Agent banking opens new horizon
THE EDITOR, Sir:
The Banking Services (Deposit Taking Institutions) (Agent Banking) Regulations of 2016, which was passed by the Senate on Friday, December 9, is a step in the right direction by the Government of Jamaica. This new piece of regulation widens banking access through agent banking.
An agent bank provides limited-scale banking and financial services to the underserved population through an agent who owns an outlet. This legislation allows banks to expand their product offerings and their reach without breaking the bank. Agents conduct business on behalf of a bank and remove the need of a teller at the location. This allows the bank to create new product offerings and increase the sale of these offerings at a reduced cost.
The current legislation allows the agents to provide deposits and withdrawals, payment of bills and loan repayments, electronic transfer of funds, and account balance enquiries. Senator Don Wehby, in his discussion on the subject matter, recommended that the services to be provided by banking agents such as supermarkets be expanded to allow them to open customer accounts and offer loans. I support his recommendations, and I believe it will promote a much more competitive banking system.
The true success of agent banking is dependent on the technological background that supports the agents' operations. Banks will have to engage in innovative technologies that enable them to push out new products to their agents rapidly to meet the needs of an ever-changing demand in the market space. If Senator Wehby's recommendation is realised, the agents will operate as proxy banks that will sell specialised loans to small businesses and individuals, hereby stimulating growth. The banks will, in return, be able to scale their operations and expand their market share.
One new product offering I can imagine being developed from the senator's recommendation is a syndicate loan being offered by the agents on behalf of their depository institutions. A syndicate loan is a loan facility offered by a group of lenders that work together to provide funds for a borrower. This loan offering would be offered to commercial enterprises and individuals at the agents' outlet. The agent will only be permitted to offer loans to customers to make purchases on items that are sold in the agents' primary operations.
TAPPING AGENT FOR FUNDS
For example, if a supermarket is an agent of a bank, individuals may be able to receive a loan from the agent to purchase goods from the supermarket. This would be a syndicate involving the support of a bank and insurance providers. The role of the bank is needed as banks are more able to reduce the adverse selection that exists in the market for loanable funds. Thus, banks will lend a portion of the funds from its credit facilities and the agent a portion. The insurance providers will be required to reduce the risks of the loan by providing the facilities for the customer to insure the loan in case of death or unforeseen events such as layoffs for individuals or bankruptcy for commercial customers.
The agent will act as a syndicate manager and will earn a commission from their deposit-taking institution and insurance provider. Once the loan has been made, the agent will be removed from the process, and repayment on the loan will be handled by the bank that is part of the syndicate. The involvement of two providers of loanable funds and an insurance provider will reduce the risk associated if the loan should default. The loan may have a fixed interest rate or a line of credit provided by the bank and the agent that forms the syndicate. The bank will charge the agent and insurance provider a syndicate fee for being the leading collector of the loan.
Banking and Finance Student