T EC H N I C A L N O T E August 2022
DEVELOPING RURAL AGENT
NETWORKS TO ADVANCE
DIGITAL FINANCIAL INCLUSION
Emerging Guidance for Funders
E X E C U T I V E S UMM A RY
Sai Krishna Kumaraswamy and Alice Nègre
R
UR A L DE V ELOPM EN T IS CEN TR A L can easily be converted into physical cash when needed,
to realizing the 2030 Sustainable Development many customers hesitate to accept e-money payments.
Goals (SDGs) agenda because nearly 80 percent Further, since rural populations are characterized by a
of the world’s poor live in rural areas (UNDESA 2021). long history of financial exclusion (and low financial and
Moreover, rural populations have less access to education, digital literacy) CICO agents are uniquely positioned to
health, electricity, sanitation, and other services, leading to provide the awareness, trust and capacity building needed
marked rural-urban disparities, discontent, and discord. to advance formal finance.
It is widely accepted that financial services for the poor CICO agents are individuals or commercial entities, like
and excluded is a key enabler in advancing several SDGs. small retail shops or even roaming sale agents, contracted
However, increasing access to, and usage of, financial by financial service providers (FSPs) to act as an interface
services in rural areas is not easy. These areas tend to be with customers and distribute their services. CICO
poor, remote, sparsely populated, and poorly connected agents tend to be in close proximity to the communities
by weak infrastructure. This makes rural markets more they serve, enjoy their trust, and are familiar with their
expensive to serve for financial service providers and less customers’ needs, enabling them to drive adoption and
attractive compared to urban markets. Digital financial usage of DFS. Female CICO agents are also positioned
services (DFS) can help lower costs for providers, which is to advance women’s financial inclusion; underbanked
essential for reaching poor customers at scale. women customers exhibit a strong preference to transact
with female agents, even when they are not easily
While the term “digital financial services” suggests that
accessible, and especially when female customers have
everything can be conducted on a phone, a network of
high account balances. The agents provide a range of
human touchpoints known as cash-in / cash-out (CICO)
services from opening and helping operate e-money
agents is critical, especially in rural economies which are
accounts, converting cash to e-money and back,
predominantly cash-based. Rural customers need financial
conducting over-the-counter payment services (like bill
access points where they can convert physical cash into
payments, remittances) and troubleshooting.
e-money and back. Without the confidence that e-money
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The importance of CICO agents to rural areas goes mile, in rural areas, where most of the world’s poor and
beyond the distribution of DFS. The frontier nature of underbanked live. Fifty percent of the rural population
rural economies imposes high distribution costs on goods in India, Indonesia, Pakistan, Bangladesh, Tanzania,
and service providers catering to these markets, including Kenya, and Uganda—which are among the world’s most
governments. CICO agent networks can be leveraged underbanked countries—live more than five kilometers
by these providers to distribute or facilitate payments away from the nearest financial access point, compared to
for a wide variety of essential goods and services such as only 10 percent of the urban population and 20 percent of
off-grid electricity, water, education, pharmaceutical and the peri-urban population (Unnikrishnan et. al. 2019).
nutritional products, and fast moving consumer goods.
There are market system-wide barriers that hinder the
They can also make government-to-person payments like
expansion of agent networks beyond urban areas, such
social protection payments and humanitarian assistance,
as low demand for DFS and CICO agents, a limited
which can help poor households improve their wellbeing,
supply of traditional CICO agents, unviable businesses
take advantage of opportunities to generate incomes, and
models, restrictive regulatory environments, and a weak
build resilience to prepare for shocks.
supporting rural infrastructure.
The significance of CICO agent networks has been
These barriers can be mitigated through innovations across
underscored during the COVID-19 pandemic when
the market system, as illustrated in Figure ES1. These
several countries including India, Mexico, the Philippines,
innovations aim to encourage DFS providers to tailor
Vietnam, and Pakistan declared CICO agents “essential
use cases for rural customers, reduce costs by developing
service providers,” allowing them to remain open during
alternative agent profiles and management processes and
the pandemic, distribute emergency relief payments, make
increase revenues by aggregating financial and non-
other social transfers and keep remittances flowing (GPFI
financial services at the agent level. They often require
and World Bank 2021). Other countries, such as Ecuador,
market actors to leave their comfort zone to leverage
made policy changes to support expansion of agent
technologies and partner with organisations outside
networks by relaxing entry requirements and simplifying
financial markets (e.g., fast-moving consumer goods
agent onboarding procedures, leading to a doubling of
providers, agribusiness, or e-commerce players that operate
the number of agents (Baur-Yazbeck and Johnson 2020,
rural service points).
Cavallari 2020).
Although these solutions exist, market actors, including
Given the importance of CICO agent networks in
both providers and regulators, often lack the incentive
promoting financial inclusion, facilitating access to basic
or capacity to implement them. For example, DFS
services, and advancing several development outcomes,
providers often replicate their urban market operations
and given the increased interest of governments in
in rural areas, without conducting thorough market
digitization during the COVID-19 pandemic, funders
research and sufficiently tailoring their products and
should consider supporting the expansion of CICO
distribution strategies, which results in unviable rural
networks in rural areas as a priority. Although many
agent operations and the consequent belief that rural areas
development funders recognize the importance of
are not an addressable market. The inability to appreciate
these networks and rely on them to distribute financial
the potential of rural markets stems from a historic lack
assistance or improve value chains, not enough is being
of familiarity with rural customers and uncertainty of
done to expand them in a sustainable way. More is
financial returns on rural investments. But such a one-
needed to build viable agent networks that serve poor
size-fits-all approach leads to low customer uptake and
rural customers.
an unviable business model, creating a vicious cycle.
DFS providers invested extensively in developing their Similarly, policymakers and regulators may fail to see
distribution network in recent years. Yet CICO agent why agent networks are critical to digitizing financial
networks lag where they are needed the most—at the last services or appreciate all the supporting measures needed
DE V ELOPING RUR A L AGENT NE T W ORKS TO A DVA NCE DIGITA L FIN A NCI A L INCLUSION 2
to encourage development of these services at the last mile.
Lastly, rural customers themselves may be limited in their
ability to adopt DFS solutions due to low digital literacy
and account penetration, social barriers, and the status
quo bias toward the use of cash.
Development funders are uniquely positioned to leverage
their financial resources, technical knowledge from global
or regional experience, and convening power to align
the incentives of various market actors and build their
capacity, so that they design and implement self-sustaining
solutions to expand rural CICO agent networks. Figure
ES1 describes the various interventions funders can make
across each component of the market system – supply,
demand, regulation, and infrastructure.
This Technical Note is targeted at development funders
(donors and DFIs) and provides high level guidance
based on CGAP’s prior research. Section I introduces
CICO agents and describes their importance in advancing
sustainable development goals and financial inclusion.
Section II explains the various market system-wide barriers
to expanding rural CICO agent networks, solutions to
address these barriers, and what funders can do to create
the incentives and capacity among market actors to design
and implement these solutions. Section III concludes by
discussing implications for funders.
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FIGURE ES1. olutions markets actors can implement to expand agent networks and interventions funders
S
can design to support market actors
Solutions to be implemented by market actors Funders’ possible interventions
Solutions to increase supply of CICO agents
• Diversify agent revenue through financial and Raise providers’ knowledge of rural markets and
non-financial service aggregation at agent level, with innovative business models (TA, knowledge sharing)
a service offer mix that responds better to customer
needs. This might include support to inclusive
technologies, like e-commerce platforms, embedded
finance products, etc. Create networking opportunities among DFS providers,
• Develop alternative agent profiles, more relevant and and potential partners
available in rural context
• Outsource agent management processes to existing
network managers
• Create additional incentives (beyond profits) to serve as
CICO agents De-risk pilots to test business model innovations
• Leverage technology to decrease costs of agent (TA, grants)
management
Co-fund market research to identify flows to digitize,
best agent profile, etc.
Solutions to boost demand for CICO agents
• Tailor DFS and agent use cases for rural customers, Support communication campaigns on DFS and CICO
rather than simply replicate the urban experience agent services (advocacy, TA)
• Digitize G2P and P2G payments, as well as agricultural
value chain transactions, which often represent high Help digitize G2P, P2G and Ag. Value chain payments
volumes of transactions in rural areas and can help kick (advocacy, TA)
start the adoption of e-money
• Mitigate gendered norms related barriers to DFS use Encourage providers to adopt customer centric
• Raise awareness about DFS and agents among rural approaches (TA)
customers
Help understand and mitigate restrictive gender norms
(advocacy, TA)
Solutions to support enabling policy and regulation Foster public-private dialogue
• Design regulations to test and enable key innovations,
such as alternative agent profiles, agent management
outsourcing, agent non-dedication and non-exclusivity. Foster enabling regulatory environment (TA, advocacy)
• Create safeguards to protect customers
• Develop mechanisms to incentivize or even mandate
Advocate for customer protection (TA, advocacy)
DFS providers to expand into rural markets
Solutions to build supporting rural infrastructure
• Improve financial infrastructure like bank and postal Co-fund infrastructure diagnostics
branches
• Expand access to ICT infrastructure like mobile phones,
Co-fund rural infrastructure development (ICT, ID,
high speed internet
physical, payment interoperability, etc.)
• Expand coverage of identity management systems like
biometric- enabled national IDs
• Design for agent interoperability and non-exclusivity Promote evidence-based decision making by providers
• Develop the data infrastructure and promote data-based and public market actors (TA, advocacy, grants)
decision making for both providers and policy makers
DE V ELOPING RUR A L AGENT NE T W ORKS TO A DVA NCE DIGITA L FIN A NCI A L INCLUSION 4