The Hindu Business Line : Spreading services in rural areas

BANKS may soon be allowed to use business correspondents for disbursal of credit and collection of interest, in the rural sector. This is one of the recommendations of the Reserve Bank of India's Internal Group on Rural Credit and Micro Finance.

The group has suggested the business facilitator model for providing non-financial services and the business correspondent model for providing financial support services to rural and farm sectors.

Banks can use the business facilitator model for services such as borrower identification, collection, processing and submission of applications, preliminary appraisal, marketing of the financial products including savings, post sanction monitoring, promotion and nurturing self-help groups and follow-up of recovery.

NGOs, farmers' clubs, functional co-operatives, IT-enabled rural outlets of corporates, postal agents, insurance agents, well functioning panchayats, rural multipurpose kiosks, agri clinics and business centers financed by banks, may function as business facilitators.

Under the business correspondent model, institutional agents and other external entities can offer services such as disbursal of small value credit and recovery of principal or collection of interest, and sale of micro insurance, mutual fund products and pension products.

These business correspondents may accept or deliver cash or other payment instruments either at the doorstep of the customer or other convenient location subject to the limit fixed by the parent bank.

Registered non-banking finance companies (NBFCs) with significant rural presence, non-Government organisations, micro finance institutions (MFIs), IT-enabled rural outlets of corporates and post offices may function as the business correspondents.

Banks will pay the fee or commission to the business facilitators and correspondents and clients will not be charged for these services.

Customers will also have the freedom to use branch banking facilities even though the business correspondents are available in their locality.

A national microfinance information bureau (NIMIB) will be established by the Nabard with the help of CIBIL to gather information on business correspondents. The NMIB may also facilitate sharing of information regarding termination of agency arrangements due to negligence and fraud.

The business facilitators or correspondents may have the contractual relationship with only one bank, the report said.

The group said the RBI and the Government should consider reduction in the threshold limit on FDI for NBFC-MFIs from $5,00,000 - 1,00,000.

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