Banking- Business Correspondent Agents _ Financial Inclusion

What is nancial inclusion?1. Why Business Correspondents system?2. Who/What is Business correspondent?3. Who can become Business correspondent for Banks?4. Functions of Banking Business Correspondents?5. Swabhimaan6. Reforms in BC model

Common BC1. NREGA payment2. Kiosk Banking3.

7.

BCA for Direct Cash Transfer?8. Mock questions9.

What is financial inclusion?Give every poor man a bank account. And help him get a loan from banks.

Financial inclusion involves

Give formal banking services to poor people in urban & rural areas.1. Promote habit of money-savings, insurance, pension-investment among poor-people.2. Help them get loans at reasonable rates from normal banks. So they dont become victims in thehands of local moneylender cum thugs.

3.

Three important initiatives taken by RBI for nancial inclusion:

1969

Lead banking scheme (LBS).RBI assigns a district to a particular bank.That Bank will be responsible for promoting banking services and nancial literacy, inthat district.(=nancial inclusion).

2005 No frills account.Poor people can open bank accounts with very low balance e.g. Rs.5 only.

2006 Business Correspondents (BC) system. Discussed in this article.

Why Business Correspondents system?

[Economy] Banking Business Correspondents Agents (BCA): Meaning,functions, Financial Inclusion, Swabhimaan, Common Service Centres (CSC)

Banking: Business Correspondent Agents & Financial inclusion http://mrunal.org/2013/01/economy-banking-business-correspondents-...

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If Financial inclusion means open bank accounts for poor people. Then whats the big deal, justopen a damn account!Not so easy. India has around 6 lakh villages. Most of them dont have bank branches.Ok so Why cant banks open branches in every village?

No profitBecause Administrative costs will be high= Building rent, telephone, electricity, sta salary,security guards.On the other hand volume of business is very low in village areas=amount of moneydeposited, loans taken.Means there is No prot. Actually itll lead to heavy losses.

Reluctant staffIn many villages, there is no electricity, no good schools/drinking water, naxalite problem= Banksta doesnt want to serve there.Therefore banks dont like to open branches below district HQ or Tehsil level. Now comes theproblem

Hardships faced by poorsA poor man lives in remote village.This man has deposited some Rs.2000 in a bank @his tehsil.Now, He wants to take out some money from his bank account.So Hell have to make a trip for 10-20 kms =travel =time and cost.He is illiterate so he doesnt know how to llup bank slips, other paperwork. He needs to ask forhelp here and there in the bank oce.And most banks/post-oces dont treat poor people with respect or priority like they do withregular customers.So, he may have to wait for many hours, move from this table to that table, before he gets hismoney.= he cannot return to his village and do his daily job/work.= his one days income is lost.Same process repeats, when this man wants loan to buy a new cow, pumpset, seeds orfertilizers.One the other hand, local money lenders in his village, give money quickly, without asking manyquestions or requiring him to llup two dozen application forms. (but then they extract 36%compound interest from this poor man, thus making his life a living hell.)


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nally the problem emerges

1. Banks We cant open branches @every village, because its not protable.

2. poorpeople

We cant make trip to nearest town to access banking facilities, because it isinconvenient.

So, whats the solution?How about a middleman / agent between banks and the poor people?

Who/What is Business correspondent?Business correspondents are bank representatives.They help villagers to open bank accounts.They help villagers in banking transactions. (deposit money, take money out of savings account,loans etc.)The Business Correspondent carries a mobile device.The villager gives his thumb impression or electronic signature, and get the money.Business Correspondents get commission from bank for every new account opened, everytransection made via them, every loan-application processed etc.

Who can become Business correspondent for Banks?

1. Non-GovernmentalOrganisations(NGOs)

2. Self Help Groups (SHGs),3. Micro Finance Institutions (MFIs)4. Post Oces5. Insurance agents6. Panchayats7. Civil Society Organisations (CSOs)

8. farmers clubs9. Community based organisations

10. Cooperatives societies11. Village Knowledge Centres,12. Agri Clinics/ Agri Business Centers,13. Krishi Vigyan Kendras14. Khadi and Village Industries units15. corporate entities with IT outlets in rural

parts.

Functions of Banking Business Correspondents?Create awareness about savings.1. Give advice to villagers, about how to save/invest money and how to arrange/manage loans.2. Help the villagers to open bank accounts.3. Collect loan applications, forward them to bank.4. Preliminary processing of loan applications for example: verication of persons identity,5.


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home-address etc.Help the Self Help Groups (SHG), to get loans.6. Help the bank to collect EMIs and recover loan money.7.

SwabhimaanInitiative by the Finance Ministry + Indian Banks Associationlaunched in 2011To bridge economic gap between rural and urban India.

Objectives of SwabhimaanMake banking facilities available to every habitat with a population >2000 (by March 2012.)

Banks will provide basic services like deposits, withdrawal, Kisan Credit Card (KCCs) etc viaBusiness Correspondents (BCs) also known as Bank Saathi.Banks will also working together with the Unique Identication Authority of India (UIDAI) foropening new bank accounts.Government will send subsidies and social security benets (pension etc.) directly tobeneciarys account.Beneciary can withdraw the money from the Business Correspondents (BCs) in their villageitself.Government has provided 500 million rupees to banks for taking these ^initiatives.(e.g. payingCommissions to Bank Saathi, their training cost, doing paperwork with UID.)

Reforms in BC modelCommon BC

Last year Finance ministry came up with this proposal:India be divided into 20 clusters.A common BC be appointed for all public sector banks operating in that geography.Such a move would improve the economics of the BC model. (otherwise so many BCs,fragmentation=nobody earning decent Commission=nobody improving the service delivery.)Reserve Bank of India (RBI) has permitted all business correspondents (BCs) working for oneparticular bank, to conduct business for other banks as well.FINO, Indias largest Business Correspondents companyFINO=Financial Inclusion Network and Operations (FINO).It is promoted by various Public and Private sector banks and insurance companies like LIC.Last year, FINO become the common Business Correspondents company for all public sector


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banks operating in Jharkhand.

NREGA payment

Old system New system1. A villager earns some cash

under MNREGA.2. Government gives cash to bank.3. Bank gives it to B.C.4. B.C. deposits it into MNREGA

workers account.

1. All accounts will be maintained by core bankingsystem.

2. So, cash directly goes from Government > Bank>MNREGA workers bank account.

3. Villagers will have the freedom to make theirwithdrawals from any BC they choose.

Kiosk BankingThe D.I.Y. (Do it yourself) banking services e.g. ATM, internet kiosks = still expensive.There is also lack of education + awareness in rural areas about such things.So even if Government /bank installs such automatic ATM, internet kiosks=> most of the timethey just gather dust.Therefore, technology-based self-service model (e.g ATM, internet kiosks) is not useful at thisstage.And hence we need Personnel (these Business Correspondents=middlemen). Because oftenvillagers are illiterate, so they cant even ll up the forms for opening bank accounts orloan-application or lling the deposit slips etc. Business Correspondents are essential at thisstage.But again problem: The cost per transaction remains high. (Because Bank has to paycommission to B.C.agent.)Therefore, Chindu has suggested following solution for long term:Migrate from banking correspondent model to Kiosk banking = mobile vans tted with ATMmachines+ biometric devices.Theyll provide banking services in remote areas.

BCA for Direct Cash Transfer?In November 2012, Mohan announced Direct Cash transfer scheme. (will be covered in detail,later)Anyways, under Direct Cash transfer scheme, Government will directly deposit payments,subsidies, scholarships, pensions etc into the beneciarys bank account.Sounds well and good? Well, here is the big problem


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There are about six lakh villages in India.

And despite all these nancial inclusion initiatives (of FINMIN+RBI), still only ~75,000 villageshave a bank branch or business correspondent agents (BCA). So for the poor people inremaining ~525000 villages still face the problems we saw` in MNREGA payment withdrawl.So Direct Cash Transfer will be #EPICFAIL unless each and every village is covered under bankingservices.Therefore, recently Chindu asked the banks to have at least one bank branch or businesscorrespondent agents (BCA) for every village or group of villages with 1,000 to 1,500 households.In the villages without BCA, Department of Electronics and Information Technology will installCommon Service Centre (CSC).This CSCs will serve as the BCA.Right now, CSC will used only for opening new accounts of beneciaries under the scheme fordirect cash transfer.Only after banks install the software and complete other technical requirements for cashtransactions, the CSC will allow villagers to withdraw cash from their accounts.

Side note on CSCCommon Services Centers scheme= started in 2006.Aim= set up of 100,000+ (one lakh) internet enabled centers in rural areas under the Nationale-Governance plan (NeGP)

Mock questionsQ1. Financial inclusion involves

Covering rural poors in banking net.1. Covering urban poors in banking net.2. Providing jobs to poor people.3. Providing vocational training to poor people.4. Spreading banking awareness among poor people.5.

Ans.choices

Only 1, 3 and 5a. Only 1,2 and 5b. Only 3 and 4.c. All of themd.


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Q2. Find incorrect statements about Swabhimaan scheme

It was launched by the Ministry of Social justice in 2009.1. It aims to provide insurance coverage to laborers in unorganized sector.2. It aims to provide nancial inclusion to people residing in remote areas of India.3.

Ans

Only 3a. Only 1 and 2b. Only 2 and 3c. Only 1 and 3d.

Q3. Who among the following, is/are eligible to become Business correspondents for banks?

Post oce1. Panchayats2. NGO and Insurance Agents3. Self Help Groups (SHG)4.

Ans

Only 1 and 2a. Only 2 and 4b. Only 2 and 3c. All of them.d.

Descriptive Questions

Swabhimaan (5m)1. Swavalamban (5m)2. Common Services Centers scheme (5m)3. Write a note on National E-governance Plan (NeGP) (10m)4. Dene Financial inclusion. Discuss the initiatives taken to achieve nancial inclusion. (15m)5.

Interview

Apart from what is already being done, what new initiatives should be taken to achieve 100%nancial inclusion?

1.


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Documents

Banking- Business Correspondent Agents _ Financial Inclusion