Banker on the ground: How business correspondent model is being reworked

A lot rides on the industry that employs more than two million agents who help others in opening businesses

Early signs that the business correspondent (BC) model is up for a re-haul is upon us. The Business Correspondent Federation of India (BCFI), and Grameen Foundation India (GFI) have made a pitch for “concrete capacity building” in the channel. A fortnight ago, the Business Correspondent Resource Council sought the set-up of an India Business Correspondent Equity Fund — akin to the India Microfinance Equity Fund — to the department of financial services in North Block. Both requests mark a liftoff from the C Rangarajan Committee on Financial Inclusion (January 2008): it was for funds being provided to specialised institutions which provide capacity-building inputs to BCs. And that the same could be extended out of the Financial Inclusion Promotion and Development Fund.

Seventeen years after the rollout of the Mint Road-led model for financial inclusion and to support employment generation, the blueprint of a Version:2 is in the works.

“Three digital initiatives have the potential to ring in a new financial inclusion model,” says Sunil Kulkarni, chief executive officer (CEO) of BCFI. He points to the account aggregator (AA) framework, the open network for digital commerce (ONDC), and the central bank digital currency. “These would augment the digital public infrastructure of Aadhaar, 5G and the Unified Payments Interface (UPI).”

Take AA. The Economic Survey this year said more than 1.1 billion bank accounts are being shared under the framework; 23 banks are now live on it; 4.2 million and 4.4 million users have either linked or shared their data on the platform. It is creating a huge marketplace (based on customers’ consent for sharing data) for all manner of financial vendors. It does away with the carpet-bombing approach to customer acquisition; even as you seek and avail of tailor-made offerings. As for ONDC, BCs can be the on-ground extension for it. For micro, small, and medium enterprises on ONDC, BCs can expand market reach by enhancing visibility.

“The BC industry must focus on moving from (being) enablers of financial inclusion to providing financial well-being, and resilience to the under-banked,” says Seema Prem, co-founder and CEO of FIA Global. The Reserve Bank of India’s (RBI’s) 'National Strategy for Financial Inclusion (NSFI: 2019-2024)' report noted it will call for a near-perfect tango among the government, financial regulators, the Telecom Regulatory Authority of India, service providers, and training institutes.

An aging architecture

 The BC architecture had come into being when there were hardly any fintech firms; digital was nowhere close to what it is today. Cash-in, cash-out (CICO) is the earning mainstay now. The pricing is fine: it ranges between 20 basis points (bps) and 50 bps for Rs 100; for fund transfers between 40 bps and 100 bps.

In BC-dominated areas, the primary need is cash — that is withdrawal. Family members of people working in cities and beneficiaries of government welfare schemes visit agents to withdraw funds. “While it’s a huge opportunity, facilitated by the Aadhaar-enabled payment system, one product or service is not enough to earn sustainable income,” says Ashish Ahuja, chief operating officer, Fino Payments Bank. The success of UPI has meant CICO can’t hold out for long. Expectedly, a revision in rates has been sought. Why should banks pay more to BCs? This, even as banks want UPI to be priced.

A lot rides on the BC industry: it employs more than two million agents who are micro-entrepreneurs in their right and help many open small businesses. BCFI-GFI’s report 'Reimagining the next-generation BC Model’ said that dependence on CICO transactions, little training in value-added services, and softer aspects as customer centricity would not help BCs develop cross-sell or ability to hawk other services. They have to intensify capacity building to create more trainers and better field staff. And, it’s important to them and staff (banks) to be sensitive to gender issues.

The new look

“The network should re-orient towards cross-selling, riding on the footfalls of CICO transactions. Fresh BC agent selection must include sales skill assessment as well since demand generation would call for it,” says Sasidhar N Thumuluri, managing director & CEO, Sub-K IMPACT Solutions. What of the risk of mis-selling? “Well, it becomes imperative that BCs get the right training.”

'NSFI: 2019-2024' said the objective of providing a basic bouquet of financial services can be achieved through designing and developing customised financial products by banks. And ensuring efficient delivery of it through leveraging of fintech firms and BC networks. It said banks should strive for capacity building of their BCs, so that they could be utilised for delivery of a wider range of financial products, such as life, non-life insurance products, pension products, and mutual funds.

“An aspect to be understood is there’s no one-size-fits-all across a complex market like Bharat. The usage of AI (artificial intelligence) and ML (machine learning) to understand diversified cohorts, and to design personalised products to meet local requirements, is critical,” says Anand Kumar Bajaj, founder & CEO, PayNearby.

The BC model gained traction in solving the last-mile problems to reach the grassroots at a faster rate and lower costs compared to legacy brick-and-mortar branches. According to the RBI’s 'Report on Trend and Progress of Banking in India (2021-22)', these made up 97.5 per cent of the banking outlets in the villages in FY22 even as branches decreased.

The quality of BCs and their “stickiness”—the ability to stay put at the field level—is a matter of concern.

A white paper by the Indicus Centre for Financial Inclusion in March 2021 said that more than a quarter of the agents were incurring losses. One reason is the inadequate compensation to banks for government transfers leads to lower compensation to BCs. This, in turn, leads to poor training, service quality and restricted accessibility to the public. Plus, there has been a trend of rising share in non-dedicated agents. While 45 per cent of the agents surveyed in 2017 were dedicated, 36 per cent made losses compared to 21 per cent non-dedicated agents. And 34 per cent of these  dedicated agents were keen to start other businesses to supplement incomes. The high share of non-dedicated agents prevents them (and customers) from benefiting from specialisation.

How do microfinance institutions, which sit adjacent to BC, go about skilling? “We conduct training-of-trainers programmes. We are doing 2,250 workshops with the help of the DEA Fund (Depositor Education and Awareness Fund) this year,” says Jiji Mammen, executive director at Sa-Dhan. Perhaps, it’s also time to create a common knowledge-sharing platform to close repetition of capacity-building efforts.

Access to affordable and quality financial services is essential for inclusive growth and development. Digital technologies have disrupted the conventional delivery models of lenders; and expanded the scale, scope, and outreach of formal financial services. BCs (or bank mitras as they are alternatively called) have played a major role in our financial inclusion – 490-million plus bank accounts with the number of agents at over 2.1 million as on December 2022 ­(RBI Annual Report 2022-23) – after the announcement of the Pradhan Mantri Jan Dhan Yojana (PMJDY in 2014).

The BC model has to be re-imagined. As the Rangarajan committee had it: Merely pumping a backward region with financial capital is not going to be enough in the absence of improvements on the side of human, social and physical capital. The people in the first place have to be healthy and educated to be productive, so that they can use finance effectively.

Business correspondents can play the role of the 'sutradhaar'.