduction of

agent banking and participation of mobile phones companies. Agency banking services

in Tanzania is mainly a common phenomenon in commercial banks including CRDB

Bank PLC,Equity Bank, KCB Bank, Access Bank, NMB Bank PLC, DCB Bank, TPB

Bank, Advance Bank and Amana Bank (Lotto, 2016).

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Bank of Tanzania Annual Report (2015) shows that, bank deposits and withdrawals,

through bank agents, have been increasing since 2014.According to the report deposits

and withdrawals have increased by over 200% and 400%respectively between January

2015 and end of January 2016 (BOT Annual Report, 2015). This is an impressive trend

which virtually supportsthe financial performances of the commercial banks in the

country. Basically, this growth can also be associated with the seriousness and efforts

made by Bank of Tanzania towards supporting the operations of bank agents which are

regulated by the Guidelines on Agent Banking for Banking Institutions of 2013.

1.2 Statement of the Problem

Agency banking has increasingly gained importance in both developed and developing

countries over the last decade (Ruyooka, 2019). According to CGAP (2011), agent

banking as a replica has been instrumental in boosting the commercial banks’

performance in most developing states. Agency banking create platform for quality

services delkivery. Through agency banking servioces, commercial banks endeavor to

make the banking services available, reliable, and fast, as well as build relationships

with the clients. Agent bank service providers are increasingly being utilized by the

commercuial banks as important distribution channels for financial perforamnces with

an aim of improving profit (Islam & Niaz, 2014).

Agency banking transactions cost are far less to process than transactions at an

Automated Teller Machine (ATM) or branch. Comercial banks can make profit through

handling even small money transfers and payments (Tindi & Bogonko, 2017). The

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adoption of agency banking is mainly geared towards improving market share by

attracting and retaining their customers, improving their financial performance and

creating a variety of services (Panturu, 2019).

Studies like those of BOT (2015; 2014) and Finscope (2013) reveals that, inspite of the

potential roles played by agency banking to commercial banks, still there are numerous

difficulties experienced by the agency banking. Initially, its poor use is seen to frustrate

its continued use and burry the vision to financial reach for the unbanked (Birch, 2008).

Additionally, most of the commercial banks that have embraced agency banking have

realized that agents do not have the ability to deal with huge cash transactions and that

they are not investing on security strategies resulting to poor client acceptance of agency

banking (Vutsengwa & Ngugi, 2013). Moreover, liquidity setback results into

disappointment and is among the reasons for the acceptance of these structures derails

than expected.

Furthermore, it is agreed that despite an increasing adoption of agency banking services

by commercial banks in Tanzania, there is shortage of emperical studies in the local

context to verify the reality about the potentiality of agency banking services on

finanacial perforamnces especially in the commercial banks. Essentaiilly, most studies

made have looked at the adoption of agency banking also referred to as branchless

banking and its contribution to financial inclusion like those of Lotto (2016); BOT

(2014); World Bank (2014); BOT (2011); and Wainaina (2011). Therefore, there is a

huge gap on studies looking at the impacts of agency banking services on finanacial

perforamnces of commercial banks like NMB Bank PLC in the City Council of Dodoma

and Tanzania in general whereby this study aim to cover it.

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1.3 Research Objectives
1.3.1 General Objective
To assess the impact of agency banking services on financial performance of

commercial banks in Tanzania: A case of NMB Bank PLC in the City Council of

Dodoma.

1.3.2 Specific Objectives

i) To deternime the curent status of agency banking services in the City Council of

Dodoma

ii) To examine the factors influencing an adoption of agency banking services in

commercial banks

iii) To determine the relationship between agency banking services and financial

performances in commercial banks

iv) To assess the challenges facing agency baking services on financial

perfeopemances in commercial banks

1.3.3 Research Questions

i) What is the curent status of agency banking services in the City Council of

Dodoma?

ii) What are the facators influencing an adoption of agency services and

financila perforamnces in the commercial banks?

iii) Is there any relationship between agency banking services and financial

perforamnces in the commercial banks?

iv) What are the challenges facing agency banaking services on finanacial

perforamnces in commercial banks?

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1.4 Significance of the Study
Reviewed literatures and results from this study will have policy implications in terms of

the impacts of agency banking services on financial performances of commercial banks.

Also, the study is expected to be of help to commercial bank policy makers in

identifying the key challenges involved in agent banking operations and coming up with

strategies that will lead to improved performances.

Connectively to that, the commercial banks staff in Dodoma City and Tanzania in

general will be awareness on the benefits of using agency banking services on financial

performances. Additionally, for the Tanzanian academicians and researchers through the

findings to be obtained will pave a way for the future studies in this area and create

platform for deep knowledge.

Moreover, this study will help a researcher to qualify for the award of master degree

inmasters of finance and investment.

1.5 Delimitations of the Study

This study will be conducted in the City Council of Dodoma with a special focus of

NMB Bank PLC on the impact of agency banking services on financial performance of

commercial banks in Tanzania.The area was purposively selected basing on the fact that

there are increased numbers of agency banking service provider in the City due to shift

of Government Headquartering from Dar-es-Salaam to Dodoma. Few and relevant

research methods like survey, interview, and documentary review will be used as they

seem to fit the nature of the study.

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1.6 Limitaion of the Study
Disinclining of respondents including agency banking staff to provide relevant

information to a researcher about the study is expected to be among of the limitations

which will interfere the process of data collection. A researcher will spare time to

instruct them about the aim of this study and confidentiality of the information to be

provided as the way forward to motivate the respondents towards acquiring information.

Also, another limitation will be overall banks rules and regulations that most of the bank

information are essentially confidential, but a researcher will make sure that, the bank

will be assured with concealmentof the provided data. Therefore, all provided data will

surelybe used for research a purpose, which meanssecrecy will be highly applied on

each data obtained from the bank.

1.7 Structure of the research proposal

In this proposal, chapter one covers introductory part, background information of the

study, statement of the problem, objectives general and specifics, research questions,

significance of the study, delimitation of the study as well as limitation of the study.

Additionally, chapter two will describe on definition of key terms and concepts, details

on relevant literatures reviews which provide relevant information on the resaearch topic

and its objectives

Moreover, chapter threee will cover on research design, research approach, sample and

sampling techniques, sample size calculation, data collection methods, data nalysis,

ethical consideration and ethical consideration.

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