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Agency banking took effect in Kenya in May 2010 after the publication of prudential guidelines by the Central Bank of Kenya. Agency banking has been practiced in a number of countries such as Brazil, Columba, Pakistan, South Africa and Indonesia.

This study is intended to asses some of the factors that contribute to the adoption of agency banking in Kenya. Four independent variables were assessed namely Customer Service. Convenience, population increase and quality of agents. The dependent variable will be the total commissions earned by agents from time to time at intervals of six months.

TABLE OF CONTENTS

DECLARATION ii

ACKNOWLEDGEMENT iii

DEDICATION iv

ABSTRACT v

Acronyms ix

Definition of Terms x

CHAPTER ONE 1

INTRODUCTION 1

1.1 Background of the Study 1

1.2 Statement of the Problem 3

1.3 Objectives of the Study 5

1.3.1 General Objectives 5

1.3.2 Specific Objectives 5

1.4 Research Questions 5

1.5 Justification for the Study 5

CHAPTER TWO 7

LITERATURE REVIEW 7

2.1. The Theoretical Review 7

2.1.1 Introduction 7

2.1.2 Diffusion of Innovation Theory 7

2.1.3 Agency Theory 9

2.1.4 Kane's Market Technology and Political Theory of Innovation 10

2.2 Relevance of the Theories 11

2.3 Empirical Review 13

2.3.1 Customer Service 13

2.3.2 Convenience 16

2.3.3 Agent Quality 17

2.3.4 Population Increase 18

2.4.1 Research Gap 20

2.5 CONCEPTUAL FRAMEWORK 20

CHAPTER 3 22

METHODOLOGY 22

3.1 Introduction 22

3.1 Research Design 22

3.2 Population 22

3.3 Sampling Frame 23

3.4 Sample and Sampling Technique 23

24

3.5 Data Collection Procedure 24

3.5 Instruments 25

3.6 Data Collection Procedure 25

3.7 Pilot Test 25

3.8 Data Processing and Analysis 26

REFERENCES 27

APPENDICES I: Introductory Letter 29

Appendix II: Questionnaires 30

Agent's Questionnaire 30

Customer's questionnaire 34

Appendix III: Research Budget 36

Appendix IV: Work Plan 37

Table of Figures

Figure 1. 1: Distribution Channel 4

Figure 2.1: Diffusion of Innovation 8

Figure 2. 2: Conceptual Framework Model………………………………………………………………………………………21

Figure 3. 1 Sample Size Table………………………………………………………………………………………………23

Acronyms

CBK- Central Bank of Kenya

PIN- Personal Identification Number

POS- Point of Sale

ATM-Automated Teller Machine

KCB-Kenya Commercial Bank

DTB- Diamond Trust Bank

SME- Small and Medium Enterprises.

Definition of Terms

Agent - is a retail or postal outlet contracted by a financial institution or a mobile network operator to process clients' transactions.

Float- is duplicate money present in the banking system during the time between a deposit being made in the recipient's account and the money being deducted from the sender's account.

Commission- a form of payment to an agent for services rendered

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

An agency bank is a company or organization that acts in some capacity on behalf of another bank, bank agents therefore, cannot accept deposits or extend loans in its own name, and it acts as agent for the parent bank. It is a retail outlet contracted by a financial institution or a mobile network operator to process clients' transactions. Rather than a branch teller, it is the owner or an employee of the retail outlet who conducts the transaction and lets clients deposit, withdraw, and transfer funds, pay their bills, inquire about an account balance, or receive government benefits or a direct deposit from their employer (Central Bank of Kenya (CBK), 2010). Banking agents can be pharmacies, supermarkets, convenience stores, lottery outlets, post offices, and many more.

Globally, these retailers and post offices are increasingly utilized as important distribution channels for financial institutions. The points of service range from post offices in the Outback of Australia where clients from all banks can conduct their transactions, to rural France where the bank Crédit Agricole uses corner stores to provide financial services, to small lottery outlets in Brazil at which clients can receive their social payments and access their bank accounts.

Many banks, microfinance institutions, and mobile operators started to experiment with banking agent networks in various countries around the world such as Brazil, Peru, Colombia, Kenya, Mexico, Pakistan, the Philippines, and South Africa.

Latin America is the region that has been witnessed to have a great advancement in agency banking. Here governments concerned about expanding financial sector infrastructure have adjusted regulation and are providing incentives for banks to reach new geographies and new client segments through banking agents.

Banking agents are usually equipped with a combination of point-of-sale (POS) card reader, mobile phone, barcode scanner to scan bills for bill payment transactions, personal identification number (PIN) pads, and sometimes personal computers (PCs) that connect with the bank's server using a personal dial-up or other data connection. Clients that transact at the agent use a magnetic stripe bank card or their mobile phone to access their bank account or e-wallet respectively. Identification of customers is normally done through a PIN, but could also involve biometrics. With regard to the transaction verification, authorization, and settlement platform, banking agents are similar to any other remote bank channel.

In Kenya, especially in rural areas customers are forced to travel a long distance and spend huge amounts on transport in order to access services from their bricks and mortar branch banks. In addition to the cost of transport is the time spent commuting to and fro that could have been spent more productively.

To eliminate this challenge, the Central Bank of Kenya released a legislation that allows commercial banks to contract third party retail networks as Agents. Upon successful application, vetting and approval, these Agents are authorized to offer selected products and services on behalf of the Bank. This relationship creates an Agency Banking business model.

The agency banking adoption has witnessed success since its introduction in Kenya as seen through: clients, who have managed to  lower their transaction cost, increase accessibility to the poor population in the rural areas and saving the transaction time since there are no long queues at the agents; for agents they have Increased sales from additional foot-traffic, gained reputation from affiliation with well-known financial institution, benefited from additional revenue from commissions and incentives. Lastly, the financial institution has Increased customer base and market share, increased coverage with low-cost solution in areas with potentially less number and volume of transactions, increased revenue from additional investment, interest, and fee income and Improved indirect branch productivity by reducing congestion.

1.2 Statement of the Problem

In the recent past, banks have tried their best to satisfy their customer needs by bringing those services and their money in an effective and fast and next to their doorstep ways. This has been done through introduction of many effective products e.g. Auto Teller Machines (ATMs), Mobile Banking, and Agency Banking. These channels of product diversification have had a great impact on not only the lives of the customers but also the profitability of the various banks and the general Kenyan economy.

These channels have enabled banks to reach to their customers in the most remote places. The cost of setting up new branches and the cost incurred by customers to reach for services in the main banks are very high compared to the cost of setting up bank agents country wide.

Between 2005 and 2014, banks multiplied access points by nearly tripling branches and more than quadrupling ATMs and agent banks as shown in the graph below:

Source: Paul Gubbins. 2014. An overview of developments and trends in Kenya's retail financial landscape.

Figure1. 1: Distribution Channel by year, 2005-2014

With the amendment of the Banking Act in 2009, that permitted banks to recruit third parties as outlets for certain banking services. Commercial Banks built agents of their own. In 2009, 8,809 agents representing five banks were providing services, by 2014, 35,789 agents representing 16 commercial banks were deployed.

Currently, of the 44 commercial banks in Kenya, 16 banks have adopted agency banking. There is also a tremendous increase in the number of agent's country wide. The study therefore focuses to determine the reason behind this impressive increase in the agency banking sector in Kenya.

1.3 Objectives of the Study

The study has the following objectives:

1.3.1 General Objectives

To assess the factors influencing the growth of agency banking in Kenya.

1.3.2 Specific Objectives

i. To determine the effect of population increase on agency banking.

ii. Determine whether quality of agents is affecting adoption of agency banking in Kenya.

iii. To assess how convenience encourages establishment of agency banking.

iv. To measure the effects of banks customer service on growth of agency banking.

1.4 Research Questions

i. What is the effect of population increase on agency banking?

ii. Does the quality of agents as factor influence agency banking?

iii. How does convenience affect agency banking?

iv. How does banks customer service affect agency banking growth?

1.5 Justification for the Study

The study seeks to find out the reason behind the tremendous increase in the number of agent banks in Kenya. It has been observed that for the past few years that agency banking has really flourished, the study hence seeks to find out the reason for this increase. The results of the study will help banks management to decide whether to increase the number of agents or decrease, it will also help those bank who have not ventured into agency banking to analyse the cost benefit analyse and decide to diversify their product by setting up agents country wide.

The study will also help banks customers understand the various products of their respective banks and how to benefit from them e.g. agency banking. The study will also help banks have a competitive advantage over other financial institution by exploiting the results of the study to make informed decisions on whether to set up new branches or deploy agents throughout the country.

CHAPTER TWO

LITERATURE REVIEW

2.1. The Theoretical Review

2.1.1 Introduction

This section reviews literature related to agency banking to establish the factors affecting growth of agency banking. The review is based on the theory of agency banking and other theories as done by scholars and also past studies on agency banking generally, both local and international.

2.1.2 Diffusion of Innovation Theory

Diffusion of innovations is a theory that seeks to explain how, why, and at what rate new ideas and technology spread through cultures. Everett Rogers (2003), a professor of communication studies, popularized the theory in his book Diffusion of Innovations; Rogers argues that diffusion is the process by which an innovation is communicated through certain channels over time among the participants in a social system.

 The origins of the diffusion of innovations theory are varied and span multiple disciplines. Rogers proposes that four main elements influence the spread of a new idea: the innovation itself, communication channels, time, and a social system. This process relies heavily on human capital. The innovation must be widely adopted in order to self-sustain. Within the rate of adoption, there is a point at which an innovation reaches critical mass.

The categories of adopters are: innovators, early adopters, early majority, late majority, and laggards. Diffusion manifests itself in different ways in various cultures and fields and is highly subject to the type of adopters and innovation-decision process. When promoting an innovation to a target population, it is important to understand the characteristics of the target population that will help or hinder adoption of the innovation.

Source: Rogers Everett - Based on Rogers, E. (1962) Diffusion of innovations. Free Press, London, NY, USA

Figure 1.1: Diffusion of Innovation

 There are five established categories of adopters, and while the majority of the general population tends to fall in the middle categories, it is still necessary to understand the characteristics of the target population. When promoting an innovation, there are different strategies used to appeal to the different adopter categories. Innovators - These are people who want to be the first to try the innovation. They are venturesome and interested in new ideas. These people are very willing to take risks, and are often the first to develop new ideas. Very little, if anything, needs to be done to appeal to this population. Early Adopters - These are people who represent opinion leaders. They enjoy leadership roles, and embrace change opportunities. They are already aware of the need to change and so are very comfortable adopting new ideas. Strategies to appeal to this population include how-to manuals and information sheets on implementation. They do not need information to convince them to change. Early Majority - These people are rarely leaders, but they do adopt new ideas before the average person, they typically need to see evidence that the innovation works before they are willing to adopt it. Strategies to appeal to this population include success stories and evidence of the innovation's effectiveness. Late Majority - These people are sceptical of change, and will only adopt an innovation after it has been tried by the majority. Strategies to appeal to this population include information on how many other people have tried the innovation and have adopted it successfully. Laggards - These people are bound by tradition and very conservative. They are very sceptical of change and are the hardest group to bring on board. Strategies to appeal to this population include statistics, fear appeals, and pressure from people in the other adopter groups. The diffusion of innovations to Rogers. With successive group of consumers adopting the new technology (shown in blue), its market share (yellow) will eventually reach the saturation level. In mathematics, the yellow curve is known as the logistic function. The curve is broken into sections of adopters.  

2.1.3 Agency Theory

This theory explains the relationship between principal and agent in business. Agency theory is concerned with resolving problems that can exist in agency relationships; that is, between principals and agents of the principals.

The two problems that agency theory addresses are: (1) The problems that arise when the desires or goals of the principal and agent are in conflict, and the principal is unable to verify what the agent is actually doing; and (2) The problems that arise when the principal and agent have different attitudes towards risk. Because of different risk tolerances, the principal and agent may each be inclined to take different actions. The first scholars to propose, explicitly, that a theory of agency be created, and to actually begin its creation, were Stephen Ross and Barry Mitnick in the early, 1970s.

Research on agency theory has had several findings. Most notably, an agent is more likely to adopt the goals of the principal, and therefore behave in the interest of the principal, when the contract is outcome-based. Also, when the agent is aware of a mechanism in place that allows the principal to verify the behaviour of the agent, he is more likely to comply with the goals of the principal.

2.1.4 Kane's Market Technology and Political Theory of Innovation

Kane theory sees financial innovation as an institutions response to financial costs created by changes in technology, market needs and political forces particularly laws and regulations. Kane refers to the interactive process of regulation that follows institutional avoidance and innovations as dialectical process. The financial industry is special and has stricter regulations and therefore financial institutions have to deal with this regulation in order to reduce the potential risks to the minimum.

An example of Kane's theory where an institution responds to the changes in its operating

environment is the rise of shadow banking in the United States. Economists believe the financial crisis was triggered by the shadow banking system.

This parallel banking system especially caused the credit market to freeze due to lack of liquidity in the banking system.

Agency banking is the most modern financial innovation by commercial banks. A bank agent is retail or trading outlet contracted by a financial institution to process clients' transactions.

Examples include supermarkets. The banking transactions carried out by these bank agents

Include cash deposits and withdrawals, account balance inquiries and utility bills payments.

2.2 Relevance of the Theories

The different theories try to explain the growth of agency banking. Diffusion theory for example tries to explain how agency banking is gaining popularity nationwide due to the different techniques used by the various banks to advertise it with service names that resonate well with the target population. Such names include , 'Co-op KwaJirani', 'KCB Mtaani', 'Equity NdioHii', 'Family PapoHapo', 'Chase Popote' 'ConsoMaskani', Posta mashinani, DTB agent, and so on. Such names are intended to create a sense of ownership and create confidence among the banks' customers for a service that has been devolved to their neighbourhood.

The rate of diffusion varies depending on a number of factors; there are also other factors e.g. mobile banking that inhibit the growth of agency banking. Agents have to work hard to maximize the number of transactions in order to maximize their commission to enable them run efficiently and be able to meet their daily cost of operation. Such costs include rent, salaries and wages, float costs, business permits and airtime to name but a few. Unless an agent attains break even points, the agency will close unless he or she is able to spread costs to the core business. The reluctance of the majority banks to engage in agency banking despites its potential for cost saving could be explained by the different categories of adopters.

Agency theory on the other hand explains the importance of the relationship between the banks and the bank agents. Banks are responsible for the actions of their agents and thus must be able to come up with supervision and monitoring procedures to ensure that they do not suffer losses, material or reputational due to the actions of their agents. In conjunction with the theories, some malicious agents digress from compliance to laid bank procedures for their own interest. Examples are where agents split a single deposit transaction into several transactions in order to increase their commissions. Since customers do not pay for deposits, banks make losses whenever a deposit transaction is multiplied over by an agent as they have to pay from their profits for each of these deposit transactions.

 The other concern is where an agent is compromised by fraudsters in abating frauds to customers account like card skimming which have been traced to agents. In such instances banks are forced to increase their surveillance which calls for more and more supervision resulting in a vicious cycle of cost of agent‘s administration. However, these vicious circles can be broken by proper screening of agents at recruitment to match the culture and values of the banks they represent. Other ways could be by recognizing and rewarding complying agents and disciplining non-conforming agents. According to agent supervisors, currently banks are more concerned with recruitment of agents to a certain minimum numbers and as such termination of errant agents is less a priority until they have attained the targeted numbers. A major criticism of the theory is that, simple agency model assumes that no agents are trustworthy and if an agent can make him better off at the expense of a principal then he will. This ignores the likelihood that some agents will in fact be trustworthy and will work in their principals ‘interests whether or not their performance is monitored and output measured.

The Kane'stheory also tries to explain the importance of change and the adoption to the change by the banks. The banks have to keep up with the intensive changes in technology and other aspects of its environment and in order to stay competitive in the market it has to adopt to this changes, one of the major changes in the banking sector is agency banking, every bank therefore is trying to adopt to this change in order to maintain its place in the market.

Kane's theory also emphasizes on the rules and regulations followed. These agents therefore must comply with the rules and regulations set by the regulatory body (CBK) to prevent being penalized and risk being kicked out of the market.

2.3 Empirical Review

2.3.1 Customer Service

(Bindra 2007). Customer service has been defined as customer's overall impressions of an organization‘s services in terms of relative superiority or inferiority. (Buchanan.2011) Customer service is the provision of service to customers before, during and after a purchase. The perception of success of such interactions is dependent on employees "who can adjust themselves to the personality of the guest. Customer service is also often referred to when describing the culture of the organization. It concerns the priority an organization assigns to customer service relative to components such as product innovation and pricing. In this sense, an organization that values good customer service may spend more money in training employees than the average organization, or may proactively interview customers for feedback.

(Walker & Cheung, 1998) Further, service quality is considered to not only meet but to exceed customer expectations, and should include a continuous improvement process. (Bindra, 2007). Service quality arises from a comparison of the difference between service expectations developed before an encounter with banks and the performance perceptions gained from the service delivery based on the service quality dimensions.

 Berry et al. (1985) and Zeithaml and Bitner (1996) indicated that service quality consisted of five dimensions as Follows; Tangibles: appearance of physical facilities, equipment, personnel and written materials. Reliability: ability to perform the promised service dependably and accurately. Responsiveness: willingness to help customers and provide prompt service. Assurance: knowledge and courtesy of employee and their ability to inspire trust and confidence. Empathy: caring, individualized attention the firm provides its customers. In a study by Berry et al. (1994) with more than 1,900 customers of five large famous US corporations, they found that thirty-two out of a hundred placed emphasis on reliability, followed by responsiveness (22%), assurance (19%), empathy (16%) and tangibles (11%). Thus, reliability is considered the essential core of service quality. In addition, other dimensions will matter to customers only if a service is reliable, as those dimensions — for example, responsiveness and empathy from service staff — cannot compensate for unreliable service delivery. In Kenya the success of Equity bank Ltd and Safaricom Ltd with the bottom of the pyramid mass has led to a renewed focus of this customer group.

(Parasuraman, 1991). several banks have entered this market which is volume based where the large number of accounts have proved a cheap source of deposits and transaction fees. Banking the bottom of the pyramid is not without its challenges chief among them being congestion and low margins which call for effective and varied delivery channels. As customers become better educated, they demand new products, better and more reliable delivery channels, as well as more responsive services. As a consequence, to improve, banks have to understand customer needs and expectations and satisfy their customers by providing better products and services.

System availability: Agency banking success will largely depend on reliability. One of the major measurements of reliability is the system availability. In Brazil many agents complain about downtime –POS ―frozen‖ by bank once cash limit reached, pending deposit of cash at branch, but often with a lag until POS is unfrozen. –Poor GPRS connection for some agents –Occasional maintenance required. If unable to transact for 2 days, monthly profit margin may cut by more than half from 10.6% ($124/mo) to 2.6% ($27/mo) CGAP, (2010). By its very nature the ICT phenomenon is relatively new in the developing world. Available data, suggest that the majority of developing countries such as Kenya in sub-Saharan Africa are lagging behind in the information revolution (Zhao and Frank, 2003). The system being the only connectivity between the customer and the bank will determine whether a customer request is frustrated or satisfied at the agent location. System safety and malfunction can frustrate the agent reconciliation or even facilitate fraud against the bank, customer or the agent.

Complaint resolution: Banks and their agents have to contend with customers complaints in cases such as, customer being debited with cash he did not receive because of incomplete withdrawal transactions, an urgent deposit hangs ‘somewhere else other than the beneficiary account due to system failure, where the agent has erroneously entered the wrong account number or bill account. This could mean a stranded commuter for lack of fare, a son or daughter somewhere being sent home for non-remitted school fees, a punitive disconnected utility supply. How such complaints or errors are handled could mean retention or loss of the customer for good. Bindra, (2007) urgues that a satisfied customer will tell one other customer about the experience but a dis-satisfied customer will tell a crowd.

2.3.2 Convenience

Agency banking has helped to tap the low income customers and rural based customers by making banking more convenient to them as they can access financial services at the agents. This is less intimidating to them unlike when accessing services at banking halls where they may feel intimidated to inquire their bank balance as it is low or even be unable or uncomfortable to withdraw cash as the amount that they seek to withdraw is too small. Agency has opened the rural areas greatly as the inhabitants can access the financial

services which they had desired which would have taken longer to enjoy if they were to rely on banks to open up new branches of brick and mortar in the rural areas.

Kenya is a developing country with a total population of 43 million people. This population needs continuous cash flow for development and mobile banking has been making waves. Mobile banking offers numerous benefits to SMEs. SMEs can check account balances, transfer money, pay bills, collect receivables and ultimately reduce transaction costs and establish greater control over bank accounts. Agency banking in Kenya has then to go an extra mile to be able to match such convenience. Indeed, several initiatives are in that direction. These initiatives include extended banking hours with some agents reportedly opening as early as 06.00hrs and others closing as late as 01.00hrs. The mobile banking platform which for some majority of banks is a qualification for using the agency banking is whipping masses into convenience banking with as much control of one‘s bank account as would a telco service. Convenience has led banks and other financial institution to increase their banking hours. Competition for customers has pushed banks to extend their opening hours to late evening, with an increasing number of lenders now serving customers over weekends and public holidays. Standard Chartered, ABC, Diamond Trust, NIC and Barclays Bank of Kenya have recently announced an extension of their opening hours to between 7a.m and 8p.m, from what has been the traditional banking hours of between 9a.m and 3p.m. Diamond Trust Bank has extended its operating hours for five outlets in Kenya and six in Uganda, which now operate for seven days a week between 8a.m to 8p.m."We had to introduce new staff shifts, increased security and investment in technology," said Naomi Mangatu, senior manager for marketing and corporate communications at the bank.

Proximity is another factor of convenience in banks. Proximity: Assessed whether the distance covered to access bank services and the associated time and cost of transport are real incentives to alter the customer decision whether to visit the bank or the agent. According to (Kithuka, 2010) distance does not influence the frequency of customer transactions. This cannot be interpreted to mean proximity has zero effect on agency adoption. ―Customers will not knowingly incur more in terms of time and financial cost to do a bank transaction at the bank unless it is not available at the agent‖ (CBK Governor, 2011) ‗Lower transaction costs were incurred since client/ entrepreneurs would visit agency any time without incurring any additional cost like transport cost to bank their cash. Agencies are more accessible for illiterates and the very poor who might feel intimidated in branches with low amount of money they would wish to withdraw and deposit. Though most people are not aware of these costs, to some extent they do influence the customer decision to use agency banking or not to use the agency banking hence influences the performance and growth of agency banking ‘(Ombutura&Mugambi, 2013).

2.3.3 Agent Quality

 Agent quality will be assessed using three parameters namely float adequacy, age of an agent in agency business and the core business of the agent.

Agent float: This is the cash at hand and bank balances set aside by the agent for agent banking operations According to CGAP. (2011). The operation of the agency is such that a customer deposit at the agent means customer giving cash to the agent and is accounted by the bank by debiting the agent account at bank and crediting the customer ‘s account at the bank. It is therefore not possible for an agent to receive a deposit unless the agent has sufficient credit in the bank. A customer withdrawal at the agent means the agent gives cash to the customer and the bank accounts by debiting the customer ‘s bank account and crediting the agent‘s account at the bank. An agent then can only pay out a withdrawal if they have cash in their till at the shop. This means the agent has to have both cash in the bank and cash in till. This is a key challenge to banks as most agents are not able to balance the cash holding or have inadequate capital.

Age of agency: Agents are expected to take time to establish themselves and the normal growth curve is expected to apply. This means lower foot print in the beginning of a new outlet that keeps on growing to maturity if the correct factors for growth are cultivated or closure or dormancy of agency if the right factors are not exhibited.

Agent‘s type of core business: The type of agent business is critical in number of ways. First the nature of business determines the hours of business. For example, retail shops, supermarkets and hotels are known to open 365 days a year, they open early and close late. Chemists are known to open late in the day but extend late in the night. Majority of other businesses like the hard-ware shops open between 08.00hrs and 18.00 hrs. The more formal businesses like the SACCOs and microfinance have similar hours of business to those of banks and remain closed for businesses on weekends and public holidays.

2.3.4 Population Increase

Thomas Malthus (1766-1834) sounded the first modern warning of the potentially negative impact of population growth on economic development. The rate at which a population increases in size if there are no density-dependent forces regulating the population is known as the intrinsic rate of increase.

Where the rate of increase of the population, N is the population size and r is the intrinsic rate of increase. This is therefore the theoretical maximum rate of increase of a population per individual.

Population increase has both a direct and indirect effect on agency banking. Some aspects of the population e.g. income of the population, population increase,

Population income: when the population of a given economy has high incomes they tend to have a savings account where they deposit some savings once they receive their salaries. This hence makes the banks around the areas as the members in the area go to open accounts, deposit money, withdraw money or even borrow loans. To prevent congestion in the banking halls, banks will therefore decentralize their operations to bank agents to ensure fast delivery of services and also maximize the number of transactions which has a positive impact on their daily returns.

Population increase: increase in population affects the number of members opening accounts in the various banks. When there are a lot of customers in the banking halls, to reduce their customer's frustration by spending long hours on the queues just to carry out very little transactions they set up agents to offer this services to the customers faster and conveniently.

2.4.1 Research Gap

Various research studies have been conducted internationally and locally on agency banking and how they influence performance in banks. Waithanji (2012) did a study to identify the impact of agent banking as a financial deepening initiative in Kenya and Kithuka (2012) conducted a study on factors influencing growth of agency banking in Kenya: the case of Equity bank, Kwale County. However, their study did not focus on the four variables: ease of access, flexible hours, cost-effectiveness and bank hall decongestion.

 Further, Musau (2013) did an analysis of the utilization of agency banking on performance of selected banks in Nairobi County. His study variables included policies and procedures, agency costs, agency liquidity and security. However, none of these studies focused on the factors influencing the uptake of agency banking services by customers in commercial banks. This study therefore sought to fill the gap by establishing the effect of convenience, customer service, quality of agents and population increase on agency banking in Kenya.

2.5 CONCEPTUAL FRAMEWORK

The main objective of this study is to examine the factors influencing the growth of agency banking in Kenya. Based on the objective of the study, the following conceptual model is framed. To show the relationship between and the independent and the dependent variables

Thus, the following conceptual model is framed to summarize the main focus and scope of this study in terms of variables included.

Figure 2. 2: Conceptual Framework Model

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