2/9/13Mrunal [Economy] Banking Business Correspondents Agents (BCA): Meaning, functions, Financial Inclusion, Swabhimaan, Common Service Centres [Economy] Banking Business Correspondents Agents (BCA): Meaning, functions, Financial Inclusion, Swabhimaan, Common Service Centres (CSC)1. 2. 3. 4. 5. 6. 7.What is financial inclusion? Why Business Correspondents system? Who/What is Business correspondent? Who can become Business correspondent for Banks? Functionsof Banking Business Correspondents? Swabhimaan Reforms in BC model 1. Common BC2. NREGA payment 3. Kiosk Banking 8. BCA for Direct Cash Transfer? 9. Mock questionsWhat is financial inclusion?Give every poor man a bank account. And help him get a loan from banks. Financial inclusion involves 1. Give formal banking services to poor people in urban & rural areas. 2. Promote habit of money-savings, insurance, pension-investment among poorpeople. 3. Help them get loans at reasonable rates from normal banks. Sothey dont become victims in the hands of local moneylender cum thugs. Three important initiatives taken by RBI for financial inclusion: Lead banking scheme (LBS). RBI assigns a district to a particular bank. That Bank will be responsible forpromoting banking services and financial literacy, in that district.(=financialinclusion). No frills account. Poor people can open bank accounts with very lowbalance e.g. Rs.5 only. Weve already discussed that in earlier articles: Click me and click ME19692005mrunal.org/2013/01/economy-banking-business-correspondents-agents-bca-meaning-functions-financial-inclusion-swabhimaan-common-service-centres-1/7

2/9/13Mrunal [Economy] Banking Business Correspondents Agents (BCA): Meaning, functions, Financial Inclusion, Swabhimaan, Common Service Centres 2006Business Correspondents (BC) system. Discussed in this article.Why Business Correspondents system?If Financial inclusion means open bank accounts for poor people. Then whats the bigdeal, just open a damn account! Not so easy. India has around 6 lakh villages.Most of them dont have bank branches. Ok so Why cant banks open branches in everyvillage?No profitBecause Administrative costs will be high= Building rent, telephone, electricity, staff salary, security guards. On the other hand volume of business is very lowin village areas=amount of money deposited, loans taken. Means there is No profit. Actually itll lead to heavy losses.Reluctant staffIn many villages, there is no electricity, no good schools/drinking water, naxalite problem= Bank staff doesnt want to serve there. Therefore banks dont like to open branches below district HQ or Tehsil level. Now comes the problemHardships faced by poorsA poor man lives in remote village. This man has deposited some Rs.2000 in a bank @his tehsil. Now, He wants to take out some money from his bank account. So Hell have to make a trip for 10-20 kms =travel =time and cost. He is illiterate sohe doesnt know how to fillup bank slips, other paperwork. He needs to ask for help here and there in the bank office. And most banks/post-offices dont treat poorpeople with respect or priority like they do with regular customers. So, he mayhave to wait for many hours, move from this table to that table, before he getshis money. = he cannot return to his village and do his daily job/work. = his one days income is lost. Same process repeats, when this man wants loan to buy a new cow, pumpset, seeds or fertilizers. One the other hand, local money lenders inhis village, give money quickly, without asking many questions or requiring himto fillup two dozen application forms. (but then they extract 36% compound interest from this poor man, thus making his life a living hell.)Ultimatelymrunal.org/2013/01/economy-banking-business-correspondents-agents-bca-meaning-functions-financial-inclusion-swabhimaan-common-service-centres- 2/7

2/9/13Mrunal [Economy] Banking Business Correspondents Agents (BCA): Meaning, functions, Financial Inclusion, Swabhimaan, Common Service Centres 1. Banks We cant open branches @every village, because its not profitable. 2. poorWe cant make trip to nearest town to access banking facilities, people because it is inconvenient. So, whats the solution? How about a middleman / agent between banks and the poor people?Who/What is Business correspondent?Business correspondents are bank representatives. They help villagers to open bank accounts. They help villagers in banking transactions. (deposit money, take money out of savings account, loans etc.) The Business Correspondent carries a mobile device. The villager gives his thumb impression or electronic signature, and get the money. Business Correspondents get commission from bank for every newaccount opened, every transection made via them, every loan-application processed etc.Who can become Business correspondent for Banks?1. Non-Governmental Organisations(NGOs) 2. Self Help Groups (SHGs), 3. Micro Finance Institutions (MFIs) 4. Post Offices 5. Insurance agents 6. Panchayats 7. Civil Society Organisations (CSOs) 8. 9. 10. 11. 12. 13. 14. 15. farmers clubs Community based organisations Cooperatives societies Village Knowledge Centres, AgriClinics/ Agri Business Centers, Krishi Vigyan Kendras Khadi and Village Industries units corporate entities with IT outlets in rural parts.Functions of Banking Business Correspondents?1. Create awareness about savings. 2. Give advice to villagers, about how to save/invest money and how to arrange/manage loans. 3. Help the villagers to open bank accounts. 4. Collect loan applications, forward them to bank. 5. Preliminaryprocessing of loan applications for example: verification of persons identity, home-address etc. 6. Help the Self Help Groups (SHG), to get loans.mrunal.org/2013/01/economy-banking-business-correspondents-agents-bca-meaning-functions-financial-inclusion-swabhimaan-common-service-centres- 3/7

2/9/13Mrunal [Economy] Banking Business Correspondents Agents (BCA): Meaning, functions, Financial Inclusion, Swabhimaan, Common Service Centres 7. Help the bank to collect EMIs and recover loan money.SwabhimaanInitiative by the Finance Ministry + Indian Banks Association launched in 2011 Tobridge economic gap between rural and urban India.ObjectivesMake banking facilities available to every habitat with a population >2000 (by March 2012.) Banks will provide basic services like deposits, withdrawal, Kisan Credit Card (KCCs) etc via Business Correspondents (BCs) also known as Bank Saathi. Banks will also working together with the Unique Identification Authority ofIndia (UIDAI) for opening new bank accounts. Government will send subsidies andsocial security benefits (pension etc.) directly to beneficiarys account. Beneficiary can withdraw the money from the Business Correspondents (BCs) in their village itself. Government has provided 500 million rupees to banks for taking these^initiatives.(e.g. paying Commissions to Bank Saathi, their training cost, doing paperwork with UID.)Reforms in BC model Common BCLast year Finance ministry came up with this proposal: India be divided into 20clusters. A common BC be appointed for all public sector banks operating in thatgeography. Such a move would improve the economics of the BC model. (otherwiseso many BCs, fragmentation=nobody earning decent Commission=nobody improving theservice delivery.) Reserve Bank of India (RBI) has permitted all business correspondents (BCs) working for one particular bank, to conduct business for other banks as well. FINO, Indias largest Business Correspondents company FINO=FinancialInclusion Network and Operations (FINO). It is promoted by various Public and Private sector banks and insurance companies like LIC. Last year, FINO become thecommon Business Correspondents company for all public sector banks operating inJharkhand.NREGA paymentmrunal.org/2013/01/economy-banking-business-correspondents-agents-bca-meaning-functions-financial-inclusion-swabhimaan-common-service-centres- 4/7

2/9/13Mrunal [Economy] Banking Business Correspondents Agents (BCA): Meaning, functions, Financial Inclusion, Swabhimaan, Common Service Centres Old system1. A villager earns some cash under MNREGA. 2. Government gives cash to bank. 3.Bank gives it to B.C. 4. B.C. deposits it into MNREGA workers account.New system1. All accounts will be maintained by core banking system. 2. So, cash directlygoes from Government > Bank >MNREGA workers bank account. 3. Villagers will havethe freedom to make their withdrawals from any BC they choose.Kiosk BankingThe D.I.Y. (Do it yourself) banking services e.g. ATM, internet kiosks = still expensive. There is also lack of education + awareness in rural areas about suchthings. So even if Government /bank installs such automatic ATM, internet kiosks=> most of the time they just gather dust. Therefore, technology-based self-service model (e.g ATM, internet kiosks) is not useful at this stage. And hence we need Personnel (these Business Correspondents=middlemen). Because often villagers are illiterate, so they cant even fill up the forms for opening bank accounts or loan-application or filling the deposit slips etc. Business Correspondents are essential at this stage. But again problem: The cost per transaction remains high.(Because Bank has to pay commission to B.C.agent.) Therefore, Chindu has suggested following solution for long term: Migrate from banking correspondent model to Kiosk banking = mobile vans fitted with ATM machines+ biometric devices. Theyllprovide banking services in remote areas.BCA for Direct Cash Transfer?In November 2012, Mohan announced Direct Cash transfer scheme. (will be coveredin detail, later) Anyways, under Direct Cash transfer scheme, Government will directly deposit payments, subsidies, scholarships, pensions etc into the beneficiarys bank account. Sounds well and good? Well, here is the big problem There areabout six lakh villages in India. And despite all these financial inclusion initiatives (of FINMIN+RBI), still only ~75,000 villages have a bank branch or business correspondent agents (BCA). So for the poor people in remaining ~525000 villages still face the problems we saw in MNREGA payment withdrawl. So Direct CashTransfer will be #EPICFAIL unless each and every village ismrunal.org/2013/01/economy-banking-business-correspondents-agents-bca-meaning-functions-financial-inclusion-swabhimaan-common-service-centres- 5/7

2/9/13Mrunal [Economy] Banking Business Correspondents Agents (BCA): Meaning, functions, Financial Inclusion, Swabhimaan, Common Service Centres covered under banking services. Therefore, recently Chindu asked the banks to have at least one bank branch or business correspondent agents (BCA) for every village or group of villages with 1,000 to 1,500 households. In the villages without BCA, Department of Electronics and Information Technology will install CommonService Centre (CSC). This CSCs will serve as the BCA. Right now, CSC will usedonly for opening new accounts of beneficiaries under the scheme for direct cashtransfer. Only after banks install the software and complete other technical requirements for cash transactions, the CSC will allow villagers to withdraw cash from their accounts.Side note on CSCCommon Services Centers scheme= started in 2006. Aim= set up of 100,000+ (one lakh) internet enabled centers in rural areas under the National e-Governance plan(NeGP)Mock questionsMCQsQ1. Financial inclusion involves 1. 2. 3. 4. 5. Covering rural poors in bankingnet. Covering urban poors in banking net. Providing jobs to poor people. Providing vocational training to poor people. Spreading banking awareness among poor people.Ans.choices a. b. c. d. Only 1, 3 and 5 Only 1,2 and 5 Only 3 and 4. All of themQ2. Find incorrect statements about Swabhimaan scheme 1. It was launched by the Ministry of Social justice in 2009. 2. It aims to provide insurance coverage to laborers in unorganized sector. 3. It aims to provide financial inclusion to people residing in remote areas of India. Ans a. Only 3 b. Only 1 and 2 c. Only 2 and3mrunal.org/2013/01/economy-banking-business-correspondents-agents-bca-meaning-functions-financial-inclusion-swabhimaan-common-service-centres- 6/7

2/9/13Mrunal [Economy] Banking Business Correspondents Agents (BCA): Meaning, functions, Financial Inclusion, Swabhimaan, Common Service Centres d. Only 1 and 3 Q3. Who among the following, is/are eligible to become Businesscorrespondents for banks? 1. 2. 3. 4. Ans a. b. c. d. Only 1 and 2 Only 2 and 4Only 2 and 3 All of them. Post office Panchayats NGO and Insurance Agents Self Help Groups (SHG)Descriptive Questions1. 2. 3. 4. 5. Swabhimaan (5m) Swavalamban (5m) Common Services Centers scheme (5m) Write a note on National E-governance Plan (NeGP) (10m) Define Financial inclusion. Discuss the initiatives taken to achieve financial inclusion. (15m)Interview1. Apart from what is already being done, what new initiatives should be taken to achieve 100% financial inclusion?URL to article: http://mrunal.org/2013/01/economy-banking-businesscorrespondents-agents-bca-meaning-functions-financial-inclusion-swabhimaancommon-service-centres-csc.htmlmrunal.org/2013/01/economy-banking-business-correspondents-agents-bca-meaning-functions-financial-inclusion-swabhimaan-common-service-centres-7/7