Financial Inclusion in India – The Rise of Business Correspondent Model

In January 2006, the Reserve Bank of India issued a set of rules enabling banks to utilize two classes of middlemen for the banks and financial institutions to serve the unbanked or under-banked population with basic financial facilities – Business Correspondents (BCs) and Business Facilitators (BFs). Under financial inclusion schemes, the BCs represent bank as agents and help them expand their reach, gain new customers, empower them with financial amenities and ultimately increase ROI.

Who are Business Correspondents?

Business correspondents (BCs) are individuals or groups (like NGOs, gram panchayats, societies etc.) who act as the representatives of banks in order to provide banking services in rural or semi-urban areas. To be able to extend the facilities to the masses, the BCs carry devices like mobile phones, micro ATMs, receipt generators, devices for taking thumb impressions or digital signatures etc. for easy access of financial services to villagers. A BC may be considered to be a bank-in-person who is responsible to collect small deposits, disburse loans and other basic banking functions without setting up a full-fledged bank branch.

What more does a Business Correspondent do?

A Business Correspondent (BC) has numerous roles to perform. Listed under are a few key ones:

• Educating the under-banked and unbanked population about the importance of banking, investment options, deposit schemes, interest rates etc.
• Providing banking assistance in processes such as opening bank accounts, fixed/recurring deposits, collecting money to deposit in own or beneficiary accounts
• Recovering the instalments for loans, EMIs, payments and fees from customers
• Selling various banking products for insurance, mutual funds, pension schemes and more
• Disburse small amounts of loan and deliver receipts of every banking transactions.

What are the Advantages of Adopting Business Correspondent Model?

1. Helps in maintaining a better asset quality in banks:

   The selected Business Correspondents within a specified area are personnel who are already aware of the geography, people (having a personal connect with them), their financial state and their intentions or capacity to repay. For this reason, the asset quality gets better as they may assist banks with timely collection of loan amounts and other instalments.

2. Maximises the customer base by reaching the un(der)banked:

   The BC model helps banks reach the population that has remained out of their network by making their presence in remote areas through BCs and agents (or agencies). 

3. Popularises the concept of doorstep banking:

   Because today’s generation is accustomed to convenience and ease to bank on-the-go, doorstep banking proves to be a great way of reaching out to the rural and semi-urban population and serve them with reoccurring, basic financial requirements, while being safe and secure.

4. An alternative to physical bank branches:

   While setting up banking infrastructure in banks is not only a costly affair, it may take years to reach a break-even point in villages and rural lands. BC model works similar to a bank branch through its representatives, extending all possible finance-related services, without the need for physical branches, a banking staff to work in them and also the operating infrastructure.

Click here for more details on the Business Correspondent model. If you feel that the BC model is a right fit for your requirements, contact us at Sesame. Our team will be happy to assist your bank with the best solutions.