Making banking correspondents work

Jan 23 2013, 03:39 IST
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SummaryWhile Nilekani recommended 3.14% of last-mile banking transactions as fee, the reality, at less than 2%, means most BCs in the network would remain unviable.

With the direct benefits transfer (DBT) scheme being accelerated in a time-bound fashion across India, much will depend on connecting it to the beneficiary at the last mile. If the DBT is to be leveraged to attain financial inclusion, the glitches in the business correspondent (BC) network need to be addressed.

While the number of business correspondent agents or customer service points has increased over the last two years, rural coverage is still less than satisfactory. As of March 31, 2012, just 1.47 lakh villages had banking presence, out of the 5.93 lakh villages in India. There have been numerous changes in the BC model as it has evolved since 2006. While some of these changes were positive, some have held back smooth progress. For instance, opening up of the BC space by allowing for-profit corporates was a positive step, allowing BC agents to work for multiple BCs and banks was another one. However, the cluster model ran into difficulties with its design but, thankfully, appears to be on its way out of those difficulties within the year.

The key goals include allowing ultra small branches to be set up with regular attendance of bank officials and BC agents at these kiosks. This has enhanced the BC-bank relationship in the eyes of the customer. Each gram panchayat is to get one BC, now even common service centres are set to operate as BCs, the number of PoS terminals is to increase from 6 lakh to 20 lakh and India Post may also be getting its act together over the next year to begin operations in this space. All in all, quite a lot is happening to increase the number of people at the last mile.

However, one of the biggest issues facing the BC network, as it stands today, is the absence of a viable business model for the agents and banks. Experiences from abroad and from the existing network in India show that the higher the number of transactions, the better the profitability of the agent. Surveys by CGAP-CAB and MicroSave show significant attrition in the agent network and this needs to be addressed to allow seamless connectivity till the beneficiary/customer.

A recent MicroSave Policy Brief by Puneet Chopra, What will it take to deliver Direct Benefits/Cash Transfer programmes successfully? puts down a comprehensive list of recommendations for an efficient roll out of the DBT plan, and these include raising the commission for

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