Business correspondents driving financial inclusion may get their due

The National Institute of Bank Management (NIBM) has submitted its report; and stakeholders - banks, BCs and Mint Road - are expected to roll out revisions next year

The stage is set for an overhaul of the two-decade-old business correspondent (BC) network, the world’s largest boots-on-the-ground channel with 2.5 million agents in the field. The National Institute of Bank Management (NIBM), which was tasked to suggest measures for the same, has submitted its report; and stakeholders — banks, BCs and Mint Road — are expected to roll out revisions next year.

 

At its heart is the viability and upgrade of the channel — and a review of three aspects causing heartburn. The first is a national certification standard tiered into basic, advanced, and specialised levels to ensure consistent agent competency, compliance, and customer trust. The second is a diversified revenue model; and the third is the recognition of the ₹23,000-crore plus annual value-add by BCs (to banks) by increasing their compensation as a strategic investment to improve cross-sell, bad-loan recovery, and branch cost efficiency rather than as an expense. Taken together, it adds to the new reality that the BC channel will have to be viewed for what it is: An outsourced commercial venture. The point is: Who is going to bear the costs of it? Say, for training.

 

Counting the cos 

“The costs involved in training BCs should be borne by banks. After all, banks do gain significantly from the channel. Like reduced branch and operational costs, which they otherwise would have to bear,” says V S Das, former executive director, Reserve Bank of India (RBI). The central bank’s ‘Report on Trend and Progress (T&P: 2023-24)’ has it that basic saving bank deposits accounts (BSBDAs) opened via branches stood at 276.8 million and the amount involved was ₹1,46,306 crore. The same through BCs was 429 million and ₹1,53,489 crore.

 

RBI Annual Report (2023-24) sets the number of BCs in villages at 13,55,591 at end-December 2024, compared to 56,579 bank branches. The rationale behind having BCs is the cost effectiveness compared to branches in rural areas. And the T&P thought it fit to make an explicit reference to this. That at end-March 2024, “deposits in BSBDAs through the BC mode surpassed those through the branch mode, indicating the effectiveness of the BC model at the grassroots.” Das believes that “the key factor in upscaling financial inclusion, particularly in rural areas, is sensitisation and motivation of bank staff and BCs.”

 

“Unfortunately, one of the key problems that has been long outstanding is the sustainability and service quality of the agent network at the last mile,” says Sumita Kale, chief executive officer (CEO) and senior fellow, Indicus Foundation. Without adequate compensation, the BC channel, which is the foundation of the financial inclusion mission, will weaken in quality of service and in reach.

 

A white paper (February 2022) called ‘Certification or Inclusion: The challenge facing India’s BCs’ by Indicus Foundation noted that despite great efforts, mandates and deadlines by regulators, lakhs of BCs continue to service those at the bottom of the pyramid without adequate training or official certification. The prescribed curriculum and examination offered through the sole certifying authority, Indian Institute of Banking and Finance, are not in sync with the practical realities of most BCs, who undertake only basic cash transactions. It made a case for a tiered approach which sources hope will be mirrored in NIBM’s report. 

At the eighth Monitoring Committee meeting on BC matters early this year, the Secretary of the Department of Financial Services ordered banks to relook the terms of engagement, including penalties, and specifically commission structures that have not been reviewed in a decade. Over the past decade, the BC network has been the invisible infrastructure behind the country’s financial inclusion story. It carried banking to places where branches were unviable, turned cash into confidence for millions of first-time users, and made the Pradhan Mantri Jan Dhan Yojana (PMJDY) one of the world’s largest inclusion programmes. But today that foundation is under strain. “Attrition, thinning margins, weak infrastructure and utter helplessness amongst BCs are threatening to erode the last-mile access that made PMJDY a success. If the trend continues and general apathy (as seen) creeps into the BC ecosystem, the glory of financial inclusion initiatives may fade away,” warns D Tripathy, CEO, Business Correspondent Resource Council.

 

The C S Setty-led working group’s report (2021) on BC-related issues will also be back in play. It recommended adequate compensation to BCs to keep the business viable by a comprehensive analytical and comparative costing exercise, incentivising BCs to assess the problem of high attrition rate; differential commission charges for agents; revamping agent certification, re-skilling and training parameters for data-based monitoring of the performance of BCs on a real-time basis; and identifying ways to improve BCs performance on cross-sell. 

 

For financial inclusion

 

The Setty committee said that to meet aspirational goals, it is desirable that a minimum set of products and services are available at outlets. That these may be mandated and made available at all BC outlets, irrespective of their topographical presence. At the same time, there are a few value-added services which require some kind of specialisation and completion of mandatory certification viz. sourcing of loan applications, recovery in loans, insurance, investment products etc. “After attaining certain maturity in terms of experience, activity level, each CSP (customer service point) needs to be moved from ‘must have services’ to ‘good to have services’.’’

 

What was thought of as a novel financial inclusion channel, at one level has morphed into a cost-reduction route for banks. With adequate remuneration, it can deliver more, feels Seema Prem, cofounder and CEO, FIA Global. “Having a bank account is only the first step. What really matters is helping people earn steadily, grow their savings, and protect what they’ve built. Instant, cashless loans help people use money to create income, not just meet daily needs. And when credit starts generating earnings, it builds financial stability.” This found reflection in the Setty committee report. The BC channel was conceptualised to bring the populace at the last mile into formal banking. With time, it has transitioned from offering basic banking to value-based products and services: Sourcing, lead generation of asset products, collection and recovery in loan accounts, insurance, investment products.

 

The NIBM report will be looked at with interest.