Agent networks play a critical role in the uptake of digital financial services. They make financial transactions easier as they improve accessibility and offer convenience. Consequently, agent networks have expanded financial inclusion to underserved and marginalized groups such as women, youth, and rural communities.

However, despite the significant contributions that agent networks make toward financial inclusion, there is still a lot of room to grow access and usage, especially for users outside of urban areas. Improvements to the agent network distribution model by implementing, for instance, shared agent networks, women agents, MSMEs as agents, etc., significantly impact the expansion of digital financial services. In Zambia, for example, UNCDF and partners tested Innovative Shared Space Agent Hub Models to increase access and usage of DFS among rural populations.

In Ethiopia, the United Nation's Capital Development Fund (UNCDF), through its Digital Financial Services for Resilience (DFS4Res) Programme, funded by the European Union (EU) and in partnership with the Organization of Africa, Caribbean, and Pacific States (OACPS), is supporting institutional partners in the country with technical expertise and capital to promote an inclusive digital economy, through enhancing the agent network model. This is happening at an exciting time in Ethiopia, particularly for the growth of its digital financial services ecosystem, as the country is liberalizing its economy by opening up the telecom sector, and the banking sector, allowing foreign companies to operate in Ethiopia and nonbanks to issue e-money.

There is therefore a critical need for innovation in Ethiopia's current agent distribution network if underserved constituents can benefit from these services. Some key challenges hampering the growth of access points in peri-urban and rural areas include:

· The low coverage of financial services - financial institutions focus mainly on marketable parts of society. This is illustrated by the fact that nearly 50% of ATMs and 77% of POS machines are in Addis Ababa alone.

· For a long time, most banks and MFIs used their existing infrastructure and branch networks to onboard agents to offer mobile money services. However, many agents remain inactive or dormant.

· Due to competing demands from their core business, no considerable investment is made in agency banking to successfully deploy and manage the agents.

· High costs in scaling to rural communities since high investments are required to upskill customers with low levels of digital financial literacy.

Despite these challenges, there is a high potential to expand digital financial services in Ethiopia and increase users, as the total addressable market is vast and promising. Private sector players are eager to address some of these opportunities, especially mobile money providers looking for third parties with innovative solutions that can help them overcome some of these challenges and expand their services to the rural economies.

The 'Tegera' Project: Expanding the Agent Network in Ethiopia

UNCDF is collaborating with Highlight Trading (one of the largest agent distribution network companies and one of seven exclusive agent network managers onboarded by EthioTelecom) on the 'Tegera' project to develop an innovative and scalable agent distribution model that caters to underserved and unreached population segments. 'Tegera' refers to an old type of money in Ethiopia.

The 'Tegera' pilot, will identify, train, activate and monitor 2,000 agents, out of which 50% will be either women or persons under the age of 35. It is expected that 50,000 customers will be onboarded, targeting 50% women users or persons under the age of 35. The other major focus of the project is the implementation of a digital agent management tool that will help Highlight Trading run its agents in a more innovative way.

At the project launch a few months back, Kidist Zegeye, Managing Director of Highlight Trading, further explained that "out of the 2,000 agents that will be onboarded, 500 of them will be provided with point of sale (POS) machines. These machines will be aggregated with essential services and products of different financial institutions to improve access and increase usage. With these POS devices, agents can also issue instant receipts to customers after transactions, boosting trust in digital financial services." She added, "we will capture and map the GPS location of all registered and trained agents to help us understand their spread or coverage and how that brings digital financial services closer to people in remote communities."

Ultimately, there are three areas in which UNCDF expects the pilot to make inroads. The first is access to financial services. Highlight Trading will develop a digital agent management platform to better manage and expand the agent network. This will increase efficiency and expand the reach of digital finance products to marginalized segments.

Secondly, Highlight Trading will ensure its agents have a wide range of innovative digital products and services for their clients. This will be done in partnership with EthioTelecom and other financial service providers. This will improve the use of digital financial services and allow agents to generate revenue to sustain their businesses. It will also create a vibrant digital ecosystem around the agents’ business and community.

Without digital skills and capabilities, uptake of digital financial services is very limited. For this reason, the pilot will also focus on improving digital literacy. Agents play a key role in teaching customers how to use digital financial services. Therefore, Highlight Trading will provide training to their agents on new products and refreshers for existing services to increase their knowledge and confidence.

Agents Scaling Digital Finance Through Unique Business Cases.

Since the commencement of the 'Tegera' project in March this year, Highlight Tradings has embarked on an ambitious agent recruitment drive to expand its existing distribution network across the country, recruiting over 1950 potential agents, of whom 578 are women. Over 998 have so far been oriented and are being onboarded and trained to become agents in various parts of the country.

In addition to airtime sales, most of Highlight Trading’s existing agents provide the Telebirr mobile money service, allowing customers to make various financial transactions using their phones. These services include cash-in, cash-out, airtime top-up, utility bill payment, and payment for goods and services. Particularly for agents in peri-urban areas, these innovative financial offerings beyond payments mean a more viable business case as they can generate more transactions per customer. Telebirr service currently has over 25 million subscribers, ninety thousand agents, and over twenty-three thousand merchants.

Depending on the location of a Highlight Trading agent, they may offer a particular service or identify a unique business case as their primary offer. This is the case in both urban and peri-urban areas. In Addis Ababa, one of Highlight Trading's top-performing agents, a small local store owner located at Piassa, at the heart of Addis has utility bill payments as her primary business case, meaning that the bulk of her transactions is from the payment of utilities, digitally. Her work as an agent contributes more than 50% of her daily proceeds, topping the sale of general merchandise, which is her original business.

For another agent who operates from a small retail shop on a busy street in Addis Ababa, rebalancing for ride-hailing drivers generates the bulk of his daily sales. From 5 AM to about 10 PM, when his shop is open, his main business is replenishing the e-wallets of drivers working with ride-hailing platforms such as Ride and Feres, among others. He indicates that the agent business is viable. However, the struggle to predict fluctuations in client demand and insufficient working capital threatens its survival.

Most agents outside Addis Ababa also determine their primary offering based on location. In the town of Mojo, 78 km southeast of Addis Abeba, one of Highlight Trading's top-performing agents is located at a busy bus station. The principal business of that agent is providing cash-in and cash-out services for passengers and drivers that commute between cities/towns. His proximity to the bus station positively impacts the uptake and use of digital financial services in that area, helping to deepen financial inclusion. The same story is true for an agent who operates close to a fuel station primarily enabling ‘Bajaj’ (three-wheeler motorcycle) drivers to purchase fuel. In the months ahead HighLight Trading will also have to look at its least-performing agents if it wants to successfully expand.

Challenges to Expanding the Agent Network and Lessons from Peer Countries

Liquidity is the biggest challenge that most agents in Ethiopia identify as a barrier to run their business profitably. Agents cite their inability to predict fluctuations in client demand, the lack of proximity to banks (main rebalancing points) and insufficient working capital as the main factors accounting for ineffective liquidity management.

To address this challenge, Highlight Trading has agent supervisors, particularly in the peri-urban areas, who are responsible for liquidity monitoring to ensure that agents rebalance when a specific limit is reached. Onsite cash collection in exchange for e-float is one of the ways the supervisors assist these agents. It has also rolled out a data management system that can help it effectively monitor its agents and identify their proximity to banks or agent supervisors who can help them top up for smooth operations. Highlight Trading provides e-float on a credit basis for agents who have proved their business worth. A new agent overdraft service the company is accessing is expected to significantly address agents' liquidity problems.

The issue of agent liquidity is not peculiar to Ethiopia or the agents of Highlight Trading, however, insights from other countries could prove valuable to growing its agent network. In its 2020 how-to-note-on-agent-liquidity-management, 'Savings at the Frontiers' cites several strategies adopted in different countries to address this challenge. For instance, the Mwanga Community Bank in Tanzania works directly with savings group leaders by encouraging them to inform their agents about upcoming cash-outs a few days prior so that there is adequate time for them to secure the float. In Ghana, Access Bank has developed partnerships with other financial institutions and NGOs where agents can rebalance to address proximity-related issues. Others, like NFT Consult in Uganda, use technology that gives real-time information on agents' liquidity levels.

Commission payment is another point that agents highlighted as critical to creating access and increasing the uptake of digital financial services. They cite delayed payments by providers as the main challenge, where payments are made irregularly, preventing them from making meaningful business decisions as most say they plow the commission back into the business. The low commission rate is also not appealing to some prospects.

Some studies recommend the non-exclusivity of agents as a way to address such challenges. BCG's 2019 publication on 'the economics of financial service agent networks' found that "…the equation is more favourable for non-exclusive agents, who represent multiple providers. Profits for non-exclusive agents (dedicated and non-dedicated) exceed those for exclusive agents by more than 40% in countries such as Kenya and Bangladesh." Incentivizing agents by offering bonuses for customer acquisitions and high volumes of mobile money transactions are also proposed recommendations to shore up commission payments and make the business case more compelling for agents.

Brand and marketing support from providers is a third challenge that agents have to deal with and even more so for those in rural and peri-urban communities where digital literacy levels are low and awareness about digital products is almost non-existent. Agents say that more effort is needed to advertise their products and boost trust; a poster or two on the product features and usage and the branding of their agent point alone is inadequate. The lack of a deliberate marketing plan has resulted in specific clusters having more agents than the total customers served cumulatively. A situation that could be retrogressive in scaling digital financial services to underserved communities.

To augment awareness efforts by Ethio Telecom on TeleBirr, Highlight Trading has periodic training for its agents using short videos, face-to-face training and refresher lessons to equip them to publicize the service through customer education. In addition to the sales drive EthioTelecom does to promote use cases like fuel subsidies, merchant payments, traffic penalties, utility payments, and transfers to and from banks; they recommend an extensive and aggressive joint sales drive with Ethio Telecom to create visibility for the agents as a crucial step to scaling the service in Ethiopia.

What Lies Ahead Post Safaricom's Entry into Ethiopia's Telecom Space?

Until 6th October of this year when Safaricom officially switched on its mobile telecommunications services in Ethiopia, state-owned Ethio Telecom was the country's sole provider of telecommunication services. Safaricom's entry into the market is part of the Ethiopian Government's Digital Ethiopia 2025 Strategy, which seeks to leverage technology and digital innovations to build a more prosperous society.

Safaricom's mobile network services are now available in 16 cities. The company says it is also readying itself to roll out its M-PESA mobile money service in the next two to three months. EthioTelecom currently has a monopoly with its Telebirr service. Launched in May 2021, the Telebirr service has over 25 million users across the country, with agent points also dotted all over. Although Safaricom has yet to launch its M-PESA service officially and expand its distribution network, it has done significant branding at agent points across the cities where its services are available.

The opening up of the telecoms space in Ethiopia and the resulting competition between two or more players, including other fintech is expected to be beneficial to deepen financial inclusion in the country. Competitive pricing, innovative product offering, variety and diversification of products and quality of service are some benefits the consumer will enjoy.

For mobile money agents, the impending competition in their space will mean that service providers will have to increase their value proposition and services to agents. Ethio Telecom currently has a first-mover advantage. Will it be able to hold on to it, or will Safaricom ride on its experience and business strength to overtake Ethio Telecom? The telecom space in Ethiopia will undoubtedly be an interesting one to watch in the coming months.

Read our previous blog on the series by clicking HERE