This research project aims to describe factors that affect the adoption of agency banking in Ethiopian banking industry with respect to the barriers and benefits derived from adopting the system. In order to achieve the objective of this study and answer the research questions the researcher adopted quantitative research approach.

This descriptive study was conducted based on the data gathered from the following four banks in Ethiopia; Dashen Bank, United Bank, Lion International Bank and Cooperative Bank of Oromia. The data collected was analyzed using descriptive statistics. A research framework developed based on the Technology - Organization - Environment (TOE) framework and Technology Acceptance Model (TAM) was used to guide the study.

The study revealed the following major driving factors in adopting agency banking among commercial banks in Ethiopia; the prospects of cost reduction, availing services beyond restriction of space and time through established third party with the application of technology. The benefits were also classified as Perceived Ease of Use (PEOU) and Perceived Usefulness (PU). The barriers identified in this study came from the external environments like; lack of legal framework, under developed ICT infrastructure including poor network connectivity, lack of competition among banks and lack of sufficient government support, security risk and lack of customer trust towards the service.

The study recommended banks to consider technology based competition focusing on customer base expansion, cost reduction, awareness creation, credibility, security, ease of use, and availability to exploit the benefit of agency banking while the government should support banking sector by facilitating sufficient ICT infrastructure development and issue workable legal frameworks to ease the adoption of agency banking system.


Title Page




Table of content


Lists of Tables 6

Lists of Figures 6

Acronyms 6

Chapter One: Introduction 7

Background of the Study7

Statement of the Problem9

Research Questions10

Objectives of the Study10

Significance of the Study11

Scope and Delimitation of the Study11

Organization of the Study11

Chapter Two: Literature Review 12

Definition of Terms12


Mobile Banking12

Agency Banking12

Bank-led Model13

Nonbank-led Model13

Financial Inclusion13

Legal Framework on Agency Banking in Ethiopia13

Innovation Adoption14

Theoretical Framework15

Technology-Organization-Environment (TOE) Framework15

Technological Factors16

Organizational Factors17

Environmental factors18

Technology Acceptance Model (TAM)19

Integration of TAM and TOE Frameworks20

Empirical Studies Related with Agency Banking Adoption22

Research Gap24

Chapter Three: Research Design and Methodology 25

Research Design25

Data Collection25

Data Analysis26

Chapter Four: Data Analysis and Interpretation 27


Demographic Information of the Respondents27

Barriers of Adopting Agency Banking System in Ethiopia28

Technological Factors29

Organizational Factors30

Environmental Factors31

Perceived Benefits/Drivers of Adopting Agency Banking Service in Ethiopian Banking Industry32

Perceived Ease of Use32

Perceived Usefulness33

Time Saving33

Cost Saving34

Other Benefits35

Chapter Five: Summary, Conclusions and Recommendations 37

Summary of the Findings37



Suggestions for Further Research39

References 40

Annex A- Questionnaire Annex B- Survey Data

Chapter One: Introduction

Background of the Study

Like all other social entities financial institutions in Ethiopia are being constantly expanding with technological innovations. For instance, till recently bank customers were used to stand in line to get financial services, but now because of the multi channel service outlets they can perform it from anywhere at any time. Funds are transferred electronically between financial institutions and individual accounts, and between individual accounts using e-banking system (Shyamapada et al, 2011).

The business environment has globally changed and it has been characterized by stiff competition and this is not an exception to banks. Competition has pushed commercial banks towards becoming more innovative. These innovations include credit cards, ATMs, internet banking, mobile banking, youth oriented accounts, women oriented banking, Interest free banking and agency banking which is most recently introduced in the banking sector (Bold, 2011).

Agency banking is branchless banking based on ICT that allows financial institutions to offer financial service outside the traditional bank premises (Mas, 2008; Mas and Siedek, 2008). It allows customers to conduct a limited type of financial transactions at third party outlets that include post offices, supermarkets, general and grocery stores, pharmacies, and gas stations etc located in remote areas (Warii, 2011).

Agent Bank is a company or organization that acts in some capacity on behalf of another bank but it cannot accept deposits or extend loans in its own name and it acts as agent for the parent bank. A retail outlet contracted by a financial institution or a mobile network operator that processes clients’ transactions could be cited as instance. It is the retail outlets that conduct the transaction and lets clients deposit or withdraw cash, transfer funds, effect bill payment, inquire about an account balance, or receive government benefits or a direct deposit from their employer rather than a branch teller (Siedek, 2008).

Though commercial banks continue to invest in opening brick and mortar branches complimented by various delivery channels and access to formal financial services remains a big impediment to financial performances. Customers from the remote areas are forced to travel long distances and spend huge amounts of money and time on transport in order to access a branch. To curb these challenges, a number of central banks around the world have issued legislation that allows commercial banks to contract third party retail networks as agents (Ivatury and Lyman, 2006).

Globally, retailers and post offices are highly utilized as important distribution channels for financial institutions. The point of services range from the post offices in Australia where clients from all banks can conduct their transactions, to rural France where the bank Credit 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 (Ivatury and Lyman, 2006). However, agency banking can be traced to Brazil in 1999 where it exponentially grew from 1,600 agents in 2000 to 170,000 agents in 2010 (McKay, 2011).

Thus technological innovations play a crucial role in the banking industry in creating value for banks and customers to enable customers perform banking transactions without visiting a conventional brick and mortar banking system. Agency banking service has enabled banking institutions to compete more effectively in different countries by extending their products and services beyond restriction of space and time through established third party with the application of technology. However, the adoption of the agency banking system is a recent phenomenon in Ethiopia. Thus, the researcher is interested to assess factors that affect the adoption of the agency banking in the Ethiopian Banking Industry where the numbers of bank branches are ever increasing to outreach customers with significant amount of investment.

The number of banks operating in Ethiopia has reached nineteen (19) of which sixteen (16) are private while the remaining three are state-owned. During the fiscal year (2013/14) these banks opened 480 new branches raising the total branch network in the country to 2,208 from 1,728 previous year. As a result, bank branch to population ratio declined from 1:49,826 people to 1:39,402 in 2013/14. (NBE, 2013/14 Annual Report) E-banking services in Ethiopia commenced in late 2001 while Commercial Bank of Ethiopia (CBE) introduced about eight ATMs to deliver service to the local users but not found successful due to lack of appropriate infrastructure. Later on in the year 2005 Dashen bank started delivering; Cash withdrawal,

Fund transfer between accounts attached to a single card, Mini statement, Balance Inquiry, and Personal Identification Number (PIN) change services through ATMs located at different convenient locations. Dashen’s ATM is available 24 hours a day, seven days a week and 365 days a year providing service to Debit Cardholders and International Visa Cardholders coming to the country (Ayana, 2012). Dashen Bank also commenced delivering mobile banking service in Ethiopia for the first time to acquire E-commerce and mobile merchant transactions that allows transfer of funds from one’s account to others during 2009 (Ayana 2012). Zemen Bank operating in a single branch banking model launched internet banking service, which is new to Ethiopian banking industry, in the year 2010.

Ethiopia’s five-year Growth and Transformation Plan (GTP) envisages increasing the number of fixed line subscribers from 1 million in 2009/10 to 3.1 million by the end of 2014/15. The number of mobile-telephone subscribers is expected to pick up to 40 million from 6.5 million. Similarly, the number of internet users will increase to 3.7 million from 187,000 by the end of the plan period. In 2013/14, the number of mobile subscribers surged by 19.2 percent and reached 28.3 million from 23.8 million a year ago. Meanwhile, the number of internet subscribers surged by 39.2 percent on annual basis and reached 6.2 million from 4.4 million recorded. (NBE, 2013/14 Annual Report)

Statement of the Problem

The agency banking   services,   which operates by integrating    transactions with ATMs, Debit cards, Credit cards, Mobile banking, Point-of-Sale (POS) devices and   others through third party operators are new to the Ethiopian banking sectors. Agency banking system mainly uses modern technology and it allow customers to access banking services electronically through mobile devices and Bank agents to deposit and withdraw cash, transfer fund, make bill payments, obtain content trading. However, these are not well known in Ethiopia.

As per the researcher’s observation on Agency banking services, review of literatures on the issue and preliminary discussions made with staff of E-banking Service Department at different banks that already commence the service, some of the challenges faced in providing the agency banking are poor internet and mobile network connectivity, lack of skilled man power, absence of suitable legal and regulatory framework are challenges to provide and enhance the service. Moreover, the cost that involved in servicing low-value accounts, availing physical infrastructure to remote rural areas and cost (in money and time) incurred by customers in remote areas to reach bank branches are among the major concerns (Ndungu, 2014).

The challenges enumerated above and other challenges are serious to pose further scientific investigations to give appropriate fix by the concerned. Thus this study is designed to assess benefits and challenges of agency banking service with special emphasis to commercial banks that already commenced the service; Dashen Bank S.C., United Bank S.C., Lion International Bank S.C. and Cooperative Bank of Oromia S.C. The agency banking as a strategy to increase revenue from additional investments, to increase customer base and market share, to improve indirect branch productivity by reducing congestion in the branches and to offer low cost solutions in areas with potentially less volume and number of transactions. It is further intended to enhance easy financial accessibility both for the unbanked and the banked population (Ivatury and Mars, 2008). It is said that low income earners often feel more comfortable in banking at their neighbours than walking into bank branches.

Research Questions

To gain a comprehensive understanding of the phenomenon under investigation, the following questions need to be addressed.

1. What are the drivers/benefits of agency banking service adoption in Ethiopian banking industry?

2. What are the barriers to agency banking service adoption in Ethiopia?

Objectives of the Study

The objectives of the study are:

1. Identify perceived benefits/drivers that can be obtained from the adoption of Agency Banking services in Ethiopia.

2. Describe barriers/challenges that inhibit banking industries in Ethiopia to adopt Agency Banking innovations.

Significance of the Study

This study is important to the government in that it will shed light on areas to be improved in an effort to provide financial inclusion to the unbanked low income and rural population. It will also benefit commercial banks by bringing factors that they deem to be critical to the acquisition of customers to their attention and have a clear understanding of factors that would be important in embracing and adopting agency banking as a product. Students and researchers may also use the research findings as a reference in their subsequent effort to search for answers to their queries, thus it will add to the existing body of knowledge.

Scope and Delimitation of the Study

The researcher is intended to describe factors in adopting agent banking innovation among commercial banks in Ethiopia through questionnaires to be filled by sample branch managers and experts of the sampled four banks (Dashen Bank S.C, United Bank S.C, Lion International Bank and Cooperative Bank of Oromia)) that commence Agency Banking Services. Thus, the study is limited to the Bank management that serve as agents and recruiters, but it would have been more productive if the study includes customers/subscribers and agents of the service.

Organization of the Study

This study is organized in five chapters. The first chapter deals with introduction. The second chapter focuses on the literature review followed by the third chapter that deals with research methodology. The research results and discussion is presented in chapter four. The last chapter presents the conclusion and recommendation part of the study.




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