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Boots on the ground: Businesses correspondent model needs mending

The business correspondent channel for financial inclusion is calling for a pay raise, investments and an end to penalties

Almost two decades after business correspondents (BCs) arrived on the scene, the lack of grease is evident. Poor payout for the heavy lifting they do is is making the channel – a key cog in the financial inclusion wheel – creaky. For there has been n
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Raghu Mohan
5 min read Last Updated : Sep 22 2024 | 10:42 PM IST
Almost two decades after business correspondents (BCs) arrived on the scene, the lack of grease is evident. Poor payout for the heavy lifting they do is is making the channel – a key cog in the financial inclusion wheel – creaky. For there has been no upward revision in the pricing of BC services for years: Be it on cash withdrawals, cash deposits, money transfers, or Aadhaar-Enabled Payment System (AePS) transactions. And what nobody will go on record is that BCs and banks are ranged against each other. An interesting matter of detail is that these issues are coming to head just as the Pradhan Mantri Jan-Dhan Yojana (PMJDY) turns 10: It has been an eventful period, having helped on-board and serve more than 500 million PMJDY customers at a fraction of costs that banks would have otherwise have incurred.


Financial inclusion, please

The BC channel was imagined as a low-cost route to bolster financial inclusion: Boots on the ground for last-mile connectivity. But as Anil Kumar Gupta, partner - payments and distribution at MicroSave Consulting, puts it, “financial inclusion ought to make commercial sense for service providers to ensure long-term sustainability. Since the BC channel is a cost-effective extension to supplement brick-and-mortar bank outlets, it was never imagined to be non-commercial.” It’s an indirect way of saying that this is not what’s on view: BCs are being milked.

The first signs that this model is ripe for overhaul was evident last year when the Business Correspondent Federation of India (BCFI) and Grameen Foundation India (GFI) made a case for “concrete capacity building”. The Business Correspondent Resource Council (BCRC) sought setting up of an India Business Correspondent Equity Fund – akin to the India Microfinance Equity Fund – to the department of financial services. Both requests are a lift-off from the C Rangarajan committee report on Financial Inclusion (January 2008): It was for funds being provided to specialised institutions which provide capacity-building inputs to BCs. 


Take the pricing on AePS transactions. Anand Kumar Bajaj, founder of Nearby Technologies, points to the interchange on ATMs – what a bank earns when the plastic of another is swiped on its machines. It's now sought to be upped to Rs 21 from Rs 17. “A BC gets 0.5 per cent of the ticket-size or Rs 15 whichever is lower for AePS. On an average ticket of Rs 2,000, the BC gets Rs 10, but this is on paper. As you deduct the bank’s share, the fee to be paid to the National Payments Corporation of India, TDS, GST, the agent gets only Rs 5-7. For Rs 2,000 in grocery sales, the agent would get to keep 8 per cent.” The reference to groceries is because kirana stores also double as BCs. The demand: Treat AePS and ATM on the same footing.

The litany of woes is long: Banks’ cost to serve customers is high at branches. The government offers incentive to them for direct benefit transfers but this is not released to the BC network. Worse, banks penalise BCs: Rs 1,000 per month in case agents remain inactive for two months; and if perchance they are found operating another bank's portal or mobile app, they are to be terminated immediately with a penalty of Rs 10,000.

What’s playing out in full sight is that banks are not willing to foot the BC bill. Even as they claim that they save considerably on costs using this channel.

“I think it is time we have annual pricing reviews; a committee should be set up for this,” says D Tripathy, chief executive officer (CEO), BCRC. “It will not only ensure the financial viability of our agents but also motivate them to continue providing high-quality services.”


Sought and wooed

Jiji Mammen, CEO of Sa-Dhan, calls attention to the socio-economic aspect. “Field agents are being wooed by e-commerce firms (like Amazon, Flipkart or a Blinkit). This is also about last-mile connectivity, and is a relatively recent development.” Simply put, a fight is on for talent as other parts of India Inc look to up their postal office footprints in the hinterland. 

Another startling aspect is that for a channel that has so much riding on it, there’s little by way of systemic studies or policy-driven interventions aimed at optimising their contribution. “Disciplines like insurance and mutual funds have benefited from such studies, leading to the development of more robust models and enhanced service delivery. It will not only help streamline the BC model but also strengthen the broader financial inclusion landscape,” says Seema Prem, co-founder and CEO, FIA Global.


 
The big picture was summed up in BCFI-GFI’s report 'Reimagining the next-generation BC Model’. It held that overdependence on CICO (the trade jargon for cash deposits and withdrawals), little training in value-added services and softer aspects like customer centricity would not help BCs develop cross-sell or the ability to hawk other services. They have to intensify capacity building to create more trainers and better field staff.

Topics :Business ConfidenceFinancial InclusionBanking sectorBanks

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