Non-remunerative cost structure and lack of financial literacy could pose challenge to the survival of business correspondent (BC) model in India.
According to a recent study conducted by Sa-Dhan - the national association of community development finance institutions - the lack of commercial viability in the form of low compensation is threatening the very existence of the BC model, which was encouraged by the Reserve Bank of India to promote financial inclusion.
“The shortcomings for the BC model are the cost structure, bank’s lack of commitment, absence of financial literacy, lack of knowledge between customer service point operators (CSPs) and clients and lack of grievance redressal system,” the study said.
The BCs and CSPs operating in the rural areas were struggling to generate volumes. “Until the BC system builds up enough volume there will be a mismatch in their expectations and the returns they make and this will affect their morale and staying power,” the report said.
Lack of interest
Most banks consider it as a mandated program and fail to see their business interests in the program.
“There has been an over-emphasis on the quantity (in terms of number of no-frill accounts opened and customer service points established) as opposed to quality,” the study pointed out.
Product range
Most BCs were currently offering no frills accounts and limited remittance services. There was a need to improve the range of products and services offered.
The report also suggested the need for improvement in connectivity and technical infrastructure to sustain the BC model.
The BC model, if modified and rolled out carefully, has the potential to usher in a second banking revolution in the country to achieve near total financial inclusion, the report added.