This post is written by Meenu Mynam, Project Coordinator in Hyderabad for Shore International India.
Coming from a technology background and having spent time writing advanced code, my first visit to a remote, yet well maintained village near Suryapet in Andhra Pradesh (a southern state in India) was nothing short of a surprise. Having read about business correspondent (BC) model, seeing one in action provided good learning. However, numerous issues surrounding the BC model makes one wonder if the percentage of banked population in India, as claimed by the Reserve Bank of India (RBI) and various other banks, is actually able to use the services and transact as intended.
The first BC we met was helping an old, illiterate woman transact. It was good to see an uneducated woman walk into the BC agent outlet, authenticate her identity, withdraw her money, and leave. She had never been to a bank and was extremely happy that the BC was providing her an opportunity to save and withdraw money whenever needed. On further interaction with the agent, we understood that there were close to 250 people who had enrolled with the agent, of which only 50-60 could transact. This problem seemed to be common with a number of agents we met, which hindered them from providing services to many customers.
In 2006, RBI, the central bank in India, permitted banks to use agents to facilitate transactions in rural India as part of its financial inclusion mandate. With 70% of the Indian population living in rural areas, many BC companies tried to set up agent networks covering most of these regions, but a large number of these agents are yet to be transaction enabled. There are also transaction enabled agents who have invested in equipment and are awaiting the activation of their customers’ accounts. The time lag is very high in some cases, impacting the motivation levels of the agent, who is usually drawn towards the BC model hoping to make some extra money and achieve the elevated status it offers in their community.
The model is aimed at improving financial inclusion, and going by the data, many previously unbanked people now have savings accounts. However, what comes to the foreground is the quality of the offered service. RBI is showing interest and trying to ensure that rural India benefits; the BC companies work on improving the agent network and expanding to remote villages; the agents try to enrol customers. Yet, we see issues everywhere! In a country like India, which houses 17% of the world’s population, implementing ideas as they are presented in board discussions and policy meetings could prove quite challenging owing to the vast landscape, different languages spoken and various cultural, political and economic differences.
Though RBI is trying to extend banking services to the low income segment, the question really is, in the process of ensuring unbanked individuals are financially included, do they end up excluded? This question has to be answered and the facts provided below further urge a solution that benefits all parties, and most importantly, succeeds in providing banking facilities to even the remotest parts of India.
- BC agents authorized by an aggregator company are not functional even after 6-8 months because banks have not yet activated the user accounts. Banks, with which customers have accounts, have not yet approved the accounts as they are usually busy with their regular profitable business. Banks do not consider the inclusive space as lucrative; however, RBI has made it mandatory.
- Banks are not willing to increase their product range, as of now they offer only the ‘no frills savings account’ and 80% of these accounts opened are dormant and the average balances in these accounts have also been very low and unviable for the banks.
- Existing customers are unable to transact due to various technical and connectivity issues which have to be resolved either by the bank or the BC company. This has lowered the transaction rate as well as customers’ interest towards banking through agent outlets.
- The BC companies are unable to fix the technical issues as they are busy with expansion plans. At the same time, banks are not cooperative as they do not see high volumes of business through the BC channel.
This comes across as a ‘chicken and egg’ situation where people are not clear on what caused the situation, nor are they clear on where to start fixing the problem from. On the other hand, it is the agents that invested in the equipment and infrastructure that are at a loss, depending on the aggregator company that the agents are associated with, this amount ranges between Rs 5,000 and Rs 15,000. Agents become frustrated after pursuing their respective customer relationship executives and banks to get the accounts activated, and the BC companies do not come to their rescue either.
Rather than just trying to cover a lot of population, emphasis needs to be laid on the quality of the service. Fixing issues in the existing system is more important than having a huge number of customers enrolled and not being able to service them. Though the answer to a chicken and egg problem is always debatable, one has to start from some point in order to arrive at a solution, or at least make progress in that direction.