Financial Inclusion 2.0: India’s Business Correspondents

27 September 2013
25 comments

In India, the lack of access to financial services still poses a major challenge, with 650 million people (Global Findex, 2012) still classified as “under banked." Recognizing this problem, the Reserve Bank of India introduced a regulation in 2006 allowing banks to use the services of third-party, non-bank agents to extend their services right to people’s doorsteps.

A man sells milk to a woman on her doorstep
Photo Credit: Tarun Chhabra

Since that watershed regulation was introduced, the Reserve Bank of India says there are 221,341 “business correspondents” (BCs) or Customer Service Points employed by banks to help get services to people at the bottom of the income pyramid.

Banking Infrastructure in IndiaData
Total # of brick & mortar bank branches99,000 +
# of ATMs95,686
# of business correspondents engaged by banks221,341 as of 31 March 2013
# of PoS machines installed635,653
Source: Reserve Bank of India Publications, 2012 & 2013 

While this new delivery service is helping to address access issues, not enough attention is being paid to producing customer-centric designs for products and services. It’s all very well sending an agent to someone’s home but if the services they are offering don’t fit a client’s need, then it could ultimately be a wasted visit.

Products need to be tailored to take customer behavior into consideration. Design aspects such as product labeling, messaging and consumer education are largely missing from many of these outreach programs to lowest income customers.

The current programs also do little to provide incentives to customers above the usual basic savings and bank deposit accounts, previously called no-frill accounts, and electronic benefit transfers.

Take the case of Jai Prakash Yadav, a 45 year old migrant worker in Mumbai who has been driving an auto rickshaw for the past 15 years. Yadav, who comes from the Jaunpur district of Uttar Pradesh, earns around $12 net per day from his three wheeler vehicle. After his daily expenses, he saves a part of his income with a local safe-keeper as the risk of theft is rampant in shared accommodations - chawl as it is known popularly in Mumbai. Every month Yadav remits around $100 to his family back home in Jaunpur- mostly through informal channels like money-couriers who offer an express service at a flat cost of $4-6.

Yadav has a savings account in one of the largest banks of India, but he doesn’t use it frequently and rarely goes to a bank branch to save or remit money. He mostly relies on informal money couriers. What deters millions of people like Yadav to adopt formal banking services is not just the question of “access” but the lack of appropriately designed products and the tedious user experience with formal banking systems.

At FINO PayTech Ltd, we are trying to resolve difficulties faced by clients such as Yadav by designing a suite of products that matches his needs. Using our system, Yadav can now remit money from his account to his wife’s account by using an authenticated, registered mobile number (mobile to bank account). Commitment savings (products like a recurring deposit), customized credit products and cashless health insurance are delivered through biometric smart cards. We’ve also piloted a tele-medicine based health insurance product in rural parts of India and offer financial literacy programs to women, youth and others.

If we are intent upon reaching the doorstep of the last-mile customer, all of us have to do a better job in designing products that our clients want. Otherwise, house-calls, while well-intentioned, will have little benefit.

-----Jatinder Handoo is a senior manager of agency management at FINO PayTech Ltd.

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Comments

Submitted by Shashi Kant on
Hi Jatinder, with increasing competition between payments banks and small finance banks for the semi-urban and rural customers, do you think the transaction charges will fall drastically for the customers and hence the earnings of these new entities (though their number of transactions will increase).

Submitted by Sanjay Sahai on
Hi Jatin. I think the points you have made are all very relevant. I am a researcher working in the same field and I have been conducting surveys in villages in Maharashtra and Bihar. I have spent weeks with the BCs to understand the reasons for the low transactions and in many cases the continued reliance by villagers on informal savings services. I feel that one of the greatest barriers that remain is the lack of awareness of bank products and how they can play a big role in transforming their financial life. Awareness has to be a one to one exercise in my opinion and in the present circumstances it is probably the BC alone who can perform this role. However, at the present levels of remuneration the BC can hardly be expected perform this function effectively. But personally I dont see financial inclusion reaching the next level (where banks are the preferred financial service providers for savings and borrowing products) without an effort to rectify the awareness gap.

Submitted by Jatinder Handoo on
Hi Sanjay, Thanks for comments. I am in agreement with you regarding the importance of banking products' literacy and role of BCs in furthering financial inclusion (FI). I would however ,like to make a few more points, as the world of FI has dramatically changed since 2013 when I wrote this piece. You are very valid in your point that banks alone may not be able to take FI to the next level , however let us also take into cognisance new developments like Small Finance Banks, Payments Banks, GenNext fintechs, Prepaid Payment Instruments ( mobile wallet companies) and mother of all - India Post Payments Bank. The space has become more interesting, with multiple supply side players vying for almost same set of client segment. This should be encouraging and spruce up a healthy competition.

Submitted by Dilip S Borkar on
I want to know statistics of B C all over India n Maharashtra state in way that corporate n individual b cs their earnings p m

Submitted by Bhawin Kabra on
Which banks are taking part to dispatch Electronic Payments for MGNREGA scheme?

Submitted by Kamala on
Hi . Thanks for the insights on BC. Would you be able to indicate how the revenue model is structured for BCs. I understand it could be Bank specific. But if you can provide indicative numbers, I will be grateful

Submitted by Jatinder Handoo on
Thanks,Kamala. It is rather difficult to share exact numbers on BC earnings. However, let me share some pointers . As you may know a large part of BC revenue flows from Govt EBTs like MGNREGA payments, SSPs,DBTs etc . As a rule of thumb B.C (Corporate B.C) gets 1.75% of amount disbursed. Plus for every new account opened, there is a one time fee , roughly Rs 15-25 (Varies Bank wise). Regarding BSBDAs revenue model is very thin to negligible, Banks usually pay 0.50 paise to Rs 1 per transaction( with some caps on number of transactions). Some corporate B.Cs also sell insurance products and earn commission on premium - say on a one hundred Rupees premium , a BC could get upto 40% (again depends on insurance partner). The meaty businesses however are remittance and credit for which commission income ranges from Rs 15- 50 and 3-5% respectively. CGAP has done some really nice pieces on B.Cs , I would suggest you having a look at the National Survey of Branchless Banking Agents 2013 - http://slidesha.re/1uUCgQ0 .

Submitted by SAWAN NAMDEV on
can a BC survice in Such a Small Commission. We have seen many CSP are closing there work Because they are Getting Profit By the work as they were expecting. Will Some one reply this

Submitted by Jatinder Handoo on
Dear Mr. Sawan, BC by design is a low cost model.It however,can earn handsome revenues if scale is high and product bouquet is diversified. As a rule of thumb, any BC should be able to make money if it is able to sell more than 2 products to same customer. Plus good news is - RBI has allowed BCs to become payment bank , which opens new avenues for revenue generation for existing BCs. Trust, this answers your question.

Submitted by sawan namdev on
Dear sir i want to know whether a BC can provide BF Services of Not. and if yes then what kind of services he can provide and what he has to do to provide BF services ....

Submitted by Muktesh Murthy on
Dear Mr. Jatinder, Very informative article. In the table above you mentioned that there are over 220K Business Correspondents. Is there somewhere we can get a list of the top 100 or top 500 (in terms of revenue collection). I have been searching the net and have not found it. Will be helpful if I can get a list from somewhere Muktesh

Submitted by Jatinder Handoo on
Dear Mr. Murthy, Thanks for your comment and appreciation of the blog piece. Regarding your query about top 100 BC's by revenue, I am not sure if there is any publicly available data on that. However, sometime back ACCESS Development Services released a directory of BCs in India. You may consider referring it.

Submitted by alok on
It is understood that FINO has been able to place BCs in villages. What are the number of transactions being held per month- also the amount. Also what kind of awareness building has been done to the villagers to enable them to use the BC services?

Submitted by Jatinder Handoo on
Dear Alok, Thank you for the comment. You are valid in pointing out low number of transactions at agent points. This has been in fact a perennial problem in BC Model and has also been pointed out by the "CGAP survey of business correspondents in India" . However, having said it. Two simple actions can definitely play a crucial role in accelerating transactions at BC point - the first one is better designed products and second is strengthening financial capability of end customers to generate demand pull for financial products.There has been a dedicated focus of financial literacy programmes to accelerate transactions.

Submitted by Alok on
further , my first question has not been answered- I wanted to know whether anywhere data regarding transaction routing through BCs is being captured? If this is being done, who is analysing it- ? Can u please supply details of any such data on total number of transactions and amount being transacted over the number of the end users?

Submitted by Jatinder Handoo on
Good Question. Respective Banks in India have all the data on channel, transactions and value , they should be in position to share details you have asked. You may please contact FI department of respective banks.

Submitted by Alok on
As regards the two options i.e , designing the product better and strengthening financial capability of end customers following are some of the observations: 1) why the transactions are low even in dedicated beneficiary centred schemes from government sector- is it lack of capability of the Technology Service Provider; or lack of awareness ; or lack of ownership by the banks? 2) Isnt the second option in large part dependent on the fact that there is dedicated need to first bring the end user in the formal financial system , which would generate the demand pull. Thus first a dedicated action by Banks and TSP's are required before craving for this status. once the size of constituency increases by wider coverage , it shall stimulate the demand pull.

Submitted by Jatinder Handoo on
Low number of transactions is generally observed in BSBDAs ( formerly called NFAs) and reasons for that are many including faulty product design. G2P or EBTs are relatively active , however some percentage may not be transacting due to reasons like migration of registered beneficiaries, availability of better remuneration thus higher opportunity cost or any other reasons but certainly not because of technology. In General, Technology has never been a barrier in delivery of G2P services, there could be specific cases with some TSPs but these are exceptions . Thus , when we discuss about low usage or inactive accounts, it is mostly for BSBDAs and enhanced design and consumer awareness is the way forward.

Submitted by Rahul Gupta on
Good observation Jatinder on product customization but one has to see that in financial products variables like ticket size, tenure has to vary based on the beneficiary needs. On macro level, product is same and its good that FINO is doing such service of extended BC hours so that the product can be availed and can meet the specified purpose.

Submitted by divakar on
Yes. Imagine in tribal remote areas. The unbanked are majority. Tribals need money for their weekly hauts (weekly markets) and can never have it synchrnoized to regular formal banks. The barter system is still prevelant and government programs are very in efficient delivery models. If the case of a Mumbai three wheeler taxi driver is like this imagine the tribals who have never seen a bank for generations. They need very customized solutions for their money transactions and banking services

Submitted by Saurabh Panjwani on
Great post, Jatin! It would be good if you could list down all the barriers that someone like Yadav faces in remitting money through his bank account. It is important for people with electronic banking access to understand these issues. also, please clarify if Yadav has a bank account created at the local branch or one that he obtained in Jaunpur. If it is the former, then it makes his case even more interesting.

Submitted by Jatinder Handoo on
Thanks Saurabh. The common issue which remitters face at non B.C outlets ( brick and mortar branches) is long waiting ques and thus waste of business time. Now for someone like Yadav who is a auto rickshwaw (tuk-tuk) driver , time is money and a bank branch does not offer service beyond normal business hours which in the most cases is 3 Pm ( whereas BCs do offer extended hours service) plus the relatively tedious interface make things worse. As mentioned in the post Yadav has a bank account locally which he prefers to use rarely.

Submitted by Anshuman Gupta on
Jatinder, You have quoted genuine concerns on the product design but we must not forget the role of various banks in facilitating FI beyond their business numbers at district & block levels It should be noted that with respect to FI in villages... district / block bank branches also need to instill confidence in their direct and remote customers about the BCs and the Programme. They may not be able to actively engage with the remote customers but they can support the local BC and the agency well in their job by recommending them and their services... to lend them credibility. The point is that a BC may present in a customer's village / town but due to lack of trust factor they would rather like to travel all the way to a district bank branch... wasting their time and hard earned money. This would also deter them to do frequent savings, remittances and invest in new financial products. So, the programme has to run from Top to Bottom of a machinery... this would make it flexible and better ready for suitable FI products for these customers. Thanks! Anshuman Gupta

Submitted by Jatinder Handoo on
Thanks Gupta. Well Said.Banks are making good use of BC agents and B.Cs have in fact transformed service delivery dramatically in India. 'Access' issue has undoubtedly been address to a great extent. Practically nearly half of the Indian villages ( 267,000 plus) have some form of banking outlet - thanks to RBI's Financial Inclusion Plan (FIP) . However beyond access, paucity of appropriately designed products continues to be a credible challenge that needs to be addressed by supply side players in India.

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