Microfinance NBFCs can be Business Correspondents: RBI Working Group

By Naagesh Naaraayana

Microfinance Focus, Aug. 19, 2009: A Reserve Bank of India Working Group has recommended appointing non-deposit taking NBFCs, whose microfinance portfolio is not less than 80 per cent of their loan outstanding in the financially excluded districts, as Business Correspondents (BCs) for banks in rural and semi-urban areas, among others.
Others recommended for the role include: Individual kirana/medical/fair price shop owners; Individual Public Call Office (PCO) operators; Agents of Small Savings Schemes of Government of India/Insurance Companies; Individuals who own petrol pumps; Retired teachers; and authorised functionaries of well run Self Help Groups (SHGs) linked to banks, said a statement issued by the country’s central bank.

The financially excluded districts will be those identified by the Committee on Financial Inclusion headed by former RBI governor C. Rangarajan, the statement said.

The RBI Working Group said the banks would need to accept the BC model as extremely vital for achieving the goals of financial inclusion. As the traditional ‘brick and mortar’ branches could not penetrate into remote areas, this model helps to provide banking services in inaccessible areas in a cost-effective manner, it noted.

The BCs should be used not only for opening and servicing no-frills accounts but for the full range of financial activities, including the proposed routing of government’s payments through the banking system. As experience showed, the BC model coupled with ICT solutions could help banks substantially increase their outreach facilitating financial inclusion, the statement said.
As recommended by the High Power Committee to Review the Lead Bank Scheme in its draft report, the Working Group said the objective of having a banking outlet at every village with a population of over 2000 at least once a week on a regular basis by March 2011 could be achieved by substantially scaling up the BC model.

The other major recommendations of the Working Group include measures for improving the long term viability of the BC Model by permitting banks to collect reasonable service charges from the customer in a transparent manner. It has also suggested some relaxation in the requirement of obtaining ‘no objection’ from DCCs regarding distance criterion.

Regarding Common Service Centres (CSCs), the Working Group has recommended pilot projects to be run in at least two States.

In the North Eastern Region it said local organisations/associations not falling under any of the available entities listed in the RBI guidelines, may be considered, provided banks propose such entities after due diligence and are recommended by DLCC. The Regional Offices of the Reserve Bank will be the decision making authority in such cases, it said.

BC MODEL:
The Reserve Bank of India had, in January 2006, permitted banks to use intermediaries as Business Facilitators (BFs) or Business Correspondents (BCs) for providing financial and banking services.
Recently, however, there were demands from various sectors that the eligible entities to act as BCs be enlarged. Following this, the working group heade by P. Vijaya Bhaskar, CGM  of Banking Operations and Developments.

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