UNIVERSITY OF NAIROBI

SCHOOL OF BUSINESSMASTERS OF BUSINESS ADMINISTRATIONCOURSE: FINANCIAL SEMINAR

COURSE CODE: DFI 605AN ASSESSMENT OF THE EFFECT OF THE LEVEL OF AGENCY BANKING

ON TRANSACTION COSTS IN KENYAA research proposal submitted in partial fulfillment of the requirements for the Business Research Methods CourseD61/ 67102 /2011DECLARATION

This research project is my original work and has not been presented for a degree award in any other university

ARTHUR NYANGWARA OMBATI -----------------

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SUPERVISOR ------------------ DATE -------------

MODERATOR -----------------

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CHAIRMAN -------------------

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Abbreviations

AML - Anti-money laundering

CBK - Central Bank of Kenya

CFT - Counter-Terrorist Financing

CGAP - Consultative Group to Assist the Poor

DFID - Department for International Development

GDP - Gross Domestic Product

GSMA - Global System for Mobile Communications Association

IFC - International Finance Corporation

KRA - Kenya Revenue Authority`Table of Contents4CHAPTER ONE:

41.0BACKGROUND TO THE STUDY

51.0.1 Banking Environment in Kenya

61.0.2 Characteristics of the Agency Banking Arrangement

61.0.3 Agency Banking in Kenya.

71.1 STATEMENT OF THE PROBLEM

71.2 STUDY OBJECTIVES

81.3 RESEARCH QUESTIONS

81.4 RESEARCH HYPOTHESES

81.5 JUSTIFICATION OF THE STUDY

81.6 SIGNIFICANCE OF THE STUDY

91.7 SCOPE

91.8 LIMITATIONS OF THE STUDY

10CHAPTER TWO:

102.1 LITERATURE REVIEW

102.1.1 Fundamentals of Agency Banking

112.1.2 Factors Affecting the Adoption of Agency Banking

122.2 CONCEPTUAL FRAMEWORK

132.3 RESEARCH GAPS

133.1 RESEARCH METHODOLOGYCHAPTER THR

133.2 Research design

143.3 Population of the study

143.4 Sample and Sampling procedure

143.5 Data Collection Instruments

153.6 Data Collection Procedure

173.7 ETHICAL CONSIDERATIONS

EE:13

CHAPTER ONE

1.1. Introduction1.1.1. The Level of Agency BankingAgency banking is an arrangement by which licensed institutions engage third parties to offer certain banking services on their behalf. A banking agent is a retail or postal 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. 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 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 (CGAP, 2006)

In Kenya, agency banking is governed by the Prudential Guideline on Agent Banking issued by the Central Bank and which became operational on 1st May 2010. The agency banking model was embraced as an avenue to taking banking services closer to the unbanked or under banked sections of the population. Banks engage agents typically retail commercial outlets, ranging from lottery kiosks, pharmacies, post offices, construction goods stores, and so forth, to provide distribution outlets for financial services on their behalf in areas with business opportunities which may not necessarily merit the institutions physical presence.Kenya has experience with both bank-based and nonbank-based agent banking models. With respect to the bank-based model, Parliament gave approval for banking legislation to be amended to enable the use of agents in June 2009, and the regulations for agent banking were published by the CBK in May 2010 (Guideline on Agent Banking - CBK/PG/15, 2010). Prior to the 2010 Guidelines since the Banking Act did not address the issue of banks using agents to deliver financial services, the Cental Bank of Kenya approved such arrangements on a case-by-case basis. Other relevant regulations which have enabled branchless banking are: a 2008 regulation allowing microfinance deposit-taking institutions to use agents; a 2009 amendment to the Banking Act that allows banks to appoint agents to take deposits and perform other activities; and a 2009 AML/CFT bill which applies to both bank and non-bank institutions (CGAP, 2010d). The draft regulations for the Provision of Electronic Retail Transfers were launched by the CBK in February 2011. These will provide a full legal framework for nonbank-based models when they are enacted.In terms of branchless banking, Kenya is probably best known for its M-PESA mobile phone-based payment service. M-PESA was launched in March 2007 by Safaricom, a joint venture of the Kenyan government and Vodafone. This service started before there was any legislation related to agent banking, mobile payments, payment systems, consumer protection, or AML/CFT.

The 2010 agent banking guidelines allowed banks to start working in partnership with nonbank based models. In March 2010, Safaricom and Equity Bank launched a full savings account. This is issued by Equity Bank but marketed as an M-PESA Equity account called M-KESHO. Like MPESA accounts, M-KESHO accounts have no account opening fees, minimum balances or monthly charges. 1.1.2. Transaction costsTransaction costs can be considered direct when related to individual orders/transactions, or indirect when accounted for globally as part of the provision of the transaction services. To provide a full picture, we also introduce the concept of direct and indirect explicit transaction costs.1.1.2.1. Direct Explicit Transaction Costs.

Brokerage commissions, market fees, clearing and settlement costs, and taxes/ stamp duties are explicit costs. They are said to be explicit because they do not depend on the trade price and are usually documented separately from it. As these costs do not rely on the trading strategy, they can be known in advance, before the execution of the trade. (D'Hondt and Giraud, 2008).1.1.2.2. Indirect Explicit Transaction Costs

In addition to direct costs, explicit costs also include a number of indirect costs having to do with the processing supporting the execution and the counterparties involved. Even though the determination of these costs in todays environment is very difficult (and perhaps impossible on a trade-by-trade basis), their importance should not be underestimated when venues or particular types of transaction are opted for. These indirect explicit transaction costs encompass:

a) Indirect costs related to operational risks

Basel II defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. From the perspective of managing transactions in financial instruments, operational risks relate to the risk of loss resulting from inadequate or failed internal processes, people and systems in the handling of the transaction cycle. The definition provided in the Basel II

capital requirement framework encompasses situations such as:

Internal fraudmisappropriation of assets, tax evasion, intentional mismarking of positions

External fraudtheft of information, hacking damage, third-party theft and forgery

Business disruption and systems failuresutility disruptions, software failures, hardware failures

Execution, delivery, and process managementdata-entry errors, accounting errors, failed mandatory reporting, negligent loss of client assets. (D'Hondt and Giraud, 2008).b) Indirect costs related to counterparty (and credit) risks

Counterparty risk exists when a financial institution transacts with another firm that may default on its obligation to settle a transaction or deliver securities related to a transaction. This situation can arise when the counterparty is in financial distress (we are then confronted with credit risk) or when the counterparty faces a pure operational or cash management/stock management glitch. As a consequence, counterparty risk can occur when a financial institution lends cash or securities, but it could also be influenced by occasional problems in the settlement cycle. Failure to collect payment or deliver securities can have a damaging impact on a financial institution, as it may cause the firm to default on other transactions and create a cascade of events that can, if not dealt with in due time, lead to default (D'Hondt and Giraud, 2008).The Central Bank of Kenya (CBK) recognizes the financial inclusion challenges which the country faces. These include the cost of financial services and the distance to bank branches in remote areas. Part of their approach to addressing these challenges is to promote innovation through mobile financial services and to address the delivery channel costs through increased use of agent banking (Central Bank of Kenya, 2010).1.1.3. Relationship between the level of Agency Banking and Transaction Costs.

Significant population segments in developing countries in particular the bottom of the pyramid have very limited access to basic financial services, such as bank accounts, savings or insurance. For the customer agency banking is expected to lower transaction cost by bringing financial services closer to clients home; client would visit store anyway for groceries, etc.). Further benefits to customers include: longer opening hours, Shorter lines than in branches, More accessible for illiterates and the very poor who might feel intimidated in branches.

Benefits flowing to banking institutions include: 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, Improved indirect branch productivity by reducing congestion Though banks in Kenya continue to invest in rolling out brick and mortar branches that are complimented by various delivery channels, the challenge of access to formal financial services remains a big impediment to financial inclusion due to the high costs inherent in these traditional banking methods. This research project therefore sets out to explore the extent to which Kenyan banks have been able to partner with agent banks, commercial entities whose primary objective and business is other than the provision of financial services and the extent to which the bottom of the pyramid has embraced agency banking.1.1.4. The Kenyan Banking EnvironmentThe banking environment in Kenya is comprised of 43 commercial banks, 1 mortgage finance company, 6 deposit taking microfinance institutions, 5 representative offices of foreign banks, 115 foreign exchange bureaus and 2 credit reference bureaus. In 2006 the FinAccess survey was undertaken by Steadman Group to measure access to and demand for financial services in a nationally representative survey. The results of the survey indicated that 18.9% of the population aged 18 years and above were formally included with this category representing users of banks, Postbank and insurance products. Micro Finance Institutions and Saving and Credit Cooperatives, which represented the semiformal institutions, accounted for 7.5%. In total, 26.4% were formally served which represented approximately 4.6 million of the estimated 17.4 million adults in Kenya in 2006. 35.2% were financially included through their use of Accumulating Savings and Credit Associations, Rotating Savings and Credit Associations or other informal groups/persons. 38.4% used no institutionalized financial product, and are therefore the financially excluded. A sub-indicator used to capture indirect access using other persons accounts indicated that of those currently not banked, 2% (300 thousand out of the 15.3 million unbanked) used another persons account, mainly for receiving and withdrawing money.Since then, the banking sector has been developing and deepening faster than the overall economy and remains sound and resilient. With Kenyas GDP growth averaging 3.9% over the past 10 years, steady performance by the banking sector has mainly been driven by roping in of the unbanked population. In 2010 and 2011 alone the banking sector grew by 9.0% and 7.8% respectively while the economy grew by 5.8% and 4.4% in 2010 and 2011 respectively driven by financial infrastructure and enabling financial inclusion. From just over 1 million banking accounts in 2000 and 2.14 million in 2005 the sector today boasts of 14.9 million deposits accounts. What is even more telling of the increase in access to banking services, is that, of total deposit accounts as at end June 2012, 14 million (94%) are considered micro accounts as they hold an average balance of less than KES 100,000 (USD 1,100). The most striking however has been the huge expansion in agency banking outlets; as at 30th June 2012, there were 10 commercial banks that had contracted 12,054 active agents facilitating over 18.7 million transactions valued at Ksh. 93.1 billion, an increase from 8 banks that had contracted 10,006 active agents facilitating over 13 million transactions valued at Ksh. 64.8 billion in March 2012.With the continuing expansion of agency bank outlets, the number of counties with no financial services in the near future will shrunk to zero as financial services become available to many in geographically remote regions and to the bottom of the pyramid, who have been chronically underserved.1.1 STATEMENT OF THE PROBLEM

Despite commercial banks growing success in reaching the bottom of the pyramid many low income households continue to lack access to formal or semiformal financial services due to cost constraints. Comprehensive research therefore needs to been done to explore the extent to which Kenyan banks have been able to partner with agent banks services and the extent to which the bottom of the pyramid has embraced agency banking. Agency banking has been met with much enthusiasm in the banking industry because of its potential to deliver financial services to a greater number of people at the bottom of the pyramid. Although much effort has been spent on registering new clients, less consideration has been given to how to retain them. The expansion in coverage is widely recognized as an opportunity to increase access to formal banking for the poor by extending their reach without necessarily investing in expensive branches that are now in place. However, at the recent conference Mobile Money Summit, organized by CGAP, IFC, DFID and GSMA in May 2012, it was pointed out that less than 10 percent of agency banking financial services users are low income. Moreover, these same customers may use agency banking financial services intensely for the first one or two months, but then significantly reduce or stop using the services. The question is how to drive more uptake and intense usage among low income populations.1.2 STUDY OBJECTIVES

This research aims at investigating the strategies that are being employed by Kenyan banks to optimize financial inclusion by partnering with agent banks and to ascertain the determinants of uptake of agency banking by the bottom of the pyramid in Kenya. 1.3RESEARCH QUESTIONSThe study objectives will be addressed by the following specific research questions: How extensive are the networks banks have developed of such agency banks?

What is the uptake of agency banking by the banked and unbanked and what are their needs?

Are the institutional setups between agent banks and the promoting banks efficient and scalable?

Are the regulations in place adequate?1.4 RESEARCH HYPOTHESES

The study will test the hypothesis that there is low uptake of agency banking by the bottom of the pyramid in Kenya (Null hypothesis: H0), while the Alternative hypothesis (H1) is that the uptake of agency banking by the bottom of the pyramid in Kenya is high. The sampled data will be subjected to t-test to determine whether the null hypothesis is true or false.1.5 JUSTIFICATION OF THE STUDY

The financial opportunities at the bottom of the pyramid in themselves hold significant untapped value for banks. Emerging competitor threats have forced banks to seriously reconsider their approach to lower income markets by partnering with agent banks. This is meant to improve accessibility in service delivery and cut down on cost of transaction. However, issues of product offering, reliability, complexity and alleged ease of use, usefulness and risk may affect reception by the bottom he pyramid to agency banking. Therefore, this study will establish the significant factors that are prone to hasten or slow down the espousal of agency banking by the bottom of the pyramid in Kenya.

1.6 SIGNIFICANCE OF THE STUDYThis study could be of special interest and value to the banking sector and other commercial sectors linked to banking. The findings and recommendations to Kenyan banks could help them to analyze and restructure their strategy to attract the bottom of the pyramid. The banking industry can attract the bottom of the pyramid towards agency banking by taking into account the factors influencing user decisions or preferences. Researchers and allied industries may use the results by analyzing the behavior and resistance patterns of the bottom of the pyramid leading to innovation.1.7 SCOPE OF RESEARCHThe scope of this research is twofold. First, the research aims at investigating Kenyas financial service industry and will determine the extent to which Kenyan banks have been able to partner with agent banks, by considering the relationship between agent banks and sponsoring bank. Next, the research will focus on the extent to which the bottom of the pyramid has embraced agency banking by examines the key preferences and constraints in the uptake and usage of agency banking among the banked and unbanked.1.8 LIMITATIONS OF THE STUDY

Lack of accurate database on the bottom of the pyramid in Kenya may pose a challenge; however; this will be mitigated by mapping population segments of the prior to actual data collection. CHAPTER TWO:2.1 LITERATURE REVIEW

2.1.1 Fundamentals of Agency BankingAccording to Atieno, R. (2001) a banking agent is a retail or postal outlet contracted by a financial institution or a bank 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. 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 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 (Berger, A. N & Humprey, B. D, 1998) Mokogi, J.G.O (2003) Banking agents are usually equipped with a combination of point of sale card reader, banking agent, barcode scanner to scan bills for bill payment transactions. Clients that transact at the agent use their banking agent to access their bank account or e-wallet respectively. Identification of entrepreneurs 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.

Local regulation will determine if financial institutions are allowed to work through retail outlets. Regulators generally determine what kind of, if any, financial institutions are permitted to contract banking agents, what products can be offered at the retail outlets, how financial institutions have to handle cash transport.(Christopher,W. 2002) Banking agents help financial institutions to divert existing entrepreneurs from crowded branches providing a complementary, often more convenient channel. Other financial institutions, especially in developing markets, use agents to reach an additional client segment or geography. Reaching poor clients in rural areas is often prohibitively expensive for financial institutions since transaction numbers and volumes do not cover the cost of a branch. In such environments banking agents that piggy back on existing retail infrastructure and lower set up and running cost can play a vital role in offering many low-income people their first-time access to a range of financial services. Also, low-income clients often feel more comfortable banking at their local store than walking into a marble branch (Christopher, W.2002)

Banking agents are the backbone of banking, performing transactions over a bank device, most often a banking agent. To enable clients to convert cash into electronic money and vice versa which send can be sent over their banking agent, clients will have to visit a branch, banking agent. Especially in remote and rural locations, where cash is still the most important way to pay and transact, a bank banking service is dependent on banking agents to enable clients to effectively use the service.2.1.2 Factors Affecting the Adoption of Agency BankingAgent banking systems are up to three times cheaper to operate than branches for two reasons. First, agent banking minimizes fixed costs by leveraging existing retail outlets and reducing the need for financial agent banks to invest in their own infrastructure. ( Gardner, M.J, Mills D.L Cooperman E.S 2000) Although agent banking incurs higher variable costs from commissions to agents and communications, fixed costs per transaction for branches are significantly higher. According to setting up an agent costs 2 percent to 4 percent of the cost of a branch cashier. So even when functioning at maximum capacity, a branch cashier incurs more than 78 cents in fixed costs per transaction, compared to just 11 cents for a POS-enabled agent and 4 cents or less for a bank-enabled agent or bank wallet. Second, acquisition costs are lower for bank-enabled agents and bank wallets. ( Kitaka, P 2001) By using banking agents instead of payment cards, bank wallets and bank accounts linked to a bank wallet are able to acquire entrepreneurs at less than 70 percent of the cost of a branch or POS-enabled agent. In some countries, bank wallets may also benefit from lower-cost Know Your Customer requirements, such as the elimination of requirements to provide photographs and photocopies of documents. In some countries, banks have successfully expanded their outreach by engaging local agents or correspondents to offer their services. These local agents or correspondents may be known and trusted retail outlets such as shops or post offices. Agents help reach more people in areas where bank branches do not exist or by easing traffic at existing branches. While initially focused on traditional payments products such as the payment of bills or taxes, agents in a number of countries are now authorized to offer a broader range of financial services, such as withdrawals, deposits, pre-approved credit lines, simplified current accounts, and international remittances( Kitaka,P. 2001).

Agent banking represents a significant opportunity to reduce transaction costs such as travel for clients by bringing financial services to hard-to-reach and geographically dispersed areas. Banks and other financial institutions often do not have sufficient incentive or capacity to establish formal branches in these areas. The set-up of agent banks is less costly and more flexible than for traditional bank branches: it reduces the need to invest in staff and physical infrastructure.

In countries where models have been successfully implemented, regulators and supervisors have addressed the potential risks of using a large number of agents to deliver financial services by adopting a risk-based approach to supervision where agents are supervised indirectly and banks must assume full responsibility for their agents( Kasekende,A.L, 2008) Regulation enabling agent banking allows for sufficient business incentives for both agents and financial institutions to increase outreach by delivering financial services through a network of agents.2.2 CONCEPTUAL FRAMEWORK

Responsiveness to technological dynamics is critical in business development and growth. Most firms have adopted recent innovations in technology to remain competitive and profitable, and to cut a niche in various market segments. Banks have devised ways of reaching out to SMEs in all areas. They have tailored their products to suit the local markets; for instance, MKESHO, the latest product by Equity Bank in conjunction with Safaricom Limited is meant to improve access to banking services to small scale traders in all areas. However, the use of such innovations may be either accelerated or deterred by factors such as access to ICT facilities, usage cost, ICT skills, which when adopted tries to answer question to the way a business may perceive the uptake of e banking: perceived ease of use, perceived organization performance, perceived organization customer relationship and perceived business risks. The conceptual frame work can be tabulate as below

2.3 RESEARCH GAPS

Several studies have been carried out to explore the growth of SMEs, especially to identify characteristics of SMEs, their profitability and reasons for poor performance. However, little or no studies have been conducted in Kenya to establish the factors affecting adoption of e-banking and how it accelerates growth among SMEs specifically in the urban and semi urban areas. Too much focus is on performances other than way to make business run efficiently and effectively at reduced cost. The extent of utilization of ICT to give business a competitive advantage with respect to banking.CHAPTER THREE:

3.1 RESEARCH METHODOLOGY

This chapter discusses research design, data sources, the procedures in data collection, data collection instruments and techniques of analysis and presentation.

3.2 Research design For the present research, the paper is based on Exploratory Research. The major emphasis of Exploratory Research is on the discovery of ideas. Through Exploration, the researcher develops concepts more clearly, establish priorities, develop operational definitions, and improve the final research design. This research is both quantitative and qualitative. This research is based on the data collected through Questionnaire with agency banking User and Non-user. The data have been grouped into two main categories - primary and secondary data. The secondary data have been compiled from newspaper, journals, magazines, and web links and also research papers. The primary data have been collected through an exploratory research Questionnaire with user and non-user of agency banking basically Businessmen, servicemen, professionals, students etc.

Research Instruments Both primary and secondary data was used in the study. Primary data was collected using a questionnaire. The questionnaire was employed for data collection in this study because a lot of information collected over a very short period of time. The study on the other hand, it is mainly concerned with views, options, perceptions, feelings and attitudes and such information is best collected through the use of questionnaires. Secondary data was obtained from the annual prospectus of the four banks. More secondary data was obtained from news lines, bank agent, banks pamphlets, and research findings from similar studies obtained from libraries, newspapers and other publications.

3.3 Population of the study

A list of registered agency banking operators will be obtained from the central bank of Kenya

3.4 Sample and Sampling procedure

Sample size determination

The sampling method used will ensure that every bank that has adopted agency banking is covered. This will be derived from the list of banks obtained from central bank. The scope of the sample will be restricted to Nairobi County.

Area sampling method will be used based on the location of the agency banking agents in Nairobi County. At least one agency banking agent will be selected from each suburb in Nairobi County that has agency banking outlets.

Sample size determination.

The sample size determination ensures the minimum number of respondents on online Banking. Since there are many indicators the sample size is calculated using 50% as indicator percentage for survey that gives maximum sample size.

The sample size needed was calculated using the following formula:

n=z{[p(1-p)]/d}Deff

Where n =(sample size, z =two-sided normal variate at 95%

confidence level (1.96), p=(indicator percentage, d =(precision

and eff D =design effect.

To obtain data on indicators at a 10% precision and 95%

confidence interval, assuming a design effect of 2 (assumed) and

the most conservative estimate of indicator percentage (50%), the

minimum sample size required is approximately 100.A total of 100 agency banking outlets in Nairobi County will be targeted in this study. Area sampling will be used to select the respondents in the study.

3.5 Data Collection InstrumentsPrimary data will be collected from the field using questionnaires and key informant interviews. The questionnaire will be administered to Agency banking operator by the interviewer. The questionnaire contains both closed and open-ended questions and is structured as follows:A. General information: Information to be collected include type, when the Agency banking outlet was started, number of customers served per day and the transactions type [ Cash Deposit, Withdrawal or fund transfers etc], Average amount transacted and what is the maximum allowedB. Information on Legal formalities before registration; What are the CBK requirements [Amount of money - reserve deposit, requirement for business premises lay out i.e which kind of goods can be sold within the outletC. Level of usage of Agency Banking services by the customersD. Challenges/Risks faced by Agency banking operators on the day to day running of the banking services to customers and other impeding constraint

E. General advise to enhance growth; Action from the Banking industry, Action from the regulators CBK/KRA, County government etc and What should be done by the Agency operators themselves to facilitate penetration which is not being done now.

3.6 Data Collection Procedure

This research will be executed as follows:

3.6.1 Pilot study:

Piloting of questionnaire to test reliability and validity of data collected. The purpose of the pilot test is to refine the questionnaire so as to ensure validity and reliability of data collected and to eliminate problems in coding of data. Cronbachs alpha will be computed to determine reliability of data collected. Average inter-correlations among the independent and dependent variables will be computed and a value of Cronbachs alpha closer to 1 implies that data collected is reliable. To determine validity, data will be subjected to factor analysis to confirm consistency with the theoretical framework.

3.6.2 Administration of the questionnaire during the actual study:

A comprehensive structured questionnaire with closed and open-ended questions will be administered to respondents by the interviewer in the different wards.

3.6.3 Research Instruments Both primary and secondary data was used in the study. Primary data was collected using a questionnaire. The questionnaire was employed for data collection in this study because a lot of information collected over a very short period of time. The study on the other hand, it is mainly concerned with views, options, perceptions, feelings and attitudes and such information is best collected through the use of questionnaires. Secondary data was obtained from the annual prospectus of the four banks. More secondary data was obtained from news lines, bank agent, banks pamphlets, and research findings from similar studies obtained from libraries, newspapers and other publications.

3.6.4 Data collection procedure

For the study, primarily data was collected from 400 respondents from the 20,000-target population. Questionnaires were dropped at the various outlets within the region where the shop attendants requested the entrepreneurs to fill the questionnaire as they were waiting to be served. The questionnaires were filled by the respondents as the researcher waited in order to reduce non-response rate.

3.6.5 Validity and Reliability For the purposes of reliability and validity of the research instruments, a pilot study was carried out on 15 respondents who are actually not involved in the actual study. The results were evaluated accordingly and therefore the questionnaire adjusted to capture all the required data for the study. The researcher also used the test retest method to enhance reliability of the instruments further.

3.6.6 Data Analysis The study incorporated data analysis tools, which include descriptive and inferential statistics to analyze the data collected. A Likert scale was used to identify the degree of importance of each factor. Chi-squire test was used to establish the relationship between entrepreneur categories and principal factors that influence them to continue staying in a particular agent banking agent bank.

3.7 ETHICAL CONSIDERATIONS

Interviewers will obtain informed consent of the respondents. Data collection will begin by informing the respondents the benefits of the research and assuring them that their rights will be protected and information obtained will be confidential.

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Project Failure. Information Systems Management Spring: 65-73.APPENDIX 1: QUESTIONNAIRE

Instruction: Please TICK box where appropriate!

1) What type of economic activity are you involved in? ________________

2 how do you access banking service..3) Gender

1. Male [ ]

2. Female [ ]

9) Age ____________?

10) What is your level of education?

1. Primary [ ]

2. Secondary [ ]

3. Technical colleges and other tertiary institutions [ ]

4. University [ ]

11.) What is your position in this business./Place of work1. Owner [ ]

2. Manager [ ]

3. Both [ ]

12) Do you have access to banking facilities? Yes [ ] No [ ]

13) If Yes, please specify.....................................

14) Do you use Agency- banking facilities to transact business? Yes [ ] No [ ]

15) If Yes, please specify.....................................

16) If Yes, how often do you use Agency banking to transact business?

Daily [ ] Once a week [ ] Twice a week [ ] Once a month [ ] Twice a month [ ]

17) How would you rate the cost of using Agency -banking services? Extremely High [ ] Very High [ ] Moderate [ ] Low [ ] Very Low [ ]

18) Do you find agency banking convenient? Yes [ ] No [ ]

19) If No, please give reason(s)....................................................................................................................

19) Please make suggestions on how to improve agency banking service (s) that you use

............................................................................................................................................................

20) What are some of the challenges that you face in transacting business through Agency banking?

............................................................................................................................................................

21)what is your perception of agency , with regard to risk, ease of use, organization performance, organization and customer relations?

APPENDIX 2:

ActivityTime Frame

1Piloting the questionnaire 3 weeks

2Data collection2 months

3Data analysis1 months

4Report writing and defence and corrections1 months

APPENDIX 3: BUDGET

Activity Cost (Kshs)

1Proposal Development 5,000.00

2Piloting questionnaire 30,000.00

3Data collection 100,000.00

4Data analysis 20,000.00

5Preparation of report 10,000.00

6Contingency/incidentals 10,000.00

Total 175,000.00

ACKNOWLEDGEMENTS.

we give thanks to the Almighty God who has brought us this far. We would like to convey our sincere gratitude to our Lecturers X.N.Iraki and Mr .Akello for taking us through business research methods course work, Special thanks to this team for its cordial relation and wonderful contribution toward writing this proposal.Access to banking facilities

Perceived Ease of use

Perceived business performance

Uptake of agency banking services by the bottom of the pyramid

ICT skills

Perceived Organization-customer relationship

Usage cost

Perceived business risk

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