Agent booth in Lusaka, Zambia. Credits: John Balaba, SatF

This blog looks back at a recent Savings at the Frontier collaboration with nine financial service providers (FSPs) in Africa to examine how effective liquidity can be delivered. What do their responses prior to the COVID-19 outbreak tell us about managing agent liquidity for savings groups now?

All nine SatF partners have some form of agent-network relationship. Agent networks are a known last-mile stepping stone for reaching new client segments. They help bridge the proximity gap and address dormancy issues. The pandemic is pushing effective liquidity to its limits. Without it, the customer value proposition cannot be properly delivered, doing more harm than good to the brand they represent. Agents, who are mostly small-scale traders and retailers and can serve ‘frontier’ clients, naturally spark a keen interest among FSPs seeking to serve informal savings mechanisms (ISMs) such as savings collectors and savings groups, especially in rural environments.

Agent liquidity is already a major challenge for ‘traditional’ mobile money, with one in five transactions failing due to lack of e-float or cash. SatF partner FSPs need to resolve the challenge of managing agent liquidity, even when they use agent networks from other organizations to close the last-mile proximity gap.

Linking FSPs to ISMs, particularly to rural accumulating savings groups, potentially offers some relief to agent liquidity challenges in rural areas, because it triggers cash-in to off-set the predominant cash-out that characterizes a lot of rural mobile money flows in sub-Saharan Africa. The value proposition is to help remote agents become more self-reliant, so they can reduce the need for a costly physical rebalancing between cash and e-float.

What does agent liquidity management entail and who is responsible?

Sound liquidity management allows agents to handle client deposits and withdrawals when required, sending float (or e-money) to clients’ digital accounts/wallets against cash-in, and vice versa: issuing cash when clients want to withdraw from their accounts.

Like many FSPs, SatF’s partners tended to consider liquidity management to be about dealing with issues when they arise, i.e. finding ways to top up cash or float once the agent had run out of funds. Unfortunately, such an ex-post approach proved to be insufficient, as it did not prevent the coffers from becoming empty – and particularly when it can take up to a few days to rebalance.

Liquidity management is not just about reacting to liquidity shortages, it also includes anticipation to prevent shortages from happening. In fact, as discussed in a recent ‘How To’ note, there are three steps that are key to smooth liquidity management:

1. Liquidity planning enables an agent to predict and respond to fluctuations in the need for liquidity.

2. Liquidity monitoring is taking stock of an agent’s float and sending out alerts for rebalancing once a certain limit is reached.

3. Liquidity rebalancing refers to the act of replenishing agents’ cash drawers and e-wallets when necessary.

Monitoring how agents handle this issue has not been a prevalent habit among FSPs in Africa up to now. Through partnering with SatF, FSPs realized that agents should not bear the responsibility of managing liquidity alone. They recognize that it is in their interest to support smooth liquidity for the agent, in order to maintain customer trust and satisfaction (in the words of one SatF partner):

Failing to deliver liquidity when needed can turn your customers away forever.

How can FSPs help agents serving informal savers to manage their liquidity?

SatF’s partners learned that supporting agents on all these fronts so they are always transaction-ready is “a key driver for business sustainability and profitability, at both agent and FSP level”.

Liquidity Planning

Savings groups are atypical customers for agents, as members often all make deposits at the same time. Also, groups often withdraw significant amounts for group loans and share-outs. Group transactions usually strike a tremendous blow to agents’ wallets.

SatF’s partners learned that teaching agents how to plan is a pre-requisite for any organization working with agent networks. A practical planning method, the 1.5-Times Stock Rule [1], helps agents analyze their own historical transaction patterns in order to predict future liquidity requirements.

SatF’s partners also discovered the benefits of sharing information on client behavior with agents. As one FSP shared at the learning event on liquidity:

An FSP can help an agent anticipate liquidity needs by sharing client behavior such as dates, values and patterns of deposits and withdrawals. That way the agent can arrange the required cash and e-float to meet customer requests.

Alternatively, FSPs can provide cashflow predictions to agents. The SatF team has developed a tool that predicts group cashflow over the group’s lifecycle [2], showing when the ISM is likely to have either an excess or a shortage of cash.

Liquidity monitoring

Whether at head office or at branch level, FSPs can use the information system to track levels of float, identify when accounts are close to being depleted, and nudge agents to rebalance. For SatF partner Equity Bank Tanzania, for example, it is agent supervisors located at branch level liaising with agents whose float levels are low. Meanwhile, Access Bank Ghana checks its agents’ float balances through a partner mobile network operator platform.

Unfortunately, when it comes to cash, FSPs do not have an easy way of monitoring agent levels of liquidity. Hence the importance of training agents to monitor themselves using transaction logs in which they note down transactions made and the float and cash balance remaining, instead of relying on nudges from their FSP.

Liquidity rebalancing

The experience of SatF partners shows that creating a network of rebalancing points often makes rebalancing easier. Equity Bank Tanzania and Access Bank Ghana allow their agents to replenish their accounts at their network of branches, super agents or NGOs they partner with, located within the target communities to address issues related to proximity. Other FSPs partner with a mobile network operator or aggregator to ensure their agents have access to nearby rebalancing points.

FSPs can also directly deliver float or cash to agents or provide an agent credit or overdraft facility. For example, SatF partner NMB Tanzania provides short-term loans that save agents from having to go and get float each time they fall short.

Conclusion

Prior to COVID-19, liquidity management was regularly mentioned by SatF partners as one of their biggest challenges when dealing with agents. As the pandemic continues, it is only likely to become a sharper thorn in their side. Overcoming this challenge will only be possible when FSPs realize that the responsibility for liquidity management does not need to rest solely with the agents themselves and that FSPs can also provide effective support.

As an FSP, have you thought about what you can do to help your agents manage their liquidity more effectively? This blog and SatF’s recent ‘How To’ note on Effective Liquidity Management for Agents could offer insights and possible solutions.

1. According to this rule, at the start of each day, agents should have sufficient cash and e-float in stock to cover one and a half times the previous days’ totals of deposits and withdrawals

2. The tool can also be used by FSPs to anticipate potential needs for external loans from the FSP to an ISM, when member savings will not be sufficient to meet member demands

Lisa Chassin is a Partner and Digital Catalyser at PHB Development. Specialized in applied research and digital financial services, Lisa helps financial institutions, governments and other impact makers explore digital pathways that can lead towards more inclusive economies. Prior to joining PHB, Lisa was associated with MicroSave Consulting in India and ADA in Luxembourg.

John Balaba is a Programme Fund Manager for Savings at the Frontier and a financial inclusion consultant at Oxford Policy Management. Specializing in deepening financial inclusion of low-income individuals, John’s work focuses on designing savings mobilization strategies, financial linkages and delivery channels in order to attain outreach, proximity, sustainability, affordability and usability of the products for rural communities.