MICROFINANCE PAPER WRAP-UP: “Agent Banking in Latin America,” by the National Banking and Securities Commission (CNBV) of Mexico and Celina Lee, published by the Alliance for Financial Inclusion

By the National Banking and Securities Commission of Mexico and Celina Lee, published by the Alliance for Financial Inclusion, February 2012, 19 pages, available at: http://www.microfinancegateway.org/p/site/m//template.rc/1.1.14613

This paper compares how four Latin American countries implement agent banking, a model by which banks provide financial services via nonbank agents such as supermarkets and pharmacies. Agent banking is often used to expand financial services into rural areas at a lower cost than opening bank branches, but it can also be used to complement bank branches to increase coverage in municipalities with high population densities. The authors compare the agent model of Mexico, where agent banking is new, to models in Colombia, Brazil and Peru, which have more experience with the service.

First, the authors look at the implementation of agent banking in Mexico in 2010 and its first-year success in comparison to the other countries under consideration. In 2010, 12 financial institutions in Mexico established approximately one banking agent for every 10,000 inhabitants in the country. Brazil, which began implementation in 2000, held 10.5 agents per 10,000 adults as of 2010; Colombia, which began implementation in 2007, held 3.1 agents per 10,000 people; and Peru, which began implementation in 2008, held 4.3 agents per 10,000 adults. The authors find that, for each additional year of experience, a country gains an average of 0.69 agents per 10,000 adults. Mexico is predicted to establish another 26,000 agents in 2011, its second year of implementation, bringing the level to 4.5 agents per 10,000 adults. Thus, the expansion of bank agents appears to be much more rapid in Mexico than has been observed elsewhere. Additionally, bank agents are the only formal banking presence in 18 percent of the country’s municipalities, after the first year of implementation, whereas in Colombia 4.5 percent of municipalities only had agents providing formal services after the initial year.

Bank agents generally offer five types of transactions: payments (such as to settle utility bills), deposits, withdrawals, the establishment of savings accounts, and the disbursement and repayment of loans. Banks in Colombia, Brazil and Peru offer services from all five categories, while Mexico only allows certain types of payments, deposits and withdrawals; it is not legal to offer the opening of savings accounts through agents. In both Brazil and Colombia, bill payment was the most commonly used service, and the authors argue that the small quantities of money paid indicate that many clients of agents still do not have an account at a regulated financial institution. Based on this conclusion, the authors recommend gathering demand-side data to understand how to use bank agents as a transition into the formal banking world.

In Colombia and Brazil, agents are allowed to facilitate the opening of accounts with a formal bank, and in Peru agents are allowed to open and close simplified bank accounts. The type of banks allowed to function through agents also varies by country: Mexico allows commercial banks and state-owned development banks and plans to allow cooperatives and MFIs to contract with agents, and Peru allows commercial banks, MFIs and finance companies to utilize agents. Colombia allows commercial banks, state-owned development banks, cooperatives, microfinance institutions (MFIs) and finance companies to operate in this way, and Brazil allows all financial institutions to provide agent banking services. In all four countries, agents are allowed to represent multiple financial institutions, a practice that is not allowed in some other countries.

In conclusion, a study of trends in Brazil, Peru and Colombia indicates a slow implementation of agent banking during the first two years followed by an increase in the third or fourth year. However, data after Mexico’s first year of allowing agent banking leads to the prediction that there will be a rapid increase in banking agents in the initiative’s second year, one that is comparable to increases in Colombia’s fourth year and Peru’s sixth. The author concludes that Mexico’s new regulations to allow more types of financial institutions to operate through bank agents and to allow the opening of savings accounts will have a significant impact on financial inclusion and place Mexico among the leaders in agent banking in Latin America.

By Charlotte Newman, Research Associate

About Alliance for Financial Inclusion
The Alliance for Financial Inclusion (AFI) is a Thailand-based network of financial policymakers from developing and emerging economies. AFI aims to increase access to financial services for poor people using a “peer-to-peer” model intended to facilitate member institutions in sharing knowledge and identifying policy solutions appropriate for their countries. AFI also provides grants to members to support policy implementation. As of 2011, AFI reports having member institutions representing approximately 70 countries. The size of AFI’s budget is unavailable.

Sources and Additional Resources:

MicroCapital.org story, March 8, 2012, “MICROCAPITAL BRIEF: Federacion de Nacional de Cooperativas de Ahorro y Credito (FENACOAC), World Council of Credit Unions (WOCCU) Support Microfinance in Guatemala, Mexico with $4m Rural Technology Cooperative Program,” https://www.microcapital.org/microcapital-brief-federacion-de-nacional-de-cooperativas-de-ahorro-y-credito-fenacoac-world-council-of-credit-unions-woccu-support-microfinance-in-guatamala-mexico-with-4m-rural-technology-co/

MicroCapital.org story, January 10, 2012, “MICROCAPITAL BRIEF: Central Bank of Kenya to Allow Deposit-Taking Microfinance Institutions (DTMs) to Use Agents to Provide Financial Services,” https://www.microcapital.org/microcapital-brief-central-bank-of-kenya-to-allow-deposit-taking-microfinance-institutions-dtms-to-use-agents-to-provide-financial-services/

MicroCapital.org story, November 3, 2011, “MICROCAPITAL BRIEF: Alliance for Financial Inclusion’s Global Policy Forum Concludes with Signing of Maya Declaration on Financial Inclusion,” https://www.microcapital.org/microcapital-brief-alliance-for-financial-inclusion%E2%80%99s-global-policy-forum-concludes-with-signing-of-maya-declaration-on-financial-inclusion/

MicroCapital.org story, October 12, 2009, “MICROCAPITAL BRIEF: Gates Foundation Gives USD 35m to Alliance of 64 Countries to Train Central Bankers, Funds Managed by German Aid Agency GTZ,” https://www.microcapital.org/microcapital-story-gates-foundation-gives-usd-35m-to-alliance-of-64-countries-to-train-central-bankers-funds-managed-by-german-aid-agency-gtz/

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