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Speeding Financial Inclusion Through BC-BF Model

Speeding Financial Inclusion Through BC-BF Model

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Published by: sudhir0023 on Jun 21, 2010
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 e n c l  o  S p e d i n g  F i n a i a I n c l u s i n T h r o u g h  B C / B F  M o d e l :  I s e,  h a i s u s C a l l e n g e s  n d  O p p o r t u n i t e s
 April - June, 2009
Financial Inclusion Initiatives in India
Mandira Sharma,
under the aegis of Indian Council for Research onInternational Economic Relations (ICRIER) has tried, in an expansivemode, to place India under various dimensions onthe financial inclusion parameters. Her findings arean eye opener. India is placed at 29th place under Index of Financial Inclusion by the complex 3Dmethod and 50th place by 2D method.CGAP researchers in an exclusive and extensivearticle have narrated pretty lucidly the current historyof financial inclusion initiative. Without elaboratingon it further, suffice it to say that a starting point wasmade through the Khan Committeerecommendations as early as 2005 as a prelude to the later day recommendations of the
Rangarajan Committee in early 2008. Financial inclusion may be defined as the process of ensuring accessto financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.Since we shall be restricted to this very definition throughout this article, let us break this sentence to takethe purport of this very important definition. By breaking it down to in small phrases it turns out to be of manykey words: Financial inclusion is a process of (bringing) the poor, weaker sections and vulnerable groups,(for whom) access to financial services, including credit, timely (on time, when they require the most) at anaffordable cost or a price one feels possible to absorb service rendered.The task of financial inclusion as a goal and target aimed was gigantic. This article is dealing with one of theprocess initiations as a means to reach that goal on a sustainable, self evolving, and transparent manner and gives maximum value to the outreach of banking services. By the process itself it would not preludecredit - adequate amount and timely delivery - at an affordable cost. All these parameters were dealt withother mechanism and recommendations as a way forward. But if we refer to the picture above, we shallobtrusively conclude that the small wheel carried the entire process of unfurling, spreading and making of aframework of functionality upon which relied a great deal on the wheel or the cycle to move. We are basicallydiscerning as to how far we have succeeded in wheeling away to the desired destination. If we have notgone too far, Why not? What ailed it or is ailing it today and how we can make it work better?
 S p e e d i g  F n a n c a l  I c l u s i o n  n i i n r o u g h  C / B F  M o d e l :  T h B I s s u e,  C h n g s a n d  O p o r t u n i i e s s a l l e e  p t
Santanu Sengupta*
*Chief Executive Officer, Study & Jobs Worldwide (SJW) and Secretary, Change Innovators Society, Kolkata
 April - June, 2009
Agent Led or Branchless Banking
What Made it Work Elsewhere
of inclusion.One of the main stumbling blocks to free the payment andThe revolutionary policy initiation, however, had started assettlement and utilisation of off-branch agent network is toearly as January 2006 when RBI came out with the first agentinvolve the stakeholders across the board at an evenlyled or branchless banking initiative in the form of the circular spread risk sharing basis. This requires laying down a finelyon Business Correspondent/Business Facilitator Model,balanced synchronised and shared network with definedwith a fair bit restrictions on eligibility criterion. The importantSLAs and SOPs. A very important step was the regulatorypoint remains that, apart from other lofty intent, it was apolicies of payment and settlement mechanism across themarked departure from conventional thinking and replicatingboard. Brazil and South Africa were able to do it as early asglobal standards set in other terrain. But before we embark2005-06 and continued with the various changes as itupon to evaluate its pros or cons, let us find out other suchexpanded. It is important here to note that M-Pesa, since itsexercise worldwide.first launch, had been able to enrol as many as 700,000customers in the first seven months of its roll out itself. ThisThe early agent based branchless banking was initiated Innumber may look small compared to Indian numbers, butBrazil and Philippines by various entities. Brazil’s variousone should remember the population and size of Kenya, tobanks and its subsidiaries have opened up to 95000 agentthe total teledensity in that country.network spurred by a legal provision where it was allowed“geographic coverage to such a stunning extent: an agent isThe question that wouldlegally able to deposit itsarise, obviously, is whyexcess cash in to itsIndia as a powerhouseaccount with itscould not do so whatsponsoring bankother lesser countriesthrough the branch of could espouse. Theany bank, at no extrasentiment could becost, and without havingechoed in the speechto open an account atdelivered on October 20,that bank.” (Jim
2006 by Dr.
Y.V. ReddyRosenberg, Cgap)who emphasised thatSimilar success storiessafety first for the poorer abound from Kenya,and vulnerable sectionSouth Africa andwas of paramountPhilippines. These areimportance. He saidachievements as aprelude to the current“……e
nsuring safe and expeditious movement of funds at an
day Mobile Money through which Africa and Latin America
optimal cost is the key to success of all payment system
are creating gigantic strides on their initiative of financial
…The relatively late adoption
of technology by us
inclusion. The reference such as M-pesa in Kenya, G-cash in
and the recent initiation of reforms in payment and 
Philippines are almost synonymous of such a move. And this
settlement systems have in some way proved to be a sort of 
trend was pretty visible as foreseen by David Birch, of cHyp
blessing in disguise by enabling us to take advantage of the
as early as in 2005 December. And it was happening all over 
experience of the innovators.” 
He continued thus, “ ..
We, in
Latin America, Africa, in Philippines and elsewhere.
India, have been attempting an active approach towardsfinancial inclusion in the recent past. Hence, access to fundstransfer services at economical rates to the vast majority of the country’s population would be essential for securing 
In the Brazil’s experience, it is important to note that the legal
financial inclusion as also for 
reducing the dependence onframework was amended to facilitate the change required tonon-banking channels for remittance of funds.
accelerate the pace of inclusion based on transparency,efficacy and cost effectiveness. Regulatory authorities,By these various assertions, we get to know the regulators’worldwide, are difficult institutions because of their intrinsicconcern as well as the awareness that we were late.nature of the job. But one must appreciate the boldinnovative decisions taken by them to expedite the process
 April - June, 2009
THE BC & BF GuidelinesUnderlying Drawbacks in the Model:The Stumbling Blocks on Way Forward
back drop of Indian banks looking to address fundamentalissues is faulty. One of the best foot forward was to narrowThe Reserve Bank, in line with global trends, ushered in the the gap of deposit growth vis- a- vis credit growth. Howbranchless banking as an important first step towards could one possibly have the deposit growth, unless you bringuniversal financial inclusion. It was done with caution or in millions of unbanked households? The big question wasoppositions, perceived as well notional, as it attacked the how to snare the households in the banking net. Theconventional thinking and taking on the powerful bank notification of BC/ BF was not electrifying as the steps wereunions who would take on these initiatives as an obvious pretty tentative and did not exactly leave any real impact.outsourcing efforts. Although there was no such declared or avowed opposition, it did not evoke any great appreciationeither. The general mood was one of incredulity or age oldlegacy that bank is an inviolable institution and it will be 1)BCs were barred from collecting any fees from thedifficult to manage and give value based service to the clients except commissions or service charges by thecustomers in these manner 
But let us find out what was bank and banks could not hike interest beyond theintended and how the process unfurled. The important points prime lending rates. In the absence of the value addedwere: services that could have been bunched together, theincentive was clearly lacking.Banks would be free to appoint an agent in the form of some 2)Restricting the command area further to 15/30 km inentities having the necessary wherewithal to manage the rural as well 5 km in urban areas were a further damper business on behalf of the bank to take deposits and pay out as it put the tech savvy private sector banks at a greatthe amount so deposited in his or her account of small value disadvantage. They did not have many rural branchestransaction, of certain numbers in the interim. But most which put them in a disadvantage as their effort to useimportantly the agent appointment was restricted to ‘Not for technology in servicing the remote areas through theprofit” organisations only like NGOs, trusts or entities under state wide organisations were put to rest. They slowly
Society’s Act. No NFBC was allowed to become an agent. concentrated more on the urban sectors in selectcities.Initially the accounts were opened all across the branches in 3)There were not enough qualified vendors to run thethe districts. Later on the radius of command area was show as an entity like trust or NGO having field agents,restricted to 15/30 km in rural areas and 5 km in the urban conversant with technology as well as managementlimits.. Value limitations were also in force to qualify as the no skill of financial services.frill account. Although the banks always wanted to start with 4)As the product was new, there was no awarenesssome funds in place to cover its operations cost
amongst the people, the staff of panchayats or stategovernments.KYC norms were relaxed; initially only limited numbers of 5)The other segment of MFI-NGOs found the hassle of deposit and withdrawal were permitted. Later on remittance, daily reporting vis- a- vis small gains of such exercisethird party payments as well as fixed deposits were also to be as not worth. NGO MFIs felt that by mobilising depositallowed. Both conventional as well as bio metric smart card and brining the customers closer to banks, their based accounts were also opened. Initially the biometric customer base would be susceptible to poaching bydevices were pre programmed to handle certain bank managers. So they continued to dither on thetransactions in numbers and value and logged onto the scheme.website for validation and transfer to unlock the device so 6)Except some pilots, nationalised banks took long timethat controls remained at the remote server. Later on, the to come out with any concrete plan to augment no frillbiometric devices were made to work always online mode to accounts on an overdrive.generate transaction receipt somewhat akin to a debit or 7)For non-card based account opening efforts, it was notcredit card transaction. There were some eligibility criterion possible to service that segment of the customers whoof BC/ BF and many other accompanied issues which were required to travel to the branch which were quiteneeded to be addressed as to the basic inadequacies of the far in most cases. .models. So it was greeted with guarded optimism. 8)For card based accounts, the requirement of dailyreporting norm was an impediment. Another big issuewas cash management of netting deposits andwithdrawals and lack of insurance cover of cash inThe assumption that it will be a huge successful model in the transit.

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