Nyandeke Kamlesh.

LAW/M/0399/05/16

Agency Banking.
Agency banking refers to the concept where licensed banks can offer, and their customers can
access, banking services from intermediaries. Ideally, all banking services of a particular bank
can be accessed through its agent.
Locally, banks just recently embraced this phenomenon, as evidenced by the rolling out of the
agency banking services, beginning in the year 2010. Examples include, Equity Bank’s, ‘Equity
Ndio hii hapa’; Kenya Commercial Bank’s, ‘KCB Mtaani’; ‘Chase Bank’s ‘Chase Popote’; Co-
operative Bank’s, ‘Co-op Kwa Jirani’ etc.
The Central Bank of Kenya in 2009 commenced measures to sanction Agency Banking in Kenya
by amending the Banking Act, in the Finance Act, 2009, which allowed banks to start using
agents to offer their financial services.
An Agent is an entity that has been contracted by a banking institution and approved by the
Central Bank to provide the services of the institution on its behalf in the manner specified in the
Central Bank Guidelines on agent banking. The provision of these services is the agent banking
business. These outlets can be small and medium Enterprises (SMEs), Savings and Credit,
Cooperatives (SACCOS), retail chains and shops. The agent must have an outlet.1
The central Bank may issue directions to institutions generally for the better carrying out of its
functions under this Act and in particular with respect to;2
a. The standards to be adhered to by an institution in the conduct of its business in Kenya
or in any country where a branch or subsidiary of the institution is located; and
b. Guidelines to be adhered to by institutions in order to maintain a stable and efficient
banking and financial system.
The Central Bank of Kenya pursuant to section 33(4) of Banking Act issues a guideline on the
conduct of agency banking.

1
Law of Financial Institutions in Kenya, Njaramba Gichuki. 2 nd Edition. Pg.273
2
Section 33(4) Banking Act Cap. 488 Laws of Kenya.
Application and Approval of Agent Banking Business.
For purposes of this topic, an institution is a bank or financial institution or a mortgage finance
company3, they may conduct their business through an agent and therefore every institution
seeking to conduct banking business through an agent must apply and obtain the prior written
approval of the Central Bank before commencing agent banking business.
The application is made by completing the “Application for the Approval of Agent Network”
Form and submitting the supporting documents set out in the First Schedule, together with a
banker’s cheque of KSHs 5,000 per application payable to the Central Bank, as the application
fees.
The approval of applications for Agent Banking Business by the Central Bank is carried out in
two phases, namely; Agent Network approval and Specific agent approval. Both applications
may be submitted to the Central Bank simultaneously.4
Agents must also through the banks that sponsor them apply to run agency banking in Kenya
business. The Agency banking network approval requires the following conditions to be met,
together with completing the Agency Banking Network application form;5
a. The proposed or expected number of agents in each province for the next three years.
b. The banks must produce a report of the due diligence policy and procedures for their
agencies.
c. The service that the agency would provide on behalf of the bank.
d. The draft generic agency contract (detailing amongst other things the items specified in
Clause 4.5 of the Central Bank Guideline).
e. The policies, procedures and the technology the bank will apply and use at the agency
outlet.
f. Risk management and mitigation policies in place. (a risk assessment report of the
operations to be performed through the agents including the mitigating measures to be
adopted in order to control the risks identified, in accordance with risk management
policies).
g. Internal controls and audits performed prior to agents engaging in agency banking.
h. Policies on anti-money laundering (anti-money laundering/ Counter Financing of
Terrorism policies and procedures.)
i. Additionally, the bank provides their channel, growth and business strategy for agency
banking and how it fits in with the overall global strategy of the bank.
The applicant is also required is also required to submit the following, and any other information
that the Central Bank may deem necessary:
a. The institution’s delivery channel strategy and how agents fit in this strategy.

3
Section 2 Banking Act Cap. 488 Laws of Kenya.
4
Law of Financial Institutions in Kenya, Njaramba Gichuki. 2 nd Edition. Pg.274
5
http://bankinginkenya.com/233/agency-banking-kenya
 b. A feasibility study of the global view of future operations and development of the agent
business for a minimum period of three years from the date of the application including:
 The geographical and economic service areas of the proposed agents.
 Estimate of total population and economically active population of the areas
where the agent will operate.
 Analysis of the relevant market over the past two years, along with an estimate of
the proposed agent’s volumes/ transactions in the institution delivery channel
strategy.
 Description of the agent management structure to be used by the institution.
Financial projections on the share of the proposed agents in the institution’s business.
c. A business strategy for agent banking.
Upon receipt of the complete application and all information required together with the approval
fees, the Central Bank may within thirty days from the date of the receipt of duly completed
application either approve or decline through writing to the specified agent with or without
conditions and shall give reasons in writing to the applicant in the event of a declined
application.
An application which has been declined by the Central Bank may be resubmitted for
consideration once the institution complies with all conditions imposed by the Central Bank for
the approval of the application.
An Agent approval granted by the Central Bank is valid for one year and may be renewed
thereafter accompanied by the prescribed annual renewal fees.
Suitability assessment of an Agent.
The duty to evaluate the suitability of an agent lies with the institution that seeks to use the agent.
It is required by clause 3.1 of the Guidelines to establish that; the entity has an existing well-
established commercial activity which has been operational for at least eighteen months
immediately preceding the date of the suitability assessment; the entity should not have been
classified as a deficient, doubtful or non-performing borrower by an institution in the 18 months
preceding the date of signing the contract. That status should be maintained for the duration of
the contract; the entity should also satisfy that it possesses appropriate physical infrastructure and
human resources to be able to provide the services with the necessary degree of efficiency and
security.
The entity that seeks to be appointed as an agent should furnish the institution with the following
information as applicable:
a. The name of the entity proposed to be an agent;
b. The certificate of incorporation or certificate of registration of the business name of the
entity whichever is applicable;
c. A description of the commercial activity the entity has been carrying on for the last
eighteen months immediately preceding the date of the application;
d. Valid business license or permit for any lawful commercial activity carried on by the
entity for at least eighteen months prior to the date of the application;
e. Audited financial statements for the last two years where applicable;
f. Certified financial affairs in the case of sole proprietors or partnerships;
g. A certificate of good conduct in the case of sole proprietors or partnerships;
h. Physical location, GPS co-ordinates, postal address and telephone numbers of the entity
and its working hours, and
i. Evidence of availability of funds to cover agent operations including deposits and
withdrawals by customers.
j. Any other information as the institution may request.
Prior to engaging an entity as an agent, an institution should assess the moral, business and
professional suitability of the sole proprietor or partners of an entity proposed to be appointed as
an agent. In the case of a corporate entity, the institution should assess the moral, business and
professional suitability of the Chief Executive Officer and the officer in charge of or responsible
for agent banking operations of the entity. It should have regard to, inter alia:
a. Negative information in possession of credit reference bureaus or gathered from other
sources.
b. Any criminal record in matters relating to finance, fraud, honesty or integrity.
c. Reputation (based on references from at least two people of good social standing hailing
from the same locality as the person and who has known the person for at least 3 years.)
d. Business or work experience.
e. Sources of funds.
f. The business track record of the entity in the last three years where applicable.
 g. Any other matter which negatively or positively impacts on the person.6

Agent Eligibility
An entity intending to be appointed as an agent must possess a business license or permit for
a lawful commercial activity for at least eighteen months immediately preceding the date of
the application to become an agent and such commercial activity must be ongoing. The
entities for appointment are:
a. Limited liability companies,
b. Sole proprietorships,
c. Partnerships,
d. Societies,
e. Cooperative societies,
f. State corporations,
g. Trusts,
h. Public entities, and
i. Any other entity which the Central Bank may prescribe.
An entity cannot be eligible for appointment as an agent if the carrying out of agent banking
business by the entity contravenes any written law, the parent statute, memorandum and articles
of association or other constitutive document or objects of the entity. The entities that are not
eligible for appointment include faith-based or not-for-profit organizations; non-governmental
organizations; educational institutions; forex bureaus or other entities which, under any
applicable law, are not allowed to carry on profit-making business shall not engage in agent
banking business.
Further, any entity which is subject to any regulatory authority under any written law or is a
public entity, should obtain the consent of the regulatory authority or the appropriate oversight
body or authority prior to being appointed an agent.
The banking services that nay be provided by an agent as specifically agreed between it and the
institution include:
a. Cash deposit and cash withdrawal.
b. Cash disbursement and cash repayment of loans.
c. Cash payment of bills.
d. Cash payment of retirement and social benefit.
e. Cash payment of salaries.
f. Transfer of funds.
g. Balance enquiry.
h. Generation and issuance of mini bank statements.

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Law of Financial Institutions in Kenya, Njaramba Gichuki. 2 nd Edition. Pg.276
 i. Collection of documents in relation to account opening, loan application, credit and debit
card application.
j. Collection of debit and credit cards.
k. Agent mobile phone banking services.
l. Cheque book request.
m. Cheque book collection by customers.
n. Collection of bank mail/ correspondence for customers.
o. Any other activity as the Central Bank may prescribe.

Agency Contracts and Permissible Activities.

The institution and the entity seeking to engage in agency banking business must enter into a
written contract, which should comply with the CBK Guideline and any other law in force. It
must contain the information contained in clause 4. 5. 1 of the guidelines, as a minimum. For
instance, it must state that the institution is wholly responsible and liable for all actions or
omissions of the agent. This responsibility extends to actions of the agent even if not authorized
in the contract so long as they relate to banking services or matters connected therewith. It must
also provide for the specific banking services to be rendered by the agent.

Termination of Agency Contract.

In addition to the provisions for termination of the agency contract as may be set out in the
contract, an agency contract shall be terminated if an agent:
a. Carries on agent banking business when the agent’s principal commercial activity has
ceased.
b. Is guilty of a criminal offence involving fraud, dishonesty or other financial impropriety.
c. Sustains a financial loss or damage to such a degree which, in the opinion of the
institution, makes it impossible for the agent to gain its financial soundness within three
months from the date of the loss or damage.
d. Is being dissolved or wound up through court or otherwise.
e. In case of sole proprietor, dies or becomes mentally incapacitated.
f. Transfers, relocates or closes its place of agent banking business without the prior written
consent of the institution.
g. Fails to hold or renew a valid business license.
h. Violates any provision of this Guideline as may, in the opinion of the institution, warrant
termination of the agency relationship.7

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Law of Financial Institutions in Kenya, Njaramba Gichuki. 2 nd Edition. Pg.279
Responsibility of Institutions.

1. Liability and Management of Agency Banking

The institution is wholly responsible for the actions and omissions of its agent and this extends
even to actions of agents not authorized in the contract. It should therefore maintain an effective
system of internal control and oversight of the agent’s activities and functions.

It is thus the responsibility of the institution to develop and implement agent banking strategy
and establish an effective management oversight over the agent banking services. This
encompasses the review and approval of key aspects of the institution’s security control
programs and processes and security control policies and infrastructure. It also includes a
comprehensive process for managing risks associated with reliance on third parties.

2. Institutions’ Due Diligence

Institutions ought to carry out Customer Due Diligence (CDD) to ensure that requirements of
Anti-Money Laundering/ Combating Financing of Terrorism (AML/ CFT) are not compromised.
They should also comply with all applicable laws and requirements regarding this, and train their
agents on (AML/ CFT). These include:
a. Know your customer (KYC) requirements.
b. Maximum balance limits on debits and credits.
c. Identify customers with at least two factors authentication like IDs, PINs, passwords,
ATM card, secret code or secret message while performing any transaction requiring
identification.
d. Report to the institution within twenty-four hours, all suspicious activities that come to
the agent’s knowledge.
e. Transact agent banking business strictly as per the transactional limits prescribed by the
institution.
They are also required to carry out Agent Due Diligence (ADD) which contains methods of
identifying potential agents, initial due diligence and regular due diligence checks to be
performed at specified intervals and a list of early warning signals and corrective actions to
ensure proactive agent management.

3. Non-exclusivity of Agency
Agents are allowed to provide services for agent banking to multiple institutions provided that
the agent has separate contracts for the provision of such services with each institution and
provided further that the agent has the capacity to manage the transactions for the different
institutions.8
As institutions seeking to contract an entity which has already been contracted by another
institution to carry out Agent Banking Business must however asses the capacity of the agent to
manage transactions for different institutions, giving regard to the space, technological capacity
and adequacy of funds or float of the agent.
4. Consumer protection
Appropriate consumer protection measures must be put in place to avert risks of fraud, loss of
privacy and loss of service, to establish trust among consumers of agency banking service, since
this is the single most necessary ingredient for growth of agent banking. the Central Bank
Guidelines provide the minimum requirements to be complied with at all times, for instance;
a. That institutions should establish mechanisms that will enable their customers or users to
appropriately identify their agents and the services provided through such agents.
b. That agents should issue receipts for all transactions undertaken through them.
Institutions shall provide their agents with equipment that generate receipts or
acknowledgements for transactions carried out through agents. In this regard, electronic
receipts or acknowledgements are permissible.
c. Where an agent acts as a receiver and deliverer of documents, an acknowledgement
should be provided for all documents received or delivered by the agent to or from the
customer.
d. Institutions should establish a complaints redress mechanism and shall ensure proper
communication of this mechanism to their customers.
e. An institution may establish contract centers to facilitate easy communication between a
customer and the institution.
f. An agent should have signs that are clearly visible to the public to the public indicating
that is a provider of services of the institution with which it has an agency contract,
among others.

5. Disclosures
The agent is required to disclose the following in a conspicuous place on the premises:
a. The name of the institution it is working for and the institution’s logo.
b. A list of banking services offered by the agent.
c. A written notice to the effect that if the electronic system is down, no transaction shall be
carried out.
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Law of Financial Institutions in Kenya, Njaramba Gichuki. 2 nd Edition. Pg.280
 d. A written notice to the effect that services shall be provided subject to availability of
funds.
e. The list of charges or fees applicable for each service which are payable to the institution
by the customers.
f. The dedicated telephone line through which customers can contact the institution.
g. The name, telephone numbers and location of the institutions branch to which the agent
reports its agent activities.9
6. Reporting requirements and Central Bank Oversight
Every institution is required, at the end of every calendar month, and not later that the 10th day of
the next month, to submit to Central Bank data and other information on agent operations
including information on:
a. Nature, value, volume and geographical distribution of operations or transactions.
b. Incidents of fraud, theft or robbery.
c. Customer complaints.
d. Remedial measures taken to address customer complaints.
At the end of every year, and not later than 31 March of each year, institutions should forward an
annual report on their agent banking operations including names, number and other information
on agent operations for the previous year.
Central bank also has powers to;
a. Request for any information from any agent at any time as it may deem necessary;
b. Carry out impromptu or scheduled inspection of the books and premises of the agent;
c. Direct an agent to take such action or desist from such conduct as the Central Bank may
find necessary;
d. Direct the termination of the agency contract and closure of the agency business as it may
find necessary;
e. Direct the institution to take such action or measures against or on behalf of the agent as
the Central Bank may find appropriate;
f. Direct other institution to take such remedial action or on behalf of the agent as the
Central Bank may find appropriate.
g. Direct the institution to take such remedial action arising from the conduct of an agent as
it may deem fit.10

Remedial Measures and Administrative Sanctions.

If an institution or its agent fails to comply with the provisions of the Central Bank Guidelines,
corrective measures against the institution may be carried out as provided in the Banking Act. In

9
Law of Financial Institutions in Kenya, Njaramba Gichuki. 2nd Edition. Pg.282.

10
Law of Financial Institutions in Kenya, Njaramba Gichuki. 2 nd Edition. Pg.283
addition, the following administrative sanctions may be carried out against the institutions Board
of directors, officers or agents:
a. Prohibition from engaging in any further agent banking business;
b. Prohibition from contracting new agents;
c. Revocation of agent approval;
d. Termination of agency contracts;
e. Withholding corporate approvals.
The Central Bank seems to have extensive control and power over agency banking as
exemplified in the CBK Guidelines Part X. this is partly because of the risky nature of this
venture, coupled with the need to protect consumers, agents and institutions, in this relatively
emerging trend in the financial sector.

Conclusion
the role of agency banking from the economic and developmental perspective of the financial
sector in Kenya is still uncertain. This is because arguably the use of ATMs, mobile money
transfer services and mobile payment services is more convenient than agency banking. The
operational and human element risk in the banking institutions is bound to be transferred to the
agents. The tradition of confidentiality in respect to the banks is watered down by use of
intermediaries. However, the concept takes banking services to the local levels and as such
penetration of banking services is enhanced11

11
Law of Financial Institutions in Kenya, Njaramba Gichuki. 2 nd Edition. Pg.283