ABSTRACT

Agency banking is a new banking concept introduced in Kenya by the Central Bank (CBK). The main objective is to increase financial services outreach and to promote financial inclusion to the un-banked and under-banked population without risking the safety and soundness of the banking system. The concept is also geared towards encouraging financial institutions to use agents in the provision of banking services so as to reduce the cost of financial services and to foster financial inclusion, reach and depth. Commercial Banks worldwide offer similar kinds of services, but they could provide differences in terms of service quality. This paper analyzes past studies regarding service quality improvement in the agency banking sector. The continuing trend to a model of service quality improvement, from personnel counter services to electronic services, will be demonstrated. Improved service quality should be adopted to maintain the core competence and this research will contribute towards knowledge and background for banks to apply these findings to better shape and focus their positions in the market and also to provide service quality to customers through the agency banking concept.

Introduction
From 1 July 1999, agencies that are subject to the FMA Act1 have been responsible for their own agency banking arrangements. The arrangements have been introduced to enable FMA Act agencies to establish banking service arrangements with the bank2 of their choice. In accordance with Australian Government policy, agencies are required to market test for the delivery of transactional banking services.
In the context of this agency banking initiative, ‘market testing’ is the process whereby an agency communicates their banking services requirements to multiple suppliers in the banking industry and seek competitive tenders for the provision of these services. This