On an average a rural consumer has to travel for hours to reach the nearest bank branch or institution even for daily transactions like depositing and withdrawing cash. Traveling such distance on a day-to-day basis is not only time consuming, but also costs money, making it counterproductive for an already money-stressed populace living in villages.
On the contrary, opening a bank branch in rural, emerging markets requires a huge CAPEX/OPEX – and the branch does not generate enough ROI to justify the costs. It is one of the prime reasons why banks are not reaching the rural customers. It is difficult for a customer from the rural vicinity to operate a banking application and gain access to banking services on a Mobile phone, depriving them of the essential day-to-day banking services.
1.6 billion people and 200+ million MSMEs around the world do not have access to basic financial services, according to the World Bank report. At the same time, current financial services do not adequately meet the needs of many in terms of convenience, proximity, and affordability, leaving them financially underserved.
In the developing world, markets are fragmented and a large part of the population is dispersed. Financial literacy is still low, especially among low-income segments, branch penetration is scarce and credit bureau coverage is insufficient. However, many studies on global level suggest, financial inclusion is a building block for both poverty reduction and opportunities for economic growth, with access to digital financial services critical for joining the new digital economy.
Financial access facilitates day-to-day living, and helps families and businesses plan for everything from long-term goals to unexpected emergencies. As accountholders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives.
To bridge this divide between financial institutions and rural consumers, a breed of specialist agents, also known as ‘banking correspondents’ was created. These ‘agents’ were identified to serve the poorer and un-accessed population reaching the financial services to them with the help of Financial Technology, (FinTech) thus aiding financial inclusion without being heavy on the bank’s pockets. Some of the agents also emerged from amongst the rural communities, who were better equipped and moderately literate to understand and dispense the required services, post training.
With the advent of agency banking, great strides have been made toward financial inclusion and 1.2 billion adults worldwide have gotten access to an account since 2011. As on Oct 2018, 69% of adults have an active bank account.
In most cases the Bank Correspondents engage in offering the following financial services:
- Customer onboarding and opening of bank accounts
- Biometric Authentication and e-KYC
- Cash deposits and withdrawals
- Collection and preliminary processing of loan applications including verification of primary information/data;
- Creating awareness about savings and other products and education and advice on managing money and debt counselling;
- Processing and submission of applications to banks;
- Disbursal of small value credit, Recovery of principal / collection of interest, Collection of small value deposits
- Sale of micro insurance/ mutual fund products/ pension products/ other third party products and
- Receipt and delivery of small value remittances/ other payment instruments.
Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of small retail shops – groceries / medical /Fair Price shops, individual small business operators – tailors, electricians, home business owners, agents of Small Savings schemes of Government / Insurance Companies, individuals who own petrol pumps, authorized functionaries of well-run Self Help Groups (SHGs) which are linked to banks, any other individual including those operating Common Service Centres (CSCs), NGOs, etc make for ideal candidates as banking correspondents.
Agency Banking can prove to be the most revolutionary tool for financial inclusion and growth platform for rural areas of our times.
However, the picture is not as rosy as it seems.
A local banking correspondent or an agent is in effect, bringing the rural consumer closer to the mainstream finance, giving him/ her, a fair chance at equal opportunities for growth and prosperity. On the other hand, the consumer is entrusting their confidential information, their identity and their hard earned money in the hands of these agents. Thus we can safely conclude that these agents are not just making a transaction of money or financial services, but in fact they are transacting ‘Trust’.
And what do they get in return, you may ask?
To be continued…
Read the upcoming blog to know more about the other side of Agency banking and where we are headed on the road to ‘Techpower the World’. Watch this space for more.
*Images are for representation only
Sources:
https://www.worldbank.org/en/topic/financialinclusion/overview
