Financial Inclusion A Brief on Its Evolution and Future Expectations

Transcription

1 Fnancal Incluson A Bref on Its Evoluton and Future Expectatons Background In Jan 2006, the Reserve Bank of Inda ssued a new set of gudelnes allowng banks to employ two categores of ntermedares - Busness Correspondents (BCs) and Busness Facltators (BFs) - to expand ther outreach. Accordng to the gudelnes, whle the BCs are permtted to carry out transactons on behalf of the bank as agents, the BFs can refer clents, pursue the clents proposal and facltate the bank to carry out ts transactons, but cannot transact on behalf of the bank. Snce then, the busness correspondent (BC) model n Inda has wtnessed numerous regulatory and polcy changes through ts journey of more than eght years so far to make t more effectve and effcent. In , there was an epoch polcy level nterventon by Department of Fnancal Servce, GoI and Reserve Bank Of Inda to ncrease the depth and breadth of Fnancal ncluson n ths country through the Common Busness Correspondent Model. Common Busness Correspondent Model Wth a vew to ensurng greater fnancal ncluson and to provde comprehensve fnancal servces to the underprvleged, partcularly n unbanked and under-banked areas, the Department of Fnancal Servces (DFS) n 2012, decded to engage the servces of Common Busness Correspondents as permtted by Reserve Bank of Inda after dvdng the country nto 20 clusters. The objectve was to partner wth non-bankng corporates who have the techncal know-how as well as fnancal muscle to nvest n the requred nfrastructure so that a brck and mortar bank branch at Panchayat Level can be outsourced to these Non-Bankng Corporates wheren 33 basc Bank servces can be delvered to the ctzen through real tme bankng transacton after seamless ntegraton wth the Core Bankng Soluton of the Respectve Bank. Ths was a sgnfcantly postve and vsonary step towards Fnancal Incluson. The dea of the Common Busness Correspondent (CBC) model was to fnd market drven solutons to the problems n the Fnancal Incluson landscape to make t sustanable n the long term. Followng were the salent and dfferentatng factors n ths model Hgher Economes of Scale: By gvng a Common Busness Correspondent company, exclusvty over the selected cluster, the dea was to ensure that the hgher scale of operatons would reduce the cost per BC outlet due to sharng of resources. Emphass on Transactons: The emphass of the CBC was to put more emphass on transactons rather than only creaton of accounts. Earler models were focused on makng new accounts but the new model emphaszes more savng formaton and more CASA money generaton for the respectve Bank. 1 P a g e

2 Real tme bankng: The earler BC models were mostly offlne and there were lot of ssues of trust among customers. The CBC model ensured that the Non Bankng Corporate develop ther own solutons and nfrastructure to ntegrate wth the Bank s Core Bankng Solutons so as to be able to conduct real tme transactons at the BC outlet tself. v De-rskng the Bank: The technology and bankng archtecture of the Common Busness Correspondent project s such that all the transactons of customers happened through a pre-pad manner by debtng nstantaneously the equal amount from an ntermedate bankng settlement account (as shown n Fgure 1 below) of the BC for any Cash Depost transacton happened n the BC outlet and credtng the equal amount of cash to the ntermedate settlement account of the BC for the amount of Cash wthdrawal happens n the BC Outlet. Therefore, the BC s requred to keep suffcent balance n the Settlement account for any transacton to happen successfully otherwse the transacton becomes null and vod. Ths knd of pre-pad mechansm put n place de-rsks the chance of any sphonng off ctzen money. Fgure 1: Cash Depost n the CBC Fnancal Incluson model Urban/Rural Mx : It generally takes a whle before an unbanked rural area develops the culture of bankng and hence most BC outlets n rural areas reman stressed durng the ntal years. It was manly due to ths that corporates were unwllng to enter nto rural areas to start BC outlets. The CBC project enttles the BC to set-up one urban branch for four rural branch so that urban outlet cash flow squares off the economc stress n the rural branches to large extent. 2 P a g e

3 v Focus on Bank Deposts/CASA: Studes done on the prevous BC models showed that snce t was manly heavy on wthdrawal transactons, Banks had an nherent percepton of t as a CSR objectve. The CBC model ensured that depost transactons were equally targeted. The CBC has begun to unleash the mmense untapped savngs/casa potental n the unbanked regons and gven Banks an ncentve to actvely pursue the goal of Fnancal Incluson. v Wn-Wn Busness proposton for Both Bank and BC : Overall the basc dea of the CBC model s to ensure that all the broad goals of Fnancal Incluson are met by provdng proper ncentves and a vable busness proposton to Banks and BCs to work towards wdenng the access to fnancal servces across Inda. Current Stuaton Currently the followng FI models are n practce: 1. Bank own Kosk Model- Bank Bank dentfes an Indvdual n the hnterland to set up and operate the BC outlet. As Bank does not have the tme and wherewthal to do the contnuous hand holdng and capacty buldng requred to grow the bankng busness as well as address day to day operatonal ssues faced by the BCA, ths has not really scaled up. Secondly, the BCA does not have other marketng allances to enhance hs/her busness opportunty other than the bankng transactons. 2. Offlne BC model- In ths model, the non bankng corporates set up and manage the BCAs who travel around the hnterland dong the fnancal transacton n the offlne mode and reconcle wth the respectve bank for gettng ther transacton commsson. But because of offlne transactons, there s probablty of sphonng off money from the customer as well as the BC sometmes loses the transacton commsson because of erroneous transactons. 3. Common BC Model: As far as the Common Busness Correspondent model goes only 3 out of the 20 clusters created are currently actve wth the rest gong wth multple Busness Correspondents and models. Though the Common Busness Correspondents were supposed to be the only BC n the gven cluster for all PSU banks, ths s no longer followed n practce as n the same cluster, dfferent BC models are operatng wth multple agences. There are also multple types of technologes and operatng methodologes n the mplementaton, rangng from real tme to completely offlne to kosk mode. Some models and banks allow bometrc Aadhaar enabled transactons, whle most kosks and other models are not. Implementaton of OFF-US transactons at BC outlets s movng at a very slow pace. Overall there seem to be lot of neffcences and mpedments n the system and some drected and coordnated steps would be needed to brng about postve change. 3 P a g e

4 Interventons to address the defcences n the exstng Models 1. Real Tme BC Model Studes have shown that all offlne models are extremely rsky and open to fraudulent practces and eroded a lot of trust n the end customer The real tme model connectng the BC drectly to the Banks CBS must be made mandatory for all BCs to drastcally lower the rsk of potental fraud as well as delverng the updated transacton report to the end consumer thereby buldng trust wth the.bc. 2. Healthy rato of Rural/Urban Outlets 3. AEPS 4. e-kyc BC agences have realzed that busness s very proftable n the urban and semurban areas and concentrate only n such areas. It s essental to ensure a good mx of urban outlets and rural outlets where t s dffcult to sometmes breakeven n certan areas. It should be mandatory to have 4 rural BC outlets for 1 urban outlet to ensure deeper penetraton n unbanked regons across Inda. Aadhar s the most cost effcent dentfcaton and authentcaton system for the bank customers by lnkng ther account numbers to the Aadhaar number to make all accounts AEPS ready. Smlarly, the Aadhaar Payment Brdge at the back end between the benefcary Mnstres/departments and the dsbursng banks automated the drect beneft transfer successful and reduces the leakage n the system consderably. Therefore, the BC Model should be made complant wth AEPS system to not only make Drect Beneft Transfer a great success but also to reduce the leakage n the delvery system consderably. The entre account openng process can be made paperless and faster through the use of e-kyc (Aadhaar based KYC) by banks The mplementaton of e-kyc should be gven prorty by all banks as ths wll allow customers to open all types of accounts at a BC outlet through e-kyc. 4 P a g e

5 5. Stable and sustanable commsson structure The BC model has been desgned consderng the huge operatonal cost for a bank branch to sustan t at the Panchayat level. At the same tme t must be noted that. Many low value transactons that happen n a BC outlet are not very remuneratve but few hgh value transactons are able to compensate for them. Ths must be taken nto account whle decdng a Wn-Wn commsson structure for both Bank and BC. Hence puttng an arbtrary cap for all transactons wll make the BC model unvable v The Upper Cap f any n urban areas must be at least equal to the Average cost of urban transactons n banks 6. Dscontnung Transacton Lmts Vablty of the BC model s hgher when regular and busness customers wth capacty for hgher transactons use the same channel for avalng bankng servces. In the real tme BC model, the bankng transacton s done on pre-pad model as descrbed earler obvatng the need of any msappropraton of fund by the BC as the money receved by the BC for any Depost s nstantaneously debted by the bank from the Settlement account of the BC. Therefore, the current restrcton on transacton value whch s applcable to the offlne BC model should be mmedately scrapped. Some of these lmts whch need to be removed are a. Daly Transacton lmt b. Amount per transacton lmt c. Monthly transacton lmt 7. Whte Label BC A hghly nteroperable platform smlar to that provded for the ATM nfrastructure could be provded for the Busness Correspondent busness n the long term Snce a hgh amount of nvestment s requred for each BC outlet, t must be possble eventually outlets to provde BC servces for multple banks all n one place. The same model used for Whte Label ATMs could be broadly used for creatng Whte Label BCs as already suggested by the Nachket Mor report. 8. Buldng trust factor It s hence essental that all BCs be n a permanent retal outlet based model so that ther long term presence begns to create a bankng culture n the surroundng unbanked areas. The ablty for customers to do real tme transactons n a retal outlet format s also crtcal for creatng trust among customers. 5 P a g e

6 Outlet needs have the look and feel of a bank s extended offce so that t nspres confdence among the full range of potental customers ncludng the poor. 9. Multple Product Offerngs The BC model should be a dstrbuted bankng model rather than only a fnancal ncluson drve to meet regulatory compulsons or socal objectves. The entre retal bankng product sute (ncludng current accounts etc) should be made avalable over the BC platform. 10. Servces other than bankng In order to ncrease sustanablty, The BC should also be allowed to provde a range of servces along wth the Bankng Busness correspondent servces at the outlet as long as t does not volate the rule of the land. E.g. a) G2C (Government to Customer) Servces b) Insurance c) B2C (Busness to Customer) Products/Servces d) ATM Servces 11. Bank Deposts/CASA through BC channel Wdespread use of the CBC model across Inda has the ablty to tap the huge savngs potental n untapped regons across the country. Such untapped CASA money shall be a great booster for the Bank to take the Fnancal Incluson actvty more serously and shall extensvely cooperate and collaborate wth the BC for deeper expanson of the BC actvty. 12. Creatng bankng culture Bank account creaton has seen a reasonable amount of success but actual level of transactons needs mprovement. Polcy thnkng should shft towards creatng a bankng culture whch s best measured by the number of bankng related transactons. Only BC outlets wth over 100 transactons a month should be counted as genune BC outlets to separate the Chaff from the Gran. 6 P a g e

7 Concluson In Inda, more than 51% populaton s stll unbanked. Therefore, Banks should see t as a huge untapped opportunty to create CASA money at cheaper rate so that t can be loaned at hgher margn to maxmze the proftablty for the bank. But the banks themselves can not set up and run these branches at the panchayat level lookng at ther own operatonal cost. Therefore a BC model has been desgned to attan the objectve n ths case. In ths ntatve, the BC has been playng a crucal role by nvestng n the capex and the workng captal to make t a success. Therefore, a wn wn stuaton can be created by rghtly ncentvzng the BC as per the rsk-return prncple. It must be noted that. Many low value transactons that happen n a BC outlet are not very remuneratve but few hgh value transactons are able to compensate for them. Ths must be taken nto account whle decdng a Wn-Wn commsson structure for both Bank and BC.Hence puttng an arbtrary cap for all transactons wll make the BC model unvable. The Upper Cap f any n urban areas must be at least equal to the Average cost of urban transactons n banks It has been observed across the globe that a strong fnancal system automatcally creates stmulus for great economc actvtes n the surroundng catchment area. Therefore, a robust BC outlet through the Common BC model wth small tweakng as recommended above shall create mracle n the Unbanked populaton n the hnterland.by sgnfcantly creatng the CASA money for the bank, sustanable busness model for the BC creatng thousands of drect and ndrect employment and last but not the least contrbutng the growth of GDP of the country. 7 P a g e