BANK BUSINESS CORRESPONDENTS & BUSINESS FACILITATORS
In 2006, new guidelines were issued by the Reserve Bank of India through which banks were allowed to employ two types of intermediaries i.e. Business Correspondents & Business Facilitators. These intermediaries allowed banks to expand their business.
As per the issued guidelines, business correspondents have been permitted to act as agents on behalf of the banks and business facilitators could refer clients and can follow up on the proposals of clients and hearts and facilities eating the banks to carry out their transactions.
One thing the business facilitators cannot do is transact on banks’ behalf.
THE BASICS OF THE BUSINESS CORRESPONDENTS BANKING CHANNEL (BC BANKING CHANNEL) & BUSINESS FACILITATOR BANKING CHANNEL (BF BANKING CHANNEL)
Banks deliver their financial services through a number of channels such as their branches, ATMs as well as internet banking. These channels have fallen into the category of traditional channels. Today, a new channel has a most in the form of business correspondent through which banks are able to extend their services.
This new channel is followed as per the written guidelines which mandate that the banks have to be fully involved and have to be the ultimate provider of services.
Reserve Bank of India is responsible to oversee and regulate this new form of Banking channel as a part of its regulatory regime while the responsibility of the correspondents lies with the principal banks.
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The main purpose behind the BC/BF model is to provide an effective way through which banks can reach the unreached areas so as to take in the unreached population at large, intermediaries and customers etc. In the model of BC/BF, banks are not required to invest a heavy amount in the infrastructure of setting up branches to reach unbanked areas. This way everyone will be assured of access to banking products and services of banks.
For this model to work, a large number of search business correspondents and business facilitators are required, who are not employees of the bank but get hired by the banks all across the country to function or act as their agents.
This whole structure will increase the reach to poor people of rural areas and helps in establishing an open, inclusive, and egalitarian society, and make financial inclusion an actuality.
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ADVANTAGES OF USING THE SERVICES OF BC / BF
Using the services of business correspondence and business personalities has the following advantages:
Alternative to Bank branches: A normal rural Bank branch can serve 3 to 4 thousand families up to 15 villages within a radius of 15 km. And a public sector bank branch might require more than 5 years to reach the normal bank-level while a private sector or foreign bank even having IT connectivity might require about 5 times more than the public sector bank.
Furthermore, permissions are required to open a branch which is also a long and protracted process. The BC option potentially enables banks to reach out much faster and at a much lower cost.
So instead of setting up a branch, improving the services of business correspondence is a better option because it enables events to reach out to the people in less time and at a much lower cost.
Reaching the unreached: With the help of this model, banks can extend their financial services to areas that are beyond their network of branches as most of the beneficiaries of business correspondents are located in areas where there are no banks.
Doorstep banking: Business correspondent and business facilitators helps in disbursing and recovering the loans at the doorsteps of the beneficiaries.
Better quality of assets: BCs & BFs very well know their target clients recharge mostly local NGOs, post offices, and other similar local social bodies which facilitate or enhance the quality of assets.
Scaling up: Enhancing the reach to people with the help of this model is possible within a short period of time.
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OBJECTIVE OF BUSINESS CORRESPONDENTS / BUSINESS FACILITATORS (BC/BF)
The main task of business correspondent and business facility tools is to help the banks in:
- Identification of potential customers
- Providing proper advice and counseling to village people about the products and services which are available with the banks.
- Helps the village people in completing all the formalities which are required for banking transactions.
- Making the banking customer aware as well as educating them about the sanction terms as well as the terms of repayment and recovery.
ORIGINATION OF BCs & BFs
It started in 1990 in Brazil, as a way to control the rising inflation and to improve their social programs. All their bills were being paid in Bank branches. There were some areas in the north and northeast region where banks were accessible. There was also the fact that the Brazilian government wanted to give benefits to the families so that they can keep the children in school but that was nearly impossible because it was impossible to distribute the benefits because there was no accessibility to banks in those areas.
Then this model started with the extensive lottery network that was able to perform transactions and after that the regulations were changed to allow any known financial institution to act as the Agent of the bank.
BC MODEL: ELIGIBLE ENTITIES & SCOPE OF ACTIVITIES
Under the model of business correspondent, the entities which can act as BCs are mentioned below:
- Non-government organizations/ MFIs (registered under Societies or Trust Acts),
- Societies (registered under Mutually Aided Cooperative Societies Acts or the Cooperative Societies Acts of States)
- Companies (registered under section 25 of the Companies Act)
- NBFCs (provided they have not accepted public deposits)
- Post offices
Banks are free to conduct their own due diligence on such entities before Outsourcing the work. This due diligence can be as per the parameters given in the report of an internal group that has been appointed by the Reserve Bank of India (also available at the official website of RBI).
Banks have to ensure before they engage with such intermediaries that they are well established, have a good operation, and have the confidence of the local people.
To avoid being misrepresented, banks also have to take measures which may include creating wide publicity in the local area about the fact that the intermediary has been engaged by the bank.
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Other than the above-mentioned activities, the scope of business correspondence also include:
- Disbursing credits of small value
- Recovering the principal as well as the interest amounts
- Collecting deposits of small value
- Selling micro-insurance and mutual fund products and pension products
- Receiving and delivering the remittances or the other payment instruments.
The activities which are to be undertaken by the business correspondents have to be in the normal course of banks’ banking business but those activities will be conducted at places other than the bank premises through these entities. So, with the aim to increase the reach of the banks, the Reserve Bank of India has permitted this.
This is how the services of business correspondents and facilitators are being utilized for the benefit of the public and to reach remote areas.