Banks need to focus on getting the banking correspondent model right
Laxmi is 75 years old and lives alone in a remote village in Pithoragarh district of Uttarakhand. Since she is poor, she receives a pension from the government. Her son, works as a security guard in Delhi, occasionally sends her money, too. She has about Rs 6,000 in her bank, but last month, she fell ill and was unable to buy the medicines she required. Her bank is 15 kilometres away and at her age, walking those kilometres through the rough terrain becomes impossible.
In the last two years, over 11 crore of mostly poor, mostly rural, people have opened accounts in Jan Dhan Yojana and become part of our vast formal financial system. This should enable them to obtain government benefits, remittances and allow them to save and eventually take bank loans. Unfortunately, in spite of having an account many do not access them mainly because bank branches are too far and sometimes because they are unused to dealing with formal systems, being illiterate or just intimidated.
The financial systems have not yet reached the last mile. This is puzzling because the government of India and the Reserve Bank have been actively promoting a system of business correspondents (BCs) and customer service points (CSPs) to reach out to all account-holders. The BC model, formulated by RBI in 2006, is designed to bring the bank to the door step of the customer. BCs or CSPs are organisations or individuals who travel to individuals, equipped with mobile technology linking them to banking operations. They open accounts, collect savings, make withdrawals and educate the customer about the benefits of banking. According to RBI, there are over 2.5 lakh business correspondents with the number going up every year, and when the business correspondent actually reaches the last mile, individuals lives change.
Laxmi, was finally able to get well because she phoned her BC, Vinita, who had opened her account in the State Bank of India, and who reached Laxmi’s house with her withdrawal of Rs 1,000. Vinita Pandey is a member of SEWA and serves 1,200 households in seven villages. She is happy to have this self-employment which allows her to earn an average of R7,000 a month, and cheerfully walks 8 km a day knowing that she is bringing a useful, sometimes life-saving, service to the rural folk. SEWA has collaborated with the State Bank of India to form a unique women’s business correspondent.
However, this is the exception rather than the rule. Although women are capable and willing, they tend to be
excluded with only 9% of BCs or CSPs in India being women. SEWA studied the performance of BCs in three states and found the results to be disappointing.
In a Madhya Pradesh in a study of 22 villages in 2012, although banks had appointed business correspondents, they covered less than 2% of the population. Most of them were young men with motorcycles, and all of them said that they were spending more in travel than they earned, being a BC was not viable for them, although it was a good learning experience, and they made good contacts. They did not plan to stay in this work for more than a couple of years.
In Bihar in 2013, BCs were interviewed in five districts. The median customer outreach of a BC was 600, with the coverage of female customers being nearly half. About 60% of the accounts opened by women were non-operational.
The common reasons were that the accounts were not activated by banks, faulty cards had been issued by banks to the customer and the customers did not want to use the bank for savings.
Over 60% BCs encountered problems in performing their day-to-day operations. These problems ranged from lack of functional knowledge to disruption in hand-held devices or related technical support. In terms of bank support provided to BCs to perform their work, the majority—58% respondents—rated bank support at the lowest level of 1 on a scale of 1 to 10. About 40% BCs reported that no bank official had ever visited their operational area for inspection/supervision of their work. In all, 46% of these agents faced a problem in receiving monthly payments from the bank, resulting in disillusionment amongst them to take it up as a long-term career option, as the actual income realisation by more than half the BCs did not cross even R2,500.These findings are corroborated by a CGAP (World Bank) study undertaken in 2012 and repeated in 2013. Although the banks stated that they had over 250,000 BCs, in fact, the actual functioning numbers were much less, as most BCs had either withdrawn or their accounts were stagnant. The attrition rate was 25% to 34% annually. According to this study, the earnings were less than R2,000 per month. The main reason for this dismal performance seems to be a neglect by the banking system.
The BC system holds great potential. It is an avenue of employment for young educated men and women, and with some effort upto 10 lakh such rural youth would easily be earning a decent income. It is a way in which crores of the excluded can be integrated into financial systems, increasing their savings, their access to insurance and investment in financial markets. It will help government to reach benefits directly in the form of cash to the poor. It is a path leading to prosperity, but it needs encouragement from the banks.
The author is national coordinator, SEWA