Improving the Rural Reach of DFS Through CICO Networks 

Cash-In/Cash-Out (CICO) service points allow customers to convert their e-money into cash or vice versa and facilitate digital financial services (DFS) uptake and use in developing markets. They also serve as a gateway to understanding customers’ needs, motivating investments to build more and better financial products that digitize a wider array of transactions and reduce the need for cash.

Various CICO network types exist, including bank branches, ATMs, and mobile money agents.

A technical note by CGAP lays out principles that CICO networks should follow to serve rural areas with greater reach and quality over time.

CGAP outlines the following six principles for building Inclusive rural CICO networks.

1. They enable rural CICO agents to generate more revenue streams.

Due to low population density and latent demand for financial services, rural agent networks struggle to generate revenue from CICO operations, especially compared to their urban counterparts. However, experts argue that more opportunities for rural agents to earn money are necessary to create a sustainable CICO operation.

This can be done through service aggregation, cross-subsidization, data analytics, and artificial intelligence. DFS providers can employ data analytics and artificial intelligence to:

  • Determine when and where to send cash to agents with liquidity problems.
  • Assess working capital credit or overdraft services to agents.
  • Create digital platforms that connect clients to anyone in the surrounding areas willing to act as a cash-out point.

To promote ease of use and interoperability, it’s recommended to integrate services offered by the CICO agent into a single platform, allowing for the use of one e-float account for multiple services. Additionally, designing product interfaces, terms and conditions, and marketing materials that are accessible to nonliterate and non-numerate people can help ensure that financial services are inclusive and effective in rural areas. 

DFS providers can also cross-subsidize the operation of their agent network to make rural agents viable, where part of the profits DFS providers get from well-performing agents in urban areas are used to subsidize agent operations in remote rural areas.

2. They make CICO agents more accessible to rural customers

Optimal agent proximity targets need to be defined locally and should be determined by considering variables such as population density, existing infrastructure, and  the type of transactions made by rural clients.

It’s generally recommended that agents be close to the community they are serving. But there’s no single proximity measurement, and the report recommends adopting context-specific methods. Variables for consideration include: population density, commonly used transportation modes and the dominant types of customers’ financial transactions.

Close agent proximity to customers increases trust and reduces the time and cost of accessing DFS.

To implement data-based proximity mapping, CGAP recommends geotagging agent performance data to analyze coverage gaps and supplement other transactional data. 

CGAP and Flowminder conducted research in Tanzania and Bangladesh, identifying rural areas with latent demand for DFS but no agents. The Bank of Tanzania initially planned to set a standard agent proximity target of 5 km for all households, but it was deemed unrealistic. Instead, the bank decided that the common proximity target for urban areas would be 0.5 km and for rural areas, it would be 12 km. The process highlights how policymakers can approach the idea of setting proximity targets through tiers. For Bangladesh, modeling exercises suggest that agents can be 1.5 km from all rural dwellers.

3. They expand the range of people that can serve as CICO agents

Some countries require agents to have a formal business registration, which limits service providers from recruiting different people to work as agents. 

In Ethiopia, an earlier version of the agency banking directive issued in 2012 required agents to have a formal business registration. In the later versions of regulations that guide agency banking, financial institutions are allowed to work with agents who can provide support letters from their local level administration.

The report highlights that selecting respected rural leaders with deep ties in their communities and providing them with the skills and tools to become agents helps expand agent networks across rural communities. Newer types of agents, which often act as roaming agents, include rural transportation workers, warehouse managers, agri-dealers and processors, fast-moving consumer goods (FMCG) distributors, village savings and loans group members, and household appliance store owners.

4. Identify and manage consumer protection and other risks rural agents pose without stopping innovation.

Rural customers have lower literacy levels and access to information than their urban counterparts, which can make them more vulnerable to agent abuse. Some regulators are addressing this by ensuring that DFS providers with CICO networks that scale operate within the main banking system and avoid any single provider having unique access to data on financial transactions. DFS providers are also actively monitoring rural agents’ practice of market conduct standards.

To protect consumers in rural areas, providers should work with other providers in the market to develop and agree on a joint agent code of conduct that considers the potential risks of rural agents. Providers should also work with local industry associations or other relevant local actors to offer agents customer protection certification. Additionally, providers should implement complaint handling mechanisms and agree on feasible mechanisms to share data related to consumer protection between providers, agents, or other key partners.

5. They develop a data-driven strategy to close the gender gap in CICO access and use.

Although digital financial services are believed to enable better access to financial services, understanding barriers for women is required to narrow the gender gap successfully. 

Barriers such as lack of formal education, limited access to market information, and harassment by male agents turn away rural women from CICO services, reducing the rural customer base and agent profitability. Reducing the gender gap requires collecting sex-disaggregated data on customer and agent transactions to identify specific gender-based constraints.

FINCA conducted a gender-sensitive analysis of its agent network in the Democratic Republic of Congo to identify differences in constraints and performance between male and female agents. The analysis revealed that female agents had similar education levels but fewer years in operation than male agents, and they tended to operate in peri-urban areas, while male agents operated mainly in urban ones. Female agents processed more transactions of lower average value than male agents but were 16% more profitable. Female agents focused on services, while male agents focused on commerce.

6. They expand public and private partnerships that share CICO agent networks.

DFS providers are making progress in expanding the reach and quality of CICO networks in urban, peri-urban, and main rural towns. Still, their presence in remote rural areas is limited. 

Government policies and enabling regulations that encourage public-private partnerships can provide direct or indirect assistance to rural CICO agent networks in establishing operations and developing innovative business models that collaborate with various private service providers. These policies can use social programs and public infrastructure to supplement the services provided by CICO agents.

Public-private partnerships can take advantage of partners’ rural customer knowledge or physical reach, such as FMCG merchants, agribusinesses, household appliance chains, schools, health clinics, and government extension offices.

CICO x Ethiopia, a two-year project launched by the UN Capital Development Fund (UNCDF) and the Bill & Melinda Gates Foundation on April 27, 2023, aims to expand the reach of digital financial services in Ethiopia by improving CICO networks. The project aims to train around 15 service providers through a CICO boot camp and incubate CICO providers and technology firms. In addition, it will develop a CICO measurement dashboard that will enable the National Bank of Ethiopia to assess the status of CICO networks in the country.

Read the full paper here

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