Banking Correspondent – A way to India’s Financial Inclusion Dream

During my recent visit to a small 4-5K population village, I got an wonderful opportunity to have my first physical interaction to the concept called ‘Banking Correspondent’ and now I have no doubt this would be single biggest  step in Financial Inclusion success story of India.

To what I know, the banking correspondent (BC) is like outsourced representative of bank or Financial Institutions (FIs) in remote areas (villages, remote areas etc) who would work as the single person bank for the area.  This is like a win-win situation for the bank, villagers, BC and Government. 

Bank gets the vast exposure to the rural population without actually the physical presence and the overheads of the branch or ATM setups (remember this needs decent banking transactions to be financially viable for FIs).  Villagers or residents for remote areas get basic banking facilities almost at their doorstep by the person among themselves (more trust worthy and virtually available 24X7).  BC the advantages are infinite… tangible, regular income by some % share of the transactions being performed at his end for the villagers; intangible, employment, respect (still matters very much in rural India), status and trust of fellow villagers. 

Government has huge role to play before it starts to reap the benefits for this initiative.   Some of the effort which government need to undertake is as follows:

  • Government have to get some guidelines framed, enabling the authorization of Banking Transactions with Bio-metric (exists) but more to have a security cover over the process (doesn’t exist), remember, rural India is highly prone to social engineering attacks. 
  • Government then needs to formulate guidelines to protect the BC from being harassed by Bank (considering this would be only employment opportunity with BC and with realistic monopoly of Banks) by fixing some minimum wages or % transaction charges. 
  • Government then needs to mandate its flagship scheme to disburse funds through this alternate banking channels.  
  • Though BC would enable to reach the remotes areas, it would also incline banks (specifically PSB) to close the branch or ATM at not-so-profit places in rural India; guidelines to ensure that this doesn’t destabilize the current structure should be looked deeply by central bank.
  • BCs bank on the trust of the people, Central bank should should issue guidelines in selections of the BC should also be looked into also the strict training and compliance issues. This would prevent any frauds within the process, very much necessary for success to this initiative.

While doing some duties the government can reap the immense benefits from the BC initiative.  The long cherished dream of Congress Govt of Financial inclusion can be fairly achieved in next two years (two years would be target considering the next elections are due).  Financial inclusion will help in executing various schemes in more transparent and faster way, something which is absent in present and even though huge fund flow, it doesn’t show the intended result in rural people’s mind.  BC if harnessed properly can be one of the biggest and fastest source of information dissimilation for Government (considering present vote bank politics, each person can use BC for their benefit).  However, combining the BC with UID government can efficiently manage their 1100 welfare schemes in social sectors. Again with virtually 24X7 availability of funds at village level with help of BC will infuse high liquidity into the banking system, (something to worry and cheer for). At macro level, government can use these financial inclusion channel for its social sector fund disbursement and can control its rising fiscal deficit (a much needed step to success of 12th 5 Year Plan)

The important question for few on how it works is complex to write but simple to observe.  Any partially educated villager with keenness to learn mobile operations and some money as security deposit (approximately 10000) at his disposal can be Banking Correspondent.  All he has is a safe place to store some cash, a GPRS/3G mobile handset (mostly provided by Bank on subsidized rates), a bio-metric device with GPRS/3G chipset (definitely Bank provides) and a place to setup his office.  Stationeries and forms are definitely provided by bank as standardize process.  

  1. BC registers the villagers (called enrollment) with itself by providing one account number, unique id and takes finger prints on its Bio-metric device. 
  2. Once done, villager’s bank account is virtually created.  BC on weekly basis uploads this (enrollment) data on the bank servers and villager is within bank’s network. 
  3. Next time when villager wants to deposit or withdraw the cash, he just need to give his unique ID to the BC he is registered with and the amount he wants to withdraw or deposit.  Then BC keys in details in his mobile and asks villager to authenticate himself on bio-metric devices. 
  4. On successful confirmation, BC collects or pays the villager along with Bio-metric device generated confirmation.  Such successful transactions are uploaded on daily basis with bank servers through GPRS/3G connections.
  5. On security front, the BC can only withdraw amount he has deposited in bank as security deposit.  So if his limit is INR 10,000 he can transit multiple transactions but the maximum disbursement of INR 10,000.  So in case he is attempting the fraud on villager’s behalf, bank is fully secured by collateral.

Lately, I physically witnessed this step working in small village in Nanded District of Maharashtra with effort from semi-skilled villager and State Bank of India.  I wish every stakeholder fulfills its duty on time so that we together can reap the benefit of this ‘Tiny Bank’ initiative to move a step closure to ‘developed nation’ tag.

 

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