What is BCBF Mode l?
With the objective of ensuring greater financial inclusion and increasing the outreach of the banking sector, in Jan 2006 based on the recommendations of Khan Commission, the Reserve Bank of India issued a new set of guidelines allowing banks to employ two categories of intermediaries - Business Correspondents (BCs) and Business Facilitators (BFs) - to expand their business. According to the guidelines scheduled commercial banks including Regional Rural Banks (RRBs) and Local Area Banks (LABs) have been permitted to use the services of intermediaries in providing financial and banking services throughout the country and even in remote areas.
In this model BCs are permitted to carry out transactions on behalf of the bank as agents, the BFs can refer clients, pursue the clients' proposal and facilitate the bank to carry out its transactions, but cannot transact on behalf of the bank. Recently Reserve Bank of India (RBI) has permitted all Business Correspondents (BCs) working for one particular bank; perform business for other banks too.
As reported by the banks under their financial inclusion plans nearly 2,48,000 BC agents had been deployed by banks as on March 31, 2014 which are providing services through more than 3,33,000 BC outlets. Nearly 117 million basic saving bank deposit accounts (BSBDAs) opened through BCs remained outstanding as on March 31, 2014.
Guidelines for engaging Business Correspondents (BCs)
Banks may formulate a policy for engaging Business Correspondents (BCs) with the approval of their Board of Directors. Due diligence may be carried out on the individuals/entities to be engaged as BCs prior to their engagement. The due diligence exercise may, inter alia, cover aspects such as
(i) Reputation/market standing
(ii) Financial soundness
(iii) Management and corporate governance
(iv) Cash handling ability
(v) Ability to implement technology solutions in rendering financial services.
The Role and Responsibilities of the BCs
(a) Enrollment of customers, including collection of biometric and other details, provide card ( ID Card, Debit Card, Credit Card), PIN.
(b) Provide transaction facility.
(I) Deposit of money in an account with any bank
(ii) Withdrawal of money from an account with any bank
(iii) Remittances from an account with a bank to an account with the same or any other bank.
(iv) Balance Enquiry and issue Receipts/ Statement of Accounts.
(c) Disbursal of credit facilities to borrowers involving small amounts strictly as per the instructions of the Bank.
(d) Other activities:
i. Identification of borrowers and classification of activities as per their requirements.
ii. Collection and prima facie scrutiny of loan applications including verification of primary data.
iii. Creating awareness about savings and other products offered by the Bank and education and advice on managing money & debt counseling.
iv. Preliminary scrutiny of data and submission of applications to the Bank for its review.
v. Promotion, nurturing, monitoring and handholding of Self Help Groups and/or Joint Liability Groups and/or Credit Groups and others.
vi. Facilitating the repayment of dues owed to the bank by its customers.
vii. Marketing of third party financial products.
Products offered by Business Correspondents:
The following products are to be offered by the CSPs to their clients.
a. No Frills Savings Bank accounts
b. Recurring Deposit Accounts
d. Fixed Deposit
e. Overdraft/Retail loans
f. KCC/GCC (Kisan Credit Card/ General Credit Card)
g. Third party financial products
Benefits of using BCs
Some of the advantages in using BCs as listed below:
A better alternative for bank branches : Generally, a rural bank branch can serve 5,000 to 10,000 families in 15 to 20 villages within a radius of 15kms. A Public Sector Bank branch may require more than 5 years to serve unbanked areas in India, while a private sector & foreign bank with IT connectivity may require about 5 times more time. Further, obtaining permission to open a branch is a long and protracted process. The BC option potentially enables banks to reach out much faster and at a much lower cost.
Reaching the unreached : The model enable banks to extend financial services to the unreached clients beyond their branch network as beneficiaries of the BCs are mostly located at unbanked and under banked areas.
Better loan performance: Since local stakeholders like NGOs, post offices, etc., are involved in the process, they know the customers at a personal level. The personal connection enhances the customers' accountability to the BC, which in turn improves loan performance and repayment rates.
Doorstep banking: D isbursement and loan recovery at the doorsteps of the beneficiary.
Quick expansion: Scaling up of this model is possible within a short span of time.
Who is Eligible for BC?
- NGOs/ MFIs set up under Indian Societies/ Trust Acts. (Care: excluding NBFC)
- Societies registered under mutually aided co-op. societies (MACs) Act or the Coop. Acts of States.
- Section 25 companies.
- Post Offices.
- Retired Bank employees
- Ex-Service men.
- Retired Govt. Employees.
- Individual kirana/ medical/fair price shop owners.
- Individual Public Call Office (PCO) operators.
- Agents of small savings schemes of Government of India/ Insurance Companies.
- Individual who own petrol pumps.
- Retired teachers.
- Authorized functionaries of well run Self Help Groups (SHGs) linked to banks.
- Individual member of Farmer's Clubs.
- Individual operators of Rural Multipurpose kiosks/ Village Knowledge Centres
- Individuals/ proprietors/ owners who manage Agri Clinics/ Agri Business Centres.
- Retired Post Masters.
- Individuals such as auto dealers, tractor dealers and FMCG stockiest.
- Insurance agents including of private insurance companies (IRDA certified) and postal agents.
- Individuals operating Common Services Centres (CSCs) established by Service Centre Agencies (SCAs) under the National e-Governance Plan (NeGP).
- For profit companies
- Any other individual considered suitable by the selection committee.
Who is Eligible for Business Facilitator (BFs)
Under the "Business Facilitator" model, banks may use the services of intermediaries such as:
- Farmers Clubs
- Community based organizations
- IT enabled rural outlets of corporate entities
- Post Offices
- Insurance agents
- Well functioning Panchayats
- Village Knowledge Centres
- Agri Clinics
- Agri Business Centres
- Krishi Vigyan Kendras
- KVIC/KVIB units
Functions / Activities of Business Facilitators
(i) Identification of borrowers and fitment of activities
(ii) Collection and preliminary processing of loan applications including verification of primary information/data
(iii) Creating awareness about savings and other products and education and advice on managing money and debt counseling
(iv) Processing and submission of applications to banks
(v) Promotion and nurturing Self Help Groups/Joint Liability Groups
(vi) Post-sanction monitoring
(vii) Monitoring and handholding of Self Help Groups/Joint Liability Groups/Credit Groups/others
(viii) Follow-up for recovery.
The products that can be canvassed by the BC acting also as Business facilitator are:
a. Loans against Valuable securities/own deposits
b. Gold Loans
c. General purpose Credit card (GCC)
d. Kisan Credit Card (KCC)
e. Loans to SHGs/JLGs
f. Current Account
g. Savings Bank account (other than No Frills Account)
h. Term Deposits
I. Recurring Deposits
j. Mutual funds on a referral basis
k. Insurance (Life and Non Life), Pension and any other third party financial product.
Skill sets Required to become Business Correspondent
Financial inclusion is not merely opening of no frills accounts. It also encompasses giving access to financial products like savings products, loan products, remittance facilities, micro insurance, micro pension, financial planning and education. Further the ultimate goal is to make available these services across service providers on a nationwide basis. Taking the above as the basic deliverables expected of a BC, the team spent time in the field observing various BCs and BFs go about their daily routine. Discussions with the BC/BFs also threw a lot of insights. Based on the insights so gained the skills required by BC/BFs are given below:
i) Knowledge of the basic principles and practices of banking
ii) Knowledge of the relevant products of the bank in the areas of deposits, advances, insurance, mutual fund products etc.
iii) Knowledge of the documents required for these products
iv) Knowledge of KYC norms, the different kinds of documents that will be acceptable depending on what it is possible for the customer to produce
v) Ability to use the Point of Sale/bio metric device given by the bank and do minor trouble shooting
v) Ability to provide financial counseling to the villagers he is serving
vi) Ability to do a preliminary appraisal of credit proposal to the extent of informing the branch of credit worthiness and bona fides of a potential borrower.
a) Verbal Knowledge of the local language, public speaking etc.
b) Written- to the extent of helping customers in completing the required forms/documentation
ii) Marketing Skills
a) Building Trust - Since the potential customer does not have a banking relationship with the banks and may not be in a position to read and understand the product/process himself, the BC should inspire trust.
b) Persuasion skills - Banking per se is a latent demand and the BC should be able to help the financially illiterate customer to realize the existence of the need and appreciate the need to shift from informal to formal sources of finance.
iii) Customer Service
a) Empathy - understanding the needs and insecurities of the customer who is often dealing with a bank for the first time
b) Service orientation - the customer of a BC often needs more handholding than the average bank customer
HOW THE BC OPERATES
The legal relationship between the BC and the bank is that of an Agent and Principal bound by a legally enforceable contract. The BC, in turn, employs CSPs who are sub agents of the banks. The BC gets compensated by the bank for the services rendered which is shared with the CSP and the technology provider. The technology provider acts as a link between the bank, BC, CSP and the client creating an enabling environment using technology.
How the system Operates
- The BC and technology providers are selected by Bank through an open bid process. After evaluating the technological capability of the technology partner of the BC, the contract is awarded to the BC which gives the lowest (L-1) quote.
- The BC employs, sometimes in consultation with the Bank, the CSPs who could be educated unemployed youth from the same area, existing retailers, members of the SHG or suitable persons who are permanent residents.
- An area of operation is assigned by the Bank to the CSP which is usually a Gram Panchayath or group of Panchayath/villages.
- The CSP is assigned a link branch within the distance criteria stipulated by RBI.
- The CSP is given basic training and equipments. The cost of equipment is borne by the CSP or by the technology Company/BC or sometimes by the Bank.
- At the front end, the point of service terminal usually consists of a reader, printer, a mobile phone connectivity and RFID smart card which communicate through Near Field Communication (NFC) Protocol. The configuration may vary for Kiosk model and mobile phone model.
- The terminal can handle both, on line and off line, transactions.
- The terminal is connected to the server of the technology service provider through broad band/ GSM/GPRS mobile device. The server is interfaced with the bank's core banking server.
- The bio-metric identification is stored in the terminal of the CSP for easy access.
- No frill accounts are opened by the CSP by capturing the finger prints and photographs of the clients and obtaining account opening forms with KYC documents.
- The account opening forms with all data captured is sent electronically to the Bank. The base /mother branch/ opens the account after verifying KYC documents and authorizes issue of a smart card to the client. The process takes about 15 days or sometimes more.
- Thereafter, the client can operate the account - deposit or withdraw cash - using the smart card through the CSP.
- The mobile phone/lap top of the CSP terminal has all client details which are validated using the smart card and positive identification is established through the finger print reader. All transactions pass through the server of the technology provider. The account of the client is debited or credited real time or at the end of the day. To enable this, the CSP maintains an escrow or imprest account with the base branch with enough cash balance. The account is frequently replenished by the CSP depending on the operations. The CSP/BC also does reconciliation of accounts on daily/weekly intervals.
- The client can also receive MNREGS payments, old age pension and other benefits through the account.
- The payment of commission to the BC is settled by the bank at the end of each payment cycle which usually is one month depending on the number and volume of transactions.
- Though the system appears simple, it is facing several challenges due to various factors including deficiency of infrastructure etc., which is discussed in details elsewhere in this report.
Cash Management: The CSP/BC is required to maintain sufficient liquidity by way of deposit with the Bank or can take an Overdraft facility from the branch in whose service area the BC is operating. For instance, liquidity to be maintained by the CSP ranges between Rs10,000 to Rs 25,000/-
Security Deposit: In terms of Bank's Policy, the BC would be required to keep security deposit equivalent to a fixed percentage of the expected business volumes of a year.
Commission Payable to BC: The rates of commission payable to the BC will be advised after the completion of selection process.
List of Business Correspondent Companies in India
The following Business Correspondents are listed based on the primary information received from them:
- Action for Women and Rural Development (AWARD)
- CASHPOR Micro Credit
- Commonwealth Inclusive Growth Foundation (CIGF)
- Drishtee Development and Communication Limited
- Ekgaon Technologies Private Limited
- Eko India Financial Services Private Limited
- Guidance Society for Labour Orphan and Women (GLOW)
- i25 Rural Mobile Commerce Services
- Janalakshmi Social Services
- Mahila Chetna Manch
- Prayas Juvenile Aid Centre
- Samvriddhi Inclusive Growth Network (SIGN)
- SEED Financial Services
- BASIX Sub-K iTransactions Limited
- Swadhaar FinAccess
- Zero Microfinance and Savings support Foundation
- Association for Rural Development (ARD)
- Namathu Deepam Micro Finance Services (NDMFS)
- National Mother and Child Welfare Organisation (NAMCO)
- Fino Fintech Foundation
- Sambhav Social Service Organisation
- Universal Welfare Fund (UWF)
- Center for Rural Health and Social Education (CRHSE)
- Vikas Gram Udyog Mandal (VGUM)
- Lucknow Mahila Sewa Trust (LMST)
- Glodyne Technoserve Ltd
- Dr. Daulatrao Sonuji Aher Gramin Bigarsheti Sah Pat Kalwan
- Shree Swami Samarth Nagari Sah Pat Maryadit Kalwan
- Shree Swami Samarth Vyapri Sah Pat Maryadit Satana
- Sharadrao Pawar Nagari Sahakari Pat Maryadit Deola
- Shree Mahavir Nagari Sahakari Pat Maryadit Satana
- Yashwantrao Chavan Nagari Sah Pat Maryadit Kalwan
- Ashapuri Mahila Nagari Sah Pat Maryadit Deola
Technology Providers for BCBF Model
(iii) A LITTLE WORLD
FINO, Financial Inclusion Network and Operations Ltd. is India's largest Business Correspondents Company. It is jointly promoted by banks in the public and private sector and a few investors drive the BC program through its Section 25 Company “FINO FINTECH FOUNDATION”. As many as 22 banks have tied up with FINO.