CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Access to financial services is a vital component of inclusive economic growth. In developing economies such as Nigeria, a large share of the population remains unbanked due to high service costs, long travel distances to bank branches, and limited financial awareness. Consequently, millions of individuals and small businesses continue to rely on informal financial systems that are often unreliable and unsafe.

To address this gap, the agency banking model was introduced as an innovative approach that allows third-party agents to offer essential banking services such as deposits, withdrawals, fund transfers, and bill payments on behalf of licensed banks (Central Bank of Nigeria, 2020). This system enables banks to expand their reach without the heavy costs of building new branches, thereby increasing financial accessibility in remote and underserved communities.

In Nigeria, the Central Bank implemented the Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in 2013 to promote financial inclusion (CBN, 2013). Since then, the model has grown rapidly, allowing customers to enjoy basic banking services in convenient locations. Moreover, agency banking has supported job creation, encouraged savings, and strengthened local economies. It also promotes financial literacy by exposing customers to digital transactions and formal financial products.

International experience further supports its importance. For instance, Kenya’s M-PESA system and India’s business correspondent model have significantly increased financial inclusion by extending services to the rural poor (Adejumo & Okeke, 2021). Similarly, agency banking in Nigeria plays a pivotal role in transforming how financial services are delivered. However, despite its achievements, several challenges remain. Network downtime, insufficient liquidity, weak agent training, and concerns about fraud continue to hinder its effectiveness. Hence, this study seeks to examine the impact of agency banking on access to financial services in Nigeria, while identifying the challenges that limit its performance.

1.2 Statement of the Problem

Although agency banking was designed to enhance financial inclusion, many Nigerians—particularly in rural areas—still struggle to access reliable financial services. A number of agents operate with inadequate liquidity, making it difficult to meet customers’ cash demands. Furthermore, poor internet connectivity often disrupts transactions, reducing confidence in the system.

In addition, some customers perceive agency outlets as insecure or unreliable compared to conventional bank branches. Limited awareness about agent operations has also contributed to low adoption in certain regions. Consequently, the expected impact of agency banking on financial inclusion has not been fully realized, creating a need for systematic assessment of its contributions and limitations.

1.3 Objectives of the Study

The main objective of this study is to evaluate the role of agency banking in improving access to financial services in Nigeria. The specific objectives are to:

1. Examine the extent of adoption of agency banking among banks and customers.

2. Assess how agency banking influences financial inclusion across urban and rural areas.

3. Identify the operational challenges facing agency banking in Nigeria.

4. Recommend practical measures to strengthen the system and increase access to financial services.

1.4 Research Questions

1. What is the level of adoption of agency banking among Nigerian banks and customers?

2. How does agency banking contribute to improving financial inclusion?

3. What operational challenges affect the success of agency banking?

4. Which strategies can enhance the efficiency and sustainability of agency banking?

1.5 Research Hypotheses

• H₀: Agency banking has no significant impact on access to financial services in Nigeria.

• H₁: Agency banking has a significant impact on access to financial services in Nigeria.

1.6 Significance of the Study

This study provides meaningful insights for policymakers, financial institutions, and the general public. For policymakers, the findings will assist in evaluating the effectiveness of current financial inclusion policies and help to refine regulatory frameworks for agent operations. Furthermore, the Central Bank of Nigeria may rely on the results to strengthen monitoring mechanisms and design interventions that promote inclusive finance.

For commercial banks, the study highlights strategies that can enhance agent performance, improve liquidity management, and increase customer satisfaction. It also contributes to customer awareness by explaining the benefits and reliability of agency banking services. Moreover, the study enriches academic knowledge by adding empirical evidence on the relationship between agent networks and financial inclusion, particularly within the Nigerian context.

1.7 Scope of the Study

The research focuses on selected deposit money banks in Nigeria that engage in agency banking operations. It covers the period from 2013, when the Central Bank introduced regulatory guidelines, to 2025. The study explores both rural and urban environments to ensure a balanced understanding of agency banking’s role across different regions.

1.8 Limitations of the Study

Certain constraints may affect this study. Limited access to bank data, confidentiality issues, and reluctance from agents to disclose information could pose challenges. Time and financial limitations may also restrict the sample size. Nevertheless, the study will rely on reliable secondary data and maintain respondent confidentiality to ensure credible results.

1.9 Definition of Key Terms

• Agency Banking: A system in which banks authorize third-party agents to deliver basic financial services to customers.

• Financial Inclusion: The process of ensuring that all individuals have access to affordable and useful financial products and services.

• Liquidity: The ability of agents to maintain sufficient funds to meet customer transaction needs.

• Agent Network: A system of authorized individuals or businesses that provide banking services on behalf of a licensed financial institution.

1.10 Organization of the Study

This research is structured into five chapters for clarity and logical flow. The introductory chapter discusses the background, research problem, objectives, and significance of the study. The second chapter focuses on theoretical and empirical literature related to agency banking and financial inclusion. In Chapter Three, the research design, data collection methods, and analytical techniques are presented. The fourth chapter contains data presentation, analysis, and interpretation of results, while the final chapter offers a summary of findings, conclusions, and practical recommendations.

References

Adejumo, A. O., & Okeke, J. C. (2021). The Impact of Agency Banking on Financial Inclusion in Sub-Saharan Africa. Journal of Finance and Development Studies, 10(2), 45–60.*
Central Bank of Nigeria (CBN). (2013). Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in Nigeria. Abuja: CBN Publications.
Central Bank of Nigeria (CBN). (2020). National Financial Inclusion Strategy (Revised Edition). Abuja: CBN.
Oni, T., & Adetayo, L. (2022). Agent Banking and Customer Satisfaction in Nigeria: Challenges and Prospects. African Journal of Banking and Finance, 14(1), 72–89.*