Banking Correspondent: A Channel For Financial Inclusion in India & Micro ATMs

Lack of access to basic financial services is still a major challenge in a country such as India where more than 65% of the population is classified as “Under Banked or Unbanked”. Recognizing this problem, the “Reserve Bank of India (RBI)” introduced a regulation in 2006 allowing banks to provide service at people’s doorstep through the use of third party services. This model is referred to as “Business Correspondents/Banking correspondents” in short BC’s.

BC is a representative authorized to offer services such as cash transactions where the lender does not have a branch. Primary role of BC is to oversee the proper development and functioning of indirect banking channels. These business correspondents are subject to RBI regulations and would have direct contact with one or more financial institutions. These BC’s charge a commission from the bank for enrollment of clients, transactions, deposits etc.

Initially only ‘not for profit’ entities were allowed to become B.C’s. However, off late RBI has eased the norms like inclusion of for profit entities and interoperability of business correspondents, aimed at helping customers in rural areas access banking services such as cash deposits, withdrawals, remittances and balance enquiries from anywhere in the country on the lines of ATM facilities available to customers in urban areas.

Banks have deployed as many as 1.95 lakh business correspondents (BCs) covering 2.21 lakh villages across the country as of March 31, 2013. Benefits to customers include instant access to banking services at doorsteps; relaxed KYC norms for small accounts allow better possibility of opening bank accounts; lower costs and time required to access banking services.

Source: RBI; ICT refers to use of technology such as Micro ATM’s or Mobile phones as a medium to communicate with the bank

Micro ATM’s – Use of technology along with banking correspondents can help bank tap large unbanked sector effectively as Banks can use mobile and micro ATM’s along with banking correspondent to deliver low cost banking solutions to unbanked customers. The Unique Identification Authority of India (UIDAI) would enable beneficiaries with Aadhaar to withdraw money near their doors through the core banking system.

“The beneficiary has to put his finger and Aadhaar number in to the micro ATM wireless device and get the money within 8 to 9 seconds from a business correspondent after verification about the beneficiary having that much amount deposited in the bank account shown through a receipt by the device.

Oxigen, FINO, A Little World, EKO, are some of the well known BC’s currently operating in India. Recently telecom companies such as Vodafone, Idea Cellular, Airtel, Vodafone; and consumer goods firms such as ITC, HUL who have large distribution channel and pan India presence have shown interest to become business correspondents for banks. Even the postal department which has about 1.55 lakh post offices over 90 per cent of which are in villages is planning to install 135,000 micro-ATMs at post-offices across the country by September 2015.

Business Correspondent model is still in the developmental stages and there are expected to be some challenges associated with the model. Some of the key challenges include agent customer awareness, back office and seamless integration of banks and BC’s. Since branchless banking is a service that is quite new in its use of technology, and also that it offers financial services for the first time to unbanked customers, customer awareness is required to educate and inform. In addition to this, BC’s face the challenge of working with numerous banks where each one has their own process. Without standardization achieving operational efficiency would be a tedious task. Furthermore; customer data is part of bank. It will be interesting to see how banks would share this with the BC’s who represents more than one bank.