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It was supposed to be India’s grand plan to reach banking services to the masses. Indeed, going strictly by the numbers, the banking correspondent programme appears to be progressing well — the number of such agents has shot up from around 34,000 in March 2010 to over 220,000 in March 2013.
However, a survey of 860 agents in 11 States by MicroSave, a financial inclusion consulting firm, raises questions over the efficacy of the banking correspondent model.
The 2012 study, conducted along with the RBI College of Agricultural Banking, found that 58 per cent of banking correspondents surveyed simply weren’t making enough money, earning less than Rs 3,000 a month. The agents say they need to earn at least Rs 6,500 a month to be able to offer the service in the long run, adds the report. The poor earnings seem to have affected the quality of service provided to the 109.9 million new accounts opened between March 2010 and March 2013 under the Government’s financial inclusion drive.
Consequently, transaction volumes in these accounts — mostly opened in unbanked rural areas — have been low, raising a question mark over the actual impact of this programme.
In countries with high-quality networks, such as Kenya, Tanzania and Bangladesh, the threshold for such agents is higher, at $125-200 a month (even at 55 to the dollar, that is Rs 6,875-11,000).
The root of the problem may lie in the kind of correspondents appointed by banks and their partners. In the rush to meet the RBI’s account opening targets, a large number of agents were enlisted, often with little attention being paid to their ability to provide services beyond account opening.
MicroSave found that a sizeable portion of the “listed” banking correspondents in India are no longer offering services, suffer from chronic system downtime, or lack the cash to facilitate disbursements. The study covered agents listed on bank Websites as correspondents.
A quarter of those surveyed were not in a position to process transactions at the time because they had no equipment or sufficient cash to meet withdrawal requests. The results suggested a 37 per cent dormancy rate among the banking correspondents surveyed.
Extrapolating these findings to the entire network, it is clear that India’s banking correspondent drive will need to make qualitative improvements.
While growth in the banking correspondent network is essential to expand physical access to banking services, a poorly functioning agent can damage the reputation of the service, particularly if an account holder is unable to access funds after depositing the same with an agent.
In this respect, MicroSave says banks need to offer one or two “anchor” products to make the business grow and build trust in the agent network.
These products must be simple to comprehend and drive volumes. In most countries, these are person-to-person or government-to-person remittances.
MicroSave also says more attention needs to be paid to the selection of agents.
> arvind.jayaram@thehindu.co.in
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