Agency banking and financial inclusion of selected small and medium enterprises in Uganda, a case study of Kampala central business district

Abstract

This study investigated how agency banking focusing on transaction convenience, service proximity, and enhanced financial services influences the financial inclusion of Small and Medium Enterprises (SMEs) in Kampala Central Business District (CBD), Uganda. A cross-sectional mixed-methods design involved 102 SMEs and 7 key informants. Data was collected via structured questionnaires and interviews, then analyzed using descriptive, correlation, and multiple regression techniques. Agency banking significantly improves SME financial inclusion. Transaction convenience (M=4.31, SD=0.39) emerged as a critical enabler due to its ease, speed, and affordability. Regression analysis showed significant positive effects from transaction convenience (β=0.336, p<.01) and service proximity (β=0.229, p<.01), with moderate contributions from enhanced services (β=0.187, p<.05). The model explained 61.6% of the variance (R²=0.616). Qualitative data noted operational challenges, proximity, and trust factors. While transactional gains are evident, gaps persist in credit access due to frictions like unstable agent commissions. These findings support a Two-Stage Trajectory of Financial Inclusion model, where transactional inclusion precedes credit inclusion. We recommend financial institutions develop data-driven "Agent-Assisted Credit" products leveraging transactional data and improve agent management. Regulators should promote interoperability, adopt tiered Know-Your-Customer (KYC) regimes, and strengthen digital consumer protection. This research provides empirical evidence and policy insights for expanding financial inclusion in developing economies, with practical implications for financial institutions, regulators, and SME stakeholders. Keywords: Agency banking, financial inclusion, transaction convenience, service proximity, enhanced financial services, SMEs, Kampala CBD.