Last month I had the privilege of participating in the first AFI Peer Advisory engagement as one element of AFI’s broader support to Bank of Tanzania (BOT) with the implementation of Tanzania’s National Financial Inclusion Framework.
The origin of the assignment was a request by BOT to receive assistance with developing a comprehensive supervision framework for agent banking in Tanzania. While usually such work is conducted by bilateral and/or multilateral development institutions or through independent consulting firms, AFI proposed to match BOT up with another of its members, the Banco Central do Brasil (BCB), to get the job done.
With its unparalleled experience on the subject of banking agents, BCB was the ideal peer adviser for the job. However the learning between the two institutions does not only go one way. About one year ago BOT was invited to share its experience with overseeing mobile financial services at the 5th Banco Central do Brasil (BCB) Financial Inclusion Forum in Fortaleza.
What makes this pairing so interesting and potentially enriching is that the two countries are diametrically opposed when it comes to banking and non-bank e-money agents: Brazil is one of the (if not the) most advanced countries in terms of banking agents. While it currently roughly counts a staggering 360,000 agents that serve its population on behalf of their banks, non-bank e-money in Brazil is in its infancy. Tanzania, however, has seen the mushrooming of approximately 240,000 e-money agents in the last six years, but banking agents have not yet taken off.
Agent banking business in Tanzania started in early July 2013, after the Guidelines on Agent Banking were developed in February 2013 in response to the initiatives on financial inclusion by the Government of Tanzania and mounting pressure from the banking industry. As of December 2014, nine banks had been approved to appoint agents, and so far five have started to roll them out. The total number of agents is around 1,300. During the week we spent in Dar es Salaam we found several areas that the AFI Peer Advisory assignment will have to tackle:
- Stringent KYC requirements
Most people are not able to comply with stringent AML/CFT requirements when seeking to open a bank account. At this time, the Tanzanian AML/CFT framework does not offer the possibility of relaxed KYC for low risk bank products.
- Remote bank account opening through agents?
Currently the regulatory framework does not allow banks to open accounts remotely via agents. In Tanzania, similar to many other countries including Brazil, agents are permitted to facilitate the opening of accounts, including the collection of information and documents, but the legal responsibility of opening the bank account continues to fall to the bank. However, with policies in Tanzania that allow agents to facilitate the opening of e-money accounts with very simple KYC requirements, banks are now requesting for a more level playing field for comparable banking services.
- Approval process for individual agents
BOT currently requires its explicit consent on approving each new agent in order to ensure the necessary quality of banking agents. In the Brazilian model, the BCB considers agents a problem of its appointing bank and not of the supervisory authority, so BCB does not approve agents directly. Instead, BCB ensures that the banks have a sound policy in place for selecting and monitoring their own agents.
- Restriction on super-agency
The current regulatory framework in Tanzania prohibits super-agents, which would assist banks in managing a wider network of agents more efficiently. Following the Brazilian model, where super-agent arrangements are allowed, Tanzania is now studying how to allow super agent regulations.
- Agent concentration
Currently banking agents are mostly an urban phenomenon being concentrated in main cities and towns. Agents’ contribution to financial inclusion in remote and/or rural areas is yet to materialize. This is again an area where BOT can learn from the example of their counterparts in Brazil.
- Level playing field with mobile operators
Financial inclusion through the mobile phone has developed very rapidly in Tanzania. E-money account opening is subject to fewer limitations compared to agent banking. The challenge will be to create a level playing field for comparable services.
In the course of the year BCB and BOT will cooperate to improve the currently existing regulatory and supervisory framework in Tanzania. I would not be surprised if in the course of the cooperation BCB will also be able to benefit from BOT’s experience with non-bank e-money.
ABOUT THE AUTHOR
Klaus Prochaska is a Senior Policy Analyst and Knowledge Manager at the Alliance for Financial Inclusion.
Categories: Digital Financial Services