Analysis of the impact of introduction of agent banking on the efficiency of commercial banks
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In a growing number of countries, banks are finding new ways to make money by delivering financial services to "unbanked" people. Rather than using bank branches and their own field officers, they offer banking and payment services through the new agent banking model. The agent banking model is one in which banks provide financial services through nonbank agents, such as grocery stores, retail outlets, post offices, pharmacies, or lottery outlets. This model is quickly becoming recognized as a viable strategy in many countries for extending formal financial services into poor and rural areas. In January 6 2016, the Ugandan Parliament passed an amendment to the Financial Institutions Act of 2004. This act allowed banks to offer agency banking services in the country.The study sought to establish the impact of the introduction of agency banking on efficiency of the commercial banks and it was based on the following research objectives; a) To determine the change in customer base since initiation of agency banking, b) to determine the change in profitability resulting from agency banking adoption, c) to find out the distribution of the bank agents in the target areas of study and, d) to investigate whether the introduction of agency banking has increased the accessibility of the financial services. Descriptive research design was adopted and this involved collection of information by administering questionnaires to collect the primary data. Secondary data was gathered through desk research from internal and external sources covering a period of 12 months. The study used both quantitative and qualitative techniques to analyse data collected. Descriptive statistics were employed to analyze quantitative data using descriptive summary, percentages, and frequency tables with the help of STATA software. The contribution of each variable in the model was assessed using multiple linear regression model as well as correlation analysis and the results were used to establish the relationship between the Agency banking and efficiency of the commercial banks. The Regression analysis showed that 92% of the variation in the dependent variable is explained by the independent variables;number of agents, value of deposits and the transaction costs. All regression coefficients were significant at 5% level of significance (P-value<0.05). This implies that there is a positive significant relationship between agency banking and the efficiency or financial performance of the banks and the model is a good fit for the data. The study recommended that all commercial banks should be encouraged to adopt the agency model so that they can fully utilize its potentials.