What is the Business Correspondent (BCs) model for financial inclusion?

The RBI has allowed banks to appoint entities and individuals as agents for providing basic banking services in remote areas where they can’t practically start a branch. These agents are called business correspondents. BCs are considered as practical solutions to extend basic banking services to the nearly 600000 village habitations in the country. Business Correspondents are hence instrumental in facilitating financial inclusion in the country.

What are BCs?

Business Correspondents are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM. BCs enable a bank to provide its limited range of banking services at low cost. They hence are instrumental in promoting financial inclusion.

What are the functions of BCs?

BCs have to do a variety of functions viz, identification of borrowers, collection of small value deposit, disbursal of small value credit, recovery of principal / collection of interest, sale of micro insurance/ mutual fund products/ pension products/ other third party products and receipt and delivery of small value remittances/ other payment instruments, creating awareness about savings and other products, education and advice on managing money and debt counseling, etc.

What types of products can be provided by BCs?

As per the RBI guidelines the products provided by BCs are: Small Savings Accounts, Fixed Deposit and Recurring Deposit with low minimum deposits, Remittance to any BC customer, Micro Credit and General Insurance.

The BC model allows banks to provide door-step delivery of services especially ‘cash in - cash out’ transactions at a location much closer to the rural population, thus addressing the last-mile problem.

Who can act as BCs?

The RBI has provided a long list of entities and persons who can act as BCs. Initially the entities permitted to act as BCs included registered entities like NGOs/ MFIs. Later, the list expanded to include individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana / medical /Fair Price shops, individual Public Call Office (PCO) operators, agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own Petrol Pumps, authorized functionaries of well-run Self Help Groups (SHGs) which are linked to banks. Any other individual including those operating Common Service Centres (CSCs) are also allowed to act as BCs of banks.

Though the BC model was attractive it has not delivered effectively because of the many shortcomings associated with it. Firstly, banks have imposed higher restrictions on operations of BCs. Secondly, salaries of BCs were very low compared to the physical work they have to do to cover the distant areas. The JDY also heavily relies the operations of BCs for continuation of account activities by the village people who started the account as part of the programme.

**********