No takeoff for RBI's rural access pilot

BANKING ON OTHER INDIA

The government's struggle for financial inclusion of the poor remains in pilot mode, two years after it started.

The Reserve Bank of India (RBI) had sent the circular asking for appointment of business correspondents and business facilitators to provide bank access to villages in January 2006.

The country has 68,000 bank branches and six lakh villages. As reaching out to all villages was found to be a near-impossible task, banks were asked to appoint business correspondents.

However, the model has remained limited to two or three pilot projects in Andhra Pradesh and Orissa. And a study says these projects have been performing below par and have not been encouraged to use technology to enable quicker access to villages.

Vijay Mahajan, director of an NGO, Basix, said, "Banks are allowed to appoint only teachers, postal employees and NGOs for the work, which involves taking deposits or installments from villagers on the behalf of banks. The number of links between banks and people should be as many as STD PCOs. How come we don't say that PCOs should be run by NGOs?"

"These rules prevent banks from becoming dynamic," he added.

The State Bank of India's Chief General Manager, Soundara Kumar, said the bank's 3,000 rural branches were unable to universalise the business correspondent model as it was untested.

A study of the model in Orissa by HR Khan, who headed a RBI's group on microfinance, found that the model had not been fully used and was confined to a handful of villages where HDFC and ICICI banks appointed business correspondents.

The study found the banks were not using technology and were getting little work done. Its report said the model allowed NGOs, MFIs, even kiosks, e-choupals and retail chains to work as intermediaries between banks and villagers but the regulations did not permit this.

The report suggested that banks should link up with NGOs and other intermediaries which were technology savvy and use innovative products and processes to cut the cost of operations.

However, Financial Affairs Department Secretary Vinod Rai defended the government.

"The government has to be particular about the credibility of the people who handle the money. There cannot be a single instance where the money entrusted by a poor villager is lost on its way to the bank. Hence, work is being given only to those who live in the village and whose credibility is not in doubt." He added the model was not dead.