The success of the government’s thrust on financial inclusion, which largely hinges on the role played by business correspondents (BCs), is faced with a harsh reality check.
A recent survey conducted by the RBI College for Agriculture Banking and the Consultative Group to Assist the Poor (CGAP) reveals that not only were a substantive number of banking agents untraceable, but that even among those found to be working, a significant number have never conducted even a single transaction.
According to the survey, which tried to contact 2,358 agents across 15 large states in the period between September and November 2013, only 53 per cent could be reached and the remaining 47 per cent could not be reached.
Even among those who could be reached, 198 (16 per cent of that) agents have not done a single transaction till date. Experts say that there is more of an account opening exercise that is currently going on rather than the real task of focussing on financial inclusion.
While the government and the RBI claims that they have over 2.2 lakh banking agents, experts say that the survey suggests that the quality of the same is terrible.
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“Our assessment is that the Ministry of Finance and the RBI have relied far too heavily on a target-driven approach to financial inclusion, whereby the RBI mandates that banks open a minimum number of accounts in poor and rural areas. This has led to ‘card rampages’, with banks aggressively opening accounts to meet their targets, but investing little in establishing high-quality agent networks that encourage account usage,” said Daniel Radcliffe, senior program officer with the Bill & Melinda Gates Foundation, which is a member organisation of CGAP.
The survey also found out that the attrition rate of business correspondents is anywhere between 25 and 34 per cent per annum and that does raise a question mark on the sustainability of the existing model.
The agent activity is significantly lower in India relative to that in several African countries. While the median agent conducts only 9 transactions per day in India, those in Kenya do 62 and those in Tanzania and Uganda do 35 and 34 transactions, respectively.
In India the remuneration for the agents is also low and the median agent earns only $45 (Rs 2,700) per month, or $1.50 per day — well below the $5 break-even point seen in other markets. There are further issues in the same as the account opened through an agent takes 9 days for activation as compared to 3-5 minutes in East African markets.
The survey shows big loopholes in the existing network of agents of banking correspondents but in its exercise to extend banking services to remote areas the RBI recently permitted banks to appoint non-banking finance companies (NBFCs) as their business correspondents.
BCs are hired by banks to offer banking services in remote areas where they do not have branches and therefore the BCs act as agents of the parent bank. While RBI had allowed banks to use BCs to organise a network of customer service points in 2006, the number of banking agents grew to over 2.2 lakh till 2013. In a bid to further expand the scope of BCs, the Nachiket Mor committee had earlier this year suggested to include new entities as BCs.