Promoting Financial Inclusion - United Nations Development ...

This section discusses the role and scope
of these current initiatives to promote
financial inclusion.
4.1.1 THE FIRST HESITANT STEP
Initially, the RBI specified that those who
could act as BCs were ‘not for profit’ entities
who could conduct banking business as
agents of the banks at places other than the
bank’s premises. The activities they could
conduct were borrower’s identification,
collections, preliminary processing and
submission of loan applications, creating
awareness about savings and opening
of account (though KYC and AML
compliances were the bank’s responsibility),
promoting SHGs & JLGs, collection of small
value deposits, disbursal of small value loans
and follow-up on recovery of principal/
interest, sale of micro-insurance and receipt
and delivery of small value remittances.
The hesitation of the RBI was indicated
not only by its restriction to not-for-profit
entities (though later the engagement
of some types of individuals was also
permitted), not traditionally the most
efficient of organizations, but also by the
restrictions imposed on pricing. BCs were
to be paid from the bank’s margin and no
charges could be imposed on the customer
either by the bank or the BC. This limited
the viability of the model since the margins
of banks are of the order of 4% and it is
well known that any form of microbanking
activity incurs a cost of 6-10% of
the money value of the transaction. Soon
afterwards, concerned about allowing the
links between BCs and bank branches to
become too tenuous (leading to a ‘lack of
supervision’), the RBI limited the distance
from the branch within which the BC had
to operate to just 15 kilometers in rural,
semi-urban and urban areas and to just 5
kilometres in metropolitan cities.
While being widely seen as an
unfortunately limited step, these provisions
led to some experimentation with leading
commercial banks establishing pilot
programmes with various not-for-profit
entities to determine the feasibility of
enabling financial inclusion within the
straitjacket then imposed by the rules.
Essentially, BCs were employed in opening
‘no-frills accounts’, providing payment
services under government welfare
programmes and in mobilizing deposits.
While a few, such as FINO, A Little World
(ALW) and Eko Aspire Foundation, reached
numbers in the tens of thousands over the
next three years (see case studies at the end
of the report), in a country with perhaps 120
million financially excluded families, these
numbers are too small to attract attention.
However, FINO has reportedly done
better through collaborations with state
governments in the facilitation of payments
under government welfare programmes,
reaching a customer base of 22 million.
In 2009-10, the RBI constituted a
Working Group to examine the experience
of the BC model under these conditions.
The Working Group sought information
from banks and other stakeholders on the
BC experience and observed: 12
• Though the regulations on BC model
allow a variety of entities/individuals
to act as BCs, only a few have actually
been engaged. The most common
type of entities appointed as BC
included Section 25 companies, Trusts
and Societies. Further, almost all the
Section 25 companies appointed as
BCs were floated by technology service
providers who had provided smart card
or biometric solutions for account
openings. The data shows that only
26 out of the 50 public/private sector
banks have reported appointing 129
12
RBI, August 2009. ‘Report of the Working
Group to Review the Business Correspondent
Model’.
18 PROMOTING FINANCIAL INCLUSION