FINANCIAL INCLUSION:
A STUDY ON THE EFFICACY OF
BANKING CORRESPONDENT MODEL
By Sa-Dhan
A Presentation By R . Prabha
BACKGROUND
•Banking Correspondent (BC) model- launched by RBI
in 2006 as a part of Govt. strategy for Financial
Inclusion.
•Aimed at providing Banking services at affordable
costs to nearly 40% of the excluded population.
• In the first phase, 73000 unbanked villages were to be
covered by BCs or by tiny branches by March 2012.
•As at March 2012, 1,20,355 Customer Service Points
(CSPs) were established by BCs – 103 M No frill A/csA huge Achievement.
• Was it delivering the intended results?
• The study was thought of in this background.
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Why by Sa-Dhan ?
• Through the Bank led BC model-financial infrastructure
is being built to serve the unbanked/under banked
population .
• There is convergence of Sa-dhan’s objective and the
programme of the Govt. of India.
• The Community Dev.Fin. Institutions and MFIs have a
role.
• Has the BC model opened up a new opportunity for
MFIs to do business with the poor?
• The study would provide better understanding of the
challenges and possibilities and help in policy advocacy.
• Sa-dhan took up the study in this context.
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OBJECTIVES OF THE STUDY
• To understand the different Models of BCs operating
on the ground.
• To identify the challenges faced by the BC model.
• To pinpoint Challenges
overcoming them.
and to suggest means of
• Different products and services offered by BCs and
the potential products- And the factors preventing to
offer these products and services.
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SCOPE AND COVERAGE
• Different geographical regions:
• North-east
• East
• Western Region
• Northern Region
• South
• Different legal forms:
• ‘Not for profit’ Section 25 Companies
• Trusts (including SHG Federations)
• Societies
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SCOPE AND COVERAGE
Contd…
•Other Important stake holders:
Clients and non clients
 Govt. of India
 Reserve Bank of India
NABARD
 Banks
Technology providers
Training Institutions
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METHODOLOGY
• Information collected using a structured format from the
stake holders.
• Personal discussions
• Conclusions/opinions on the basis of data collecting and
information gathered.
• Limitations-The study has not followed the research
methodology of random sampling and smaller sample
size
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BACKGROUND INFORMATION
• Entities permitted by RBI to act as a BC and the extant
guidelines
• The different BC models and their operating procedures
• International experience on BC model
• Studies on BC Model conducted so far
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KEY FINDINGS
• Commercial viability is the greatest challengecompensation too meagre to sustain the model.
• CSP-the weakest link in the BC chain-least staying
power, poor morale and high expectations
• Banks Consider it as a mandated one -business too
small to attract business interest/ investment.Dep
Rs9500- cr Rs34 cr overdrawing thru 103 million NFAs
• Infirmities in Selection process of BCs.
• Over emphasis on quantity-especially on opening of No
Frill Accounts and number of Customer Service points.
• Inadequate financial literacy support-Clients do not
feel the need to utilise the financial infrastructure.
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contd…
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KEY FINDINGS
Contd…
• Too risky by banks-hesitation to offer credit related
products.
• All Government to Persons payments not getting
routed through NFAs.
• Lack of customer grievance mechanism & business
continuity plan.
• Poor connectivity and technical infrastructure
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RECOMMENDATIONS
Strategies for improving viability
• Viability gap funding and assured minimum fixed income
to the CSP-Banks to provide viability gap funding for BCs
for initial 3 years.
• RBI/IBA to prescribe uniform minimum rates to BCs to
ensure fair return on investments to BCs.
• Change in selection process-capacity to deliver should be
the main criteria.
• Minimum assured compensation to CSPs.
• BCs to keep the initial investment low. Kiosk model
Rs.1,26,000/- GPRS Mobile based biometric model
40,000/- SMS based mobile model 25-35,000/contd…
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RECOMMENDATIONS
Strategies for improving viability
Contd…
• SHG Federations, CBOs and MFIs including NBFC-MFIs
as BCs-NBFC-MFIs to offer saving products as BC.
• Routing all Govt. to Persons (G2P) payments through
BCs. All payments to beneficiaries under state sponsored
programmes to be routed through BCs thru the No Frill
Accounts. Pay 2% administration costs to Banks
• Convergence of BC Model with National e-governance
plan- Kiosk model of BCs to act as Common Service
Centre (CSC).
• BC as an alternative channel like ATM, internet banking
etc.
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RECOMMENDATIONS
Strategies for improving viability
Contd…
• Creating trust and confidence in BCs. Banks to be made
responsible for:
Developing and implementing Proper systems and
procedures at BC level.
Capacity building of CSPs-continuous training
improve capacity and morale of CSPs.
to
Diversification of product offering by banks-The
banks to offer products other than NFAs through
BCs especially credit products. Present -2.15 M KCCs
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RECOMMENDATIONS
Strategies for enhancing commercial interest of Banks
•Amortise all costs-Banks to be permitted
amortisation of all direct & indirect cost for 10 years.
•Incentivise banks for deposits mobilised by BCs-give
weightage in calculation of % of priority sector
advances.
•Create a separate vertical in the Banks to create more
ownership and accountability.
•Weed out non serious players-replace with SHG
Federations from MFI.
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RECOMMENDATIONS
Client Centric Strategies
• Financial literacy programme to be given equal
emphasis to derive benefits from building, financial
infrastructure in rural areas- literacy program should
run hand- in- hand
• Create a National Literacy Task Force under the finance
ministry.
• Make F.I fund functional-utilisation of funds in last three
years. 5% fund should support all financial literacy
programmes.
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RECOMMENDATIONS
Client Centric Strategies
Contd…
• Activate No Frill Accounts- National campaign every
year.
• Dedicated Customer Grievance Mechanism for clients
of BCs.
• Emphasis on Customer service
• A Business continuity plan for BC clients.
• Catch them young-Financial Literacy to be made part
of school curriculum.
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FINDINGS FROM FINANCIAL MODELLING
• Financial modeling attempted as a part of this study.
• Modeling based on assumption of usage and different
technology models.
• Kiosk based model takes 3 ½ years to break even under
the best of circumstances.
• A biometric GPRS mobile base model takes about 2
years and an SMS based remittance model less than 2
years.
• A GPRS based mobile based model is considered
suitable to service a cluster of villages.
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CURRENT SCENARIO
• There will be one common BC for all public sector banks in a
state or a region. Country divided in to 20 regions
• The convener of SLBC shall undertake the selection process
on behalf of all Public sec. banks.
• Only entities with an annual turn over of Rs.5 crores and
above are eligible to be considered.
• Fixed the remuneration for the BC for opening of A/C s.
Bidding for cash transactions rates.
• CSPs salary for the first 6 months would be paid by the
banks.
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CONSEQUENCES OF THE
NEW PROCESS-
• Govt. signals that only well established entities with
financial muscle would be considered as BC.
• The process can create a monopolistic situation with less
or nil competition.
• Smaller institutions/entities CBOs with local flavour are
kept out or they will have to work as sub- BC sharing
revenues with a larger player.
• The entities would be highly profit driven.
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THE ROAD AHEAD
•The financial inclusion – in the wider context of economic
inclusion is essential for our growth.
• A Bank-led, technology driven Agency Model is still the
best bet to reach the unreached.
•Initial investment- until the FI programme reaches a
tipping point- has to come from the Banks/government.
•Banks, in the larger business interest, has to show the
motivation and initiative to tap the huge growth potential.
• New Business Models and innovative products have to
emerge- with emphasis on quality of implementation .
• RBI and the government should create an enabling
environment for the Model to flourish.
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THANK YOU
R. Prabha
Contact : prabhatvm@yahoo.com
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