Role of Branchless Banking in Financial Inclusion

Sachin Surendran1, Nishija Unnikrishnan2

Abstract
CGAP and DFID define branchless banking as the delivery of financial services outside
conventional bank branches using information and communications technologies and nonbank
retail agents, for example, over card-based networks or with mobile phones. It often uses agents
and relying on information and communications technologies to transmit transaction details –
typically card-reading point-of-sale (POS) terminals or mobile phones. Proponents of financial
inclusion have eagerly anticipated the development of branchless banking services as a new
approach to provide the unbanked – and especially the poor – with access to financial services.
This paper attempts to study the concept of branchless banking in the arena of financial inclusion
in India.
Keywords: Branchless banking, Financial Inclusion, Business correspondents (BCs),
Information and communication technology (ICT), Unbanked
Introduction
“It is this gap in the financial services market that is creating a unique niche for mobile
phone banking to develop on the continent, enabling a growing number of people to access
financial services for the first time.”3
According to a report of CGAP4, 1.77 billion people in the world have mobile phones but
no bank account. Here comes the concept and need of financial inclusion. The Rangarajan
committee on financial inclusion (2008) defines financial inclusion as “the process of ensuring
access to financial services and timely and adequate credit where needed by vulnerable groups
such as weaker section and low income groups at an affordable cost”. It was defined by RBI as
the process of ensuring access to appropriate financial products and services needed by
vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair
and transparent manner by mainstream Institutional players. RBI has reported that the financial
exclusion in India leads to the loss of GDP to the extent of one percent (RBI, 2011). Reaching
out to a large unbanked population can be achieved by a judicious use of technology and people
on the ground to extend financial services to the unbanked by opening up channels beyond the
currently operational branch network (Subramanian, 2013). Branchless banking, to a far extent,
is a good option for this.
Branchless banking is the delivery of financial services outside conventional bank
branches using information and communications technologies and nonbank retail agents, for
example, over card-based networks or with mobile phones. Reaching out to a large unbanked
population can be achieved by a judicious use of technology and people on the ground to extend
financial services to the unbanked by opening up channels beyond the currently operational
branch network (Subramanian, 2013). This paper attempts to study the concept of branchless
banking in the arena of financial inclusion in India.

1
Sachin Surendran, , Research Scholar in Commerce, kannur University, kerala
Email- sachinsurendran143@gmail.com
2
Nishija Unnikrishnan, Research Scholar in Commerce, St Thomas College (Autonomous), Thrissur,
Kerala, PIN 680001, email- nishijaunnikrishnan@gmail.com
3
See:- Ondiege, Peter. “Mobile Banking in Africa: Taking the Banks to the People.” Africa Economic
Brief. Afab.org. December 2012. Web. January 2013
4
CGAP, Consultative Group to Assist the Poor, an independent microfinance center based at the World
Bank
Objectives
 To explain the concept of branchless banking in the context of financial inclusion
 To understand the progress of branchless banking in financial inclusion in India.
 To understand the benefits of branchless banking to the financial inclusion in India.
Research methodology
This study is exploratory in nature. In accomplishing the objectives of the study, data has
been collected from secondary source. The secondary data is composed of the literature available
in different scholarly research articles belonging to several national and international journals,
business magazines, committee reports, and RBI reports. The data collected for a period of 6
years from 2009-2010 to 2014-2015.
Review of literature
Roy (2012) studied the overview of financial inclusion in India. The study concluded that
banks have set up their branches in remote corner of the country. .The study also concluded that
banking industry has shown tremendous growth in the volume during last few decades.
V.Ganesh Kumar (2013) in his study on financial inclusion noted that literacy alone
cannot guarantee high level financial inclusion in a state. Branch density has significant impact
on financial inclusion. It is not possible to achieve financial inclusion only by creating
investment awareness, without significantly improving the investment opportunities in India.
L.S.Subramanian (2013) carried out a study to understand the role of branchless banking
and the implementation of the same for the unbanked population of India. He also studied the
experiences in other countries in the implementation of branchless banking and how it has been
adapted in India. He concluded that Business Correspondent agents have been a key outsourced
resource in ensuring that the unbanked based service has to be strengthening their training
initiatives by financial literacy programs and marketing campaigns to ensure that these services
are used by the targeted population.
Malek Mroueh (2013) studied about branchless banking in Africa, Middle East and
Pakistan. He concluded that Branchless banking allows banks to better serve a variety of mass
consumer segments, whether they are those with limited access to bank branches or those with
low account balances.
Discussion and analysis
Branchless Banking
Meaning
CGAP and DFID5 define branchless banking as the delivery of financial services outside
conventional bank branches using information and communications technologies and nonbank
retail agents, for example, over card-based networks or with mobile phones. It is the delivery of
financial services outside conventional bank branches, often using agents and relying on
information and communications technologies to transmit transaction details – typically card-
reading point-of-sale (POS) terminals or mobile phones.
Branchless-Banking Channels
According to Y.L.R. Moorthi, branchless banking has six modes
1. Business Correspondent Model (BC)
The BC model allows banks to provide doorstep delivery of services, especially cash in-
cash out transactions. This model augurs well with rural areas due to its simplicity and
efficiency. It enables Corp-Bank to develop a very trustworthy image as it provides financial
inclusion of remote places.

5
Department for International Development (DFID)
 2. ING Model (ING)
This model is based on the concept of pure branchless banking pioneered by ING. It has
gained popularity in USA due to its hassle free banking service with higher rates of interests on
deposits. Although this model lends a very tech savvy image to the bank, the concomitant lack
of interaction between customers and bank officials makes it very impersonal.
3. HSBC Model (HSBC)
HSBC Direct services were launched by HSBC to expand its positioning from being just
a premium player to one catering to the needs of the next rung customers as well. HSBC Direct
services differed from the ING model in that it was backed by a brick-and-mortar framework
that supported the bank’s online facilities
4. Mobile ATMs/Vans (MV)
Mobile ATMs or Mobile Van Banking is an augmented service provided by the banks to
have ATM & banking facilities reach parts which are not covered by the bank’s ATMs. This
service has been gaining popularity as a means of extending banking facilities to the rural
population.
5. Mobile Banking (MB)
Mobile banking is a service provided by a bank or other financial institution that allows
its customers to conduct a range of financial transactions remotely using a mobile device such
as a mobile phone or tablet, and using software, usually called an app, provided by the financial
institution for the purpose.
6. Internet banking
Online banking, also known as internet banking, e-banking or virtual banking, is an
electronic payment system that enables customers of a bank or other financial institution to
conduct a range of financial transactions through the financial institution's website.
Branchless Banking: Four Distinct Emerging Model
There are mainly four models of branchless banking6. First one is Low-Cost Branch
Channels. It is the case of Banks using lower-cost agents as branches. Second one is M-Wallet
they areapps that have payment functionalities. Mos twallets right now incorporate online
payments which could mean; credit card, 1 click, Digital Wallets (like PayPal), prepaid, gifting
etc. Third one is Money Service Provider Non-banks offering banking services. They encompass
more than just banks which normally provide these services to include non-bank financial
institutions. Last one is Mobile Bank, Focused on micro banking & savings solutions. Mobile
banking is a service provided by a bank or other financial institution that allows its customers to
conduct a range of financial transactions remotely using a mobile.
Progress of branchless banking in financial inclusion
Table 2
Progress of branchless banking in financial inclusion from 2009-2010 to 2014-2015
CAGR(%
March March March March March March
Particulars per
2010 2011 2012 2013 2014 2015
year)
Basic savings bank deposit A/c through branches
60.19 73.13 81.2 100.8 126 210.3 23.18
(No. in millions)
Basic savings bank deposit A/c through BCs
13.3 31.63 57.3 81.27 116.9 187.8 55.47
(No. in millions)
Urban locations covered through BCs 447 3771 5891 27143 60730 96847 145.07
KCCs-(No. in millions) 24.3 27.11 30.24 33.79 39.9 42.5 9.76
GCC-(No. in millions) 1.4 1.7 2.11 3.63 7.4 9.2 36.86

6
See (BBRsPak, 2011)
Information and communication technology A/Cs-
26.5 84.16 155.87 250.46 328.6 477 61.89
BC-Transaction.(No. in millions)
Source: Compiled from RBI Annual reports

It was observed from table-1 that, during 2010 to 2015, Basic saving bank deposit
accounts through branches and through business correspondent (BC) have a CAGR of 23.18%
55.47% respectively. This shows that basic saving bank deposit accounts through BCs have the
highest growth rate when compared with basic saving bank deposit accounts through branches.
Urban locations covered through BC also show a very positive trend of CAGR being rated the
highest percentage 145.07%. The Kisan credit Card (KCC) and General Credit Card (GCC) also
increased but the growth of GCC is showing more than that of KCC. Information and
communication technology A/Cs-BC-Transaction (ICT) is also increasing day by day showing
CAGR of 61.89 which is really noteworthy. In a nutshell, we can see an overall positive picture
of branchless banking in financial inclusion of our country and it is showing an increasing trend
year by year.
Benefits of branchless banking in India
The rise of the "branchless bank" has benefited most customers, retailers, government etc.
some of the advantages of branchless banking are listed below
 Reduction of leakage
As financial transactions are done directly between beneficiaries and government subsidies and
welfare programs, the chances of leakage of money can be decreased to a great extent. Without
much pilferage, money will reach the needy. Indian government has started many direct cash
transfers to the beneficiaries of various schemes.
 Reliable payment channel
Through Direct Payment system, the Beneficiary Banking allows a safe and reliable payment
channel for Public subsidies and welfare programmes offered by the GOI for the poor.
 Financial support to the poor
Poor people face many problems in saving money and because of that, they face many financial
difficulties. Branchless banking is an opportunity for such people to overcome such difficulties
and provides them a platform to ensure that they always have cash available and the borrow
money, receive money and also customers are gives an uninterrupted service; and adequate
money securely and confidently in a regulated and reliable banking environment.
 Credit Support
Credit was traditionally sourced from informal channels which made the poor dependant and
vulnerable. With financial inclusion there is an opportunity for the poor to avail of credit at
reasonable terms to fund their aspirations and foster entrepreneurship.
 Cheaper means
Branchless banking (including mobile money) is cheaper on average than alternative services.
This is because, while comparing with conventional banking, branchless banking, which includes
mobile banking, is serving its customers more economically and effectively.
 Increased security/reduced risk from not holding cash
Through branchless banking the risk from holding cash can be minimized as money can be
safely kept in bank in an easy manner
 Increased convenience
The convenience of branchless banking brings more joy and customer satisfaction and less time
consuming too.
Conclusion
Branchless banking allows banks to better serve a variety of mass consumer segments,
whether they are those with limited access to bank branches or those with low account balances.
According to a 2012 study by Gallup, Inc. and the World Bank, an estimated 2.7 billion people
in emerging markets — almost 40 percent of the world’s population — are without access to
even basic financial services, meaning they remain “unbanked” and don’t use formal or semi-
formal financial services.1 The lives of these unbanked could be improved through access to the
most basic array of banking services, such as deposits, savings, installment loans, simplified and
secure remittances and bill payment. Developing and under-developed economies all over the
globe are looking for new modes and means to contain poverty and include their citizens in the
financial system. One of the important factors that would help achieve this vision is to ensure
total financial inclusion.
It is not possible to achieve financial inclusion only by creating investment awareness,
without significantly improving the investment opportunities in India (V.Ganesh Kumar 2013).
Financial inclusion using branchless banking should expand to offer products like insurance,
Financial Services, investments in equity and commodity markets and in other saving
instruments like mutual funds and bonds as the financial program transforms the economical
health of the poor in India(Subramanian, 2013) In an international comparison of 26 banks,
McKay and Pickens (2010) found that branchless banking (including mobile money) was 19
percent cheaper on average than alternative services. Proponents of financial inclusion have
eagerly anticipated the development of branchless banking services as a new approach to provide
the unbanked – and especially the poor – with access to financial services. Moreover branchless
banking is providing a number of benefits to customers, banks, government and the whole
economic system. By considering all these, branchless banking must be treated as an important
means to accelerate financial inclusion in India.
Reference
 Khan, H. R. (2012). Issues & Challenges in Financial Inclusion: Policies, Partnerships,
Processes & Products. RBI Monthly Bulletin, 66(8), 1447-1457.
 Roy, S. K. (2012). Financial inclusion in India: An overview. Asian Journal of
Multidimensional Research, 1(5), 136-138.
 Rangarajan committee report of on financial inclusion (2008)
 RBI Annual Reports
 Bagli, S., & Dutta, P. (2012). A study of Financial Inclusion in India. Radix International
Journal of Economics & Business Management, 1(8).
 Kumar, M. D., & Venkatesha, H. R. (2014). Financial inclusion using Pradhan Mantri
Jan-Dhan Yojana–a conceptual study. Asia Pacific Journal of Research Vol: I Issue XX.
 McKay, Claudia, and Mark Pickens. 2010. “Branchless Banking 2010: Who’s Served? At
What Price? What’s Next?” Focus Note 66, Consultative Group to Assist the Poor,
Washington, DC.
 Ondiege, Peter. “Mobile Banking in Africa: Taking the Banks to the People.” Africa
Economic Brief. Afab.org. December 2012. Web. January 2013.
 Moorthi Y.L.R.Branchless banking by corporation bank - a branding perspective.
Tejas@IIMB.2009
 BBRsPak. (2011). Branchless Banking Regulations, 1–37.