In Lagos, Nigeria it is common for bank customers to travel long distances, face increased transportation costs and incur high transactions costs as they save for the future and repay their loans. For some customers who are ever busy in their shops and face growing competition running their small businesses, the need for a bank next door has never been so compelling. In response to these customer needs and a target to expand reach and access to the underserved, Accion partner Accion Microfinance Bank (Accion MfB) identified several pain points that need to be addressed:
- Cost of setting up physical bank branches
- Distance to a bank branch for prospective customers
- Mobile Data challenges
- Transaction costs for customers
Accion MfB identified agent networks as a suitable channel to address these challenges and expand, in line with its five-year growth plan. The Agent Network roll out was identified as a project that would require Accion’s technical assistance.
Agency Banking is when non-bank retail providers offer financial services to clients of financial institutions. The provision of financial services at a closer proximity to the client helps reduce the cost of banking to both the bank and the customer, since the former would need to build more branches or the later were need to travel to a branch to save or withdraw money. By its very nature, agency banking meets the needs of the underserved.
The project team evaluated several partners in Nigeria for the electronic payments component, finally settling on Interswitch Financial Inclusion Services (IFIS) as the ideal partner because of the successes of the parent company, Interswitch, with its switching services in Nigeria and other African countries.
Six branches in Lagos & Port Harcourt were identified for a nine-month pilot to understand the technology, client behavior, and adoption levels before a full roll-out to the remaining 34 branches. The goal is to have 240 agents by the end of 2016 with at least 50 percent of them actively doing transactions on a monthly basis. The agents would be able to serve the branches’ 7,293 borrowers, 61,510 savers, and clients of other financial institutions in Nigeria.
The beta test launch started in the summer with 10 agents in the bank’s Oke Arin branch, a market branch located in heart of Lagos Island. By the end of August, the pilot had spread to its second branch location and the total cumulative value of transactions since inception stood at NGN 55,706,000 ($175,031).
During the pilot, there were several challenges that had a significant impact on adoption levels in the two locations. The technology and operational challenges observed included clients having difficulty remembering their account numbers, onboarding new agents, agent liquidity, and staff and client education. The project team used client research, data analysis and other methods to overcome these challenges.
Most of the customers had challenges remembering their account numbers while conducting cash-in services with the agent, which resulted in clients making deposits into the wrong account. To resolve the challenge, agents verify the name that accompanies the account number provided by the client. We expect that this will go a long way in resolving the challenge of account number at all agent locations.
One improvement is the new agent onboarding criteria. The team identified that in order to be a quality agent, an Accion Microfinance Bank customers must:
- Have at least a one-year relationship with the Bank
- Complete two loan cycles with the loan amount greater than or equal to NGN300,000 (about $940)
- Have a credit scoring of AA, A, and B
- Not be delinquent
Liquidity has always being a fundamental challenge for growth. A new loan product called My Agent loan has been introduced to help agents manage liquidity. The loan product offers the agent the opportunity to borrow between Ngn50,000 to Ngn1,000,000 (about $150-$3,100) for the business at a minimum interest rate with flexible repayment terms. The value of the loan is dependent on the previous loan performance and business analysis.
Finally, staff and client education was a tough hurdle that was identified as a critical success factor for the project. Working with both the technology provider (IFIS) and the branch staff, Accion staff solicited feedback that informed the creation of marketing and training materials, such as flipcharts, videos, and flyers aimed at prospective clients and agents. These materials are currently being field tested with clients and staff, and improvements reflecting that are ongoing.
Each of these aspects of implementation presented a unique challenge, and Accion Microfinance Bank Nigeria’s initial success and ability to overcome these challenges is promising. Stay tuned for a follow-up post discussing several challenges and lessons learned the team overcame. The lessons learned during the pilot have provided a valuable tool for the bank to scale up the agent rollout to all its branches.