by Looking at the banners and posters posted on the entrance of small shops, Internet cafes and beauty salons around Addis Abeba, one would learn that something new is happening. To the amazement of an observer, the advertisements are not promoting the main businesses within. They rather tell of a cash transaction service, not even closely related to the service of the establishments.
Often, alongside the brand name of the service, there is a logo and the name of the financial institution that underwrites the service. This is exactly what one might see in looking at Purple Beauty Salon at Gotera Condominiums, located off Sierra Leone Street. All three sides are painted purple, with a yellow billboard hanging on the front side with Hello Cash and Lion International Bank (LIB) logos printed on it. The relatively small beauty salon, with white ceramic floor, appears clean and organised. Various hair treatment products are seen lining the tables in front of a waiting area with black leather chairs.
On one wall of the salon, an attached A-4 size paper presents a list of prices for Hello Cash services.
Meseret Haile, in her mid-30s and married, was sitting on one of the chairs near the cashier, looking towards the door as if she was waiting for someone.
Agent recruiters of Hello Cash, often identified by their yellow t-shirts, approached Meseret in March, 2016. After telling her briefly about their offer, they invited her to go to the nearest branch of LIB. She was briefed by the branch manager about the business and what it takes. Convinced that she ought to try her best to succeed in a business she had no prior idea about, Meseret opened an account with the Bank and deposited 9,000 Br, although the minimum requirement was 3,000 Br less.
“I was not too keen to get into the business since I didn’t know much about it. They give me a three-days training,” she told Fortune. “They wanted to come over and provide me with more training, but I thought the first one was enough,” she continued.
Agents earn a 40pc commission on every transfer and withdrawal; and get an additional 10 Br, if they persuade clients to open a Hello Cash bank account. The bank, Belcash Technology service provider (BCTS) and ethio telcom share the rest.
Agent banking, which Meseret is now part of, is a system by which financial institutions extend their services through trained and certified agents recruited for the purpose, albeit without directly opening a branch. The Licensing and Supervision of the Business of Financial Institutions, Regulation of Mobile & Agent Banking Services Directive, enabling operation, was issued in 2012.
The Regulation was drafted to answer the ever-increasing demand from banks to engage in the business, states the National Bank of Ethiopia (NBE). Unlike other countries, such as Kenya where the cash transaction service M-Pesa is popular, the Ethiopian regulatory framework obliges service providers, such as Hello Cash, to work with banks to expand the service.
At the outset banks were adamantly opposed to adapting the system. Even though they know that 78pc of the population is unbanked, they dragged their feet to throw themselves into the waters of uncertainty. But things are rapidly changing. Now, banks are enthusiastic in recruiting service providers and sending recruiters to small business owners.
In the last fiscal year, banks opened 485 new branches, 359 of which were branches of private banks. This raised the total branch network in the country to 2,693 – up from 2,208 last year. Subsequently, bank branch to population ratio moved from 1:39,833.84 people to 1:33,448.25 in 2014/15.
The agent banking service that was intended to serve rural areas, where bank branches are hardly accessible, is becoming popular even in Addis. But the process varies. According to National Bank of Ethiopia Directive Article 9 sub Article 3, agents should be legal businesses having met all the registration requirements from authorities. They should have a written contract with the financial institution, displaying an address including postal number, and a telephone number as well as 6,000 Br to cover agent operations. Banks like Lion also require agents to have basic knowledge of technology and a photocopy machine.
Another bank offering agent banking services is United Bank, one of the pioneers. United Bank started the business on March 1, 2014, a year before LIB. Its agent baking service, named Hibir Agent Banking, has been rolling ever since.
Hibir form of agent recruitment is different from that of Hello Cash as it combines recruiting through approaching business owners that fulfil NBE’s requirements persuading them to become agents. This approach is mostly being applied in the regional States.
“The profit of agent banking is not in each transaction but from the solid volume of transactions; then we are focusing on working to expand our agent network and clients through them,” said United Bank’s Agent Banking Manager, Yeadam Kibru.
Up to the end of April, 2016, United’s Hibir had 364 agents who transferred close to 3.3 million Br for clients. Close to 4.2 million deposits, and about two million withdrawals have been made since the beginning of its service. Of this sum, 25pc goes to the pockets of Bole Atlantic Mobile Wallet Technologies, a company based in Dubai that provides United with the technology, while they agents receive their 40pc.
“Knocking on each potential agent’s door all over the city is a whole load of work for us,” said Yeadam. “Besides, after all the trouble we get in to recruit them, most do not want to be bothered to bring a police certificate of a non-criminal history,” he added.
Hibir Agent Banking is only available through United Bank, which makes the recruiting difficult as it has only 62 branches, excluding those in the capital. Branch managers are the responsible authority to oversee agents within a 100km radius of their office.
Unlike United, LIB obtained its mobile and agent banking licence in July, 2015, five months after piloting. It now has 1,156 agents dispersed in Addis and the regions with Somali holding the majority. In the first nine months of this fiscal year, 40,000 transactions have been made through the system, with deposits and withdrawals totaling 40 million Br.
Hello Cash is available at LIB, Somali Micro Finance Institution (SMFI) and the Cooperative Bank of Oromia (CBO). The transaction volume from these three institutions is 65pc in the Somali State and 35pc in Addis Abeba. SMFI has 1,197 agents and CBO has 647.
Perhaps because agent banking is an emerging trend, agents have different experiences. For Meseret, the beauty salon owner, the business is yet to prove viable.
“Two months since I start the process, I am yet to see income from it,” she noted.
In contrast, Meseret Dejenu, manager of Wededay Trading Plc, a Hello Cash agent located on the second floor of Lex Plaza Building, around 22 Mazoria, has a whole different level of the business that got it the comment, “it is a branch.”
The agent worked with Hello Cash and LIB since the pilot phase of the project launched in February, 2015. It has even benefited from a lower entry deposit of 2,500 Br, instead of 6,000 Br. And demand for its service is growing with each day.
“As we are eager to try new things, we were happy when Lion Bank approached us with this new banking system that our society did not even have a clue about. We wanted to be one of the first to do it,” said Meseret.
Not everyone shared the happiness. In fact, some initially entertained grave doubt.
Mekdes Gebremariam, a customer at Wededay, said that she was suspicious of the service at first.
“I don’t like being cheated, especially when it comes to money. I thought the service was too simple to charge me the amount of money they tag on the wall,” she said.
Mekdes changed her mind after she forgot her wallet at home one day and dined at a restaurant without realising she had no cash. She was shocked when she found out she did not have enough money to pay. She then called one of her friends, who sent her money through Hello Cash. Saved from being involved in an embarrassing disagreement, she became a client of the agent banking service.
Wededay used to serve five clients per day at the start, Meseret. said But, apparently agent banking is being affected by the opening of more bank branches in the same vicinity.
“In our experience of the business, I am sure we would have got more, if we were in one of the regions,” said Meseret, admitting that urban residents have more banking alternatives.
Yeadam, of United Bank, agreed with her logic.
“These city agents are not expected to get more transactions than the regions as most people here are banked with financial institutions that are increasing the transaction convenience with each day,” he said.
Manager of LIB’s Alternative Channel Department, Abreham Tilahun, concurred. He thinks that city agents benefit from a positive externality of customer trust they get as a result of working with banks, making them a mini-branch.
Banks, on the other hand, gain the advantage of availability throughout the country without expenditure on branch construction, essential equipment, system data base, internet appliances and staff salaries.
Unlike Hibir and Hello Cash, M-Birr, an agent banking service provider, works with five different micro finance institutions, including Oromia Saving & Credit and Addis Saving & Credit. M-Birr, through its 1,547 agents, is a key player in the new game in town. By 2015, it facilitated 273,620 transactions and has served almost 50,000 account holders.
M-Birr calculates commission for its agents every time they sign a customer into M-Birr bank accounts, check the balance through mobile, transfer or withdraw money using M-Birr. The smallest commission of agents for the last two services is about two Birr while the highest depends on the amount sent or received. It transfers the commission to agents’ accounts daily at 5:00pm.
“I would have got more profit if it was not for this too busy job,” said Tadelech Asefa, manager of tour and travel company near Bambis, that is also an agent for M-Birr.
“We serve at least five people a week; considering the income status of the customers that come for our main business they often transact a huge chunk. That benefits us.”
The average transfer charges for M-Birr customers, is 12.3 Br if the recipient is a member. But if the transfer is made to a non-registered user, the average cost goes up to 25.4 Br. If withdrawal is made, the average price an M-Birr customer is asked to pay is 26.72 Br. Transferring between 20,000 Br and 25,000 Br through M-Birr costs 23.58 Br, if recipient is the customer of M-Birr. However, if the recipient is non-registered, the cost is higher, about 40 Br.
To transfer money using Hello Cash, the maximum payment is 15 Br for 2,000 Br to 6,000 Br. The average price in order to send money at Hello Cash is 10.50 Br. Hello Cash charges an average price of 10.62 Br if withdrawal is made by the customer.
Since the 2012 Regulation Directive, Ethiopia has eight banks involved in agent banking. Abay, CBO, Lion, United and Dashen are among those testing the waters in their own way. This figure, however, does not include the giant bank in the country, Commercial Bank of Ethiopia (CBE), which says it is studying the viability of the business.
With more banks coming to the scene, though, Meseret foresees a future that could bring her more returns.
