Promoting Financial Inclusion - United Nations Development ...

use of smart cards, mobile technology
for the purpose. Such methods not
only enable integrity but also prevent
fraud by ensuring that transactions
are documented on a real time basis.
However the lack of robust technology
(in terms of cost effectiveness), high
costs of implementation, lack of suitable
training to BCs and doubts among
customers regarding the protection
of confidential information stymie
the proliferation of Information and
Communication Technology (ICT)
based solutions.
Challenges Faced by Business
Correspondents
• Lack of training: Individuals working as
business correspondents are allowed
to service clients within a radius of 30
km. However many individual BCs face
financial constraints that lead to low
coverage by them. BCs tend to lack
professional orientation, are irregular in
the maintenance of records, delay the
processing of loans and subsequently
generate a low volume of business for
banks. Such problems increase the costs
associated with small value transactions
and render the BC model unviable.
• Low Commission: Independent research
(and the experience of M-CRIL’s
associated Section 25 companies) has
shown that the commission structure
(based on fees per transaction) available
to BCs is not sufficient to cover their
costs. Since the majority of NFAs
opened by BCs remain inoperative, the
transaction fees are also remain limited.
Some BCs have also started functioning
on balance-based fee model which ties
the earnings of BCs to client account
balances. This requires a long investment
horizon for the BC as account balances
take time to increase to levels at which
the BC’s revenue becomes significant.
• High costs borne by BCs: Banks charge
interest from BCs for bank overdrafts
or temporary accommodation provided
to their staffand also the BC must bear
the cost of transit insurance, security
and transport. Hence the overall cost of
operation is quite high for BCs.
Viability
The viability of BC operations is one of
the major challenges of the model. Though
sufficient data is not available to critically
analyse this, a study of five Bank-BCs
relationships (Eko Aspire Foundation/
SBI, IGS/Axis Bank, IGS/KBS LAB, KAS
Foundation/ICICI Bank and Swadhaar
Finances/ICICI Bank) 20 with data from
58,000 clients acquired by BCs over a
period of 73 months, shows that out of
the total per client revenue generated of
`154.65, the credit revenue contributed the
most with around 83% in comparison with
revenues from deposit and payment services.
However, for every rupee of revenue the
cost of operations was `2.23 making the
business highly unviable. The costing of the
BC operation is illustrated in Table 5.1.
TABLE 5.1 Costing of BC Operations
(per client).
Cost of
Amount Revenue Amount
(`) from (`)
Staff 191.49 Credit 128.61
Operations 147.96 Savings 22.45
Capital
expenditure
13.69 Payments 3.02
Others 10.96
Total 346.09 Total 154.65
Hence it becomes apparent that banks
need to allow BCs to offer a mix of
transactions (in fact more credit related
services along with deposits and remittances)
20
Bansal Yeshu & Srinivasan N., June 2009.
Article in CAB Calling “Business Correspondents
and Facilitators: The story so far”
PROMOTING FINANCIAL INCLUSION 35