This post is written by Santhosh Thiruthimana, Resident Adviser, Sub-K Branchless Banking Network in Hyderabad, India.
I have been traveling in the car for more than four hours now, and the village that I am heading towards is still nowhere in sight. As we get off the main road and continue our journey on a rocky path, I again ask the driver and the representative of the company that I am working with: “How far is it?” and got the standard reply: “It is close now – we will be there very soon.” After half an hour of that “very soon,” I finally get a glimpse of the village, which came as a relief.
I was on my way to visit a Business Correspondent (BC) agent location in a remote village called Bestharapalli which lies hidden in a small nook along the Andhra Pradesh – Karnataka border. We had started for the village from Bangalore, the IT hub of India, where the big and gleaming buildings represented the new India. But after a 4.5 hour drive, we reached the old India where we were welcomed by a horde of cows that refused to budge as our car tried to enter the village. Once we got past the cows and made our way toward the agent outlet, all we came across was narrow lanes, few mud and brick houses, kids playing in the mud, a tractor, bullock carts and grocery shops. The village was remote from everything – highways, cities, colleges etc. – except for access to banking services using mobile technology, thanks to the BC model.
The BC model was introduced by the Reserve Bank of India (RBI) in 2006 in response to the concern about the lack of penetration of banking services, especially to rural areas like the one I visited. The idea was for expansion of banking activities to un(der)served areas through agent/branchless banking using technology devices such as mobile phones that have penetrated every corner in India. Responding to the guidelines, several companies set up agent networks to provide correspondent services to banks, which offered a lot of promise for RBI’s financial inclusion drive. However, after almost eight years, even though some progress has been made, the reality is that financial inclusion is still a challenge. BC companies, once seen as the next growth sector in the Indian financial industry, are struggling for sustenance and many have moved to become urban centered companies offering remittances to migrant workers – a much needed service indeed, but far from the original mission of financial inclusion.
However, many in the financial sector in India still believe there is much scope for the BC model and various stakeholders are making continuous efforts to innovate and fine tune it. To further these efforts, practitioners in the BC space – Grameen Foundation India (GFI) and Enclude (formerly doing business as ShoreBank International) conceived the idea of bringing together several of the stakeholders involved in the BC model value chain – from banks to technology service providers (TSPs), donors and encouraging them to share their experiences, suggestions to improve the potential of the model, challenges they face while operating in the existing regulatory environment, along with possible solutions, and also highlight the macro level issues that may need policy amendments.
The first step in this direction was field visits to see the operations of Cashpor Microcredit, a BC company based in Varanasi that is also part of the ‘Grameen Foundation – Cashpor Microsavings Project,’ and Basix Sub-K iTransactions Ltd., a BC company with operations across India and part of the ‘Enclude – SubK Branchless Banking Network Project.’ Though both the companies act as BCs for banks, their mode of operation differs. The field visits gave an opportunity for teams from GFI, Enclude, Cashpor and Sub-K to study closely each other’s operations, systems and processes and how to overcome some of the challenges that were common to the BCs. After the field visits, the teams participated in a round table organized by Enclude and GFI to openly discuss the significant operational challenges that inhibit their business sustainability, along with how they are trying to overcome them. To share the learnings from the round table, explore the opportunities of cross learning and to discuss challenges that were external to the BC companies, a BC Forum was organized on August 7, 2013 in Mumbai, India. The BC Forum saw participation from donors, major banks, BC companies, TSPs and financial services companies. Key challenges like pricing, product design, customer awareness, partnerships, and sustainability of the model were discussed. Participants were encouraged to arrive at possible solutions to the challenges taking into account their field-based experiences. The dual objective of customer centricity and building a business case formed the underlying theme for all suggested solutions.
The BC Forum also highlighted the need for advocacy and engagement with policymakers to overcome some of the critical challenges. Another important issue highlighted was developing effective partnerships and bank ownership of the BC customers. Participants felt that a change in how banks view BCs will go a long way in ensuring sustainability of the model. A common thread that emerged across the stakeholder groups was that the BC model holds immense promise and ironing out the key operational challenges would help the model achieve its financial inclusion potential. To facilitate broader learning, the discussions from the round table and the BC forum have been compiled as a compendium. You can access the compendium here.
Back in Bestharapalli village, Subadhramma, a woman customer who also runs an eatery in the village, told me that she has saved about Rs. 40,000 ($666) through the BC channel. In spite of that she does not get any other service from the BC outlet or the bank, including a loan that she really needs. This was the same experience with most people in the villages we visited. We at Enclude believe that holding convenings such as the BC forum and disseminating discussion papers will help in stimulating ideas to make the BC model more effective so that people at Bestharapalli and the 600,000 villages in India will be able to access more services through the BC channels. When that happens, India’s drive to financial inclusion will come to its destination.