Financial Modelling for Business Sustainability: A Study of Business Correspondent Model of Financial Inclusion in India

Abstract

Executive Summary The study highlights the need for measures to accelerate the pace of the business correspondent (BC) model for financial inclusion in India. The financial analysis of the existing BCs with the existing products and services in practice shows a very diffusive break-even (more than 7 years). The occurrence of such a long-term break-even point can be a potential threat to the sustainability of new and struggling entrepreneurs like a Customer Service Point (CSP). A CSP agent runs a kiosk of a certain bank in a rural context, functioning like a BC between the bank and the beneficiaries. The primary investigation found that high cost and low volume of transaction at the CSP points are two major causes of the long break-even. In this context, the study revisited the constructs related to cost structure, market outreach, market potential and commission structure for channellizing respective banking and non-banking products. The major categories of products include (a) banking operation, (b) loan and over-draft, and (c) social security schemes. In search of a solution, the study adopts a non-random stratified sampling technique with a semi-structured interview process to collect the data from different stakeholders in the BC operation. To develop an economically viable BC model, the researchers use a standard financial modelling technique. In contrast to the existing kiosk model of CSP operation, the study found that while applying the new model a CSP agent takes three years to break-even under the same condition as that of the existing model. The study can also be applied in the domain of bottom of the pyramid (BOP) marketing by treating to create value among the low-income customers and business partners like CSPs. This research can further be extended to investigate the viability of the BC model from the banks’ return on investment perspective.

Adoption of payments banks: a grounded theory approach

“…In the year 2006, the RBI devised the business correspondent (BC) model to reach financial services into the hinterland, across populations belonging to different economic strata. The BC model deploys BCs or bank mitras ( mitra stands for friend in Hindi) that work as multiple customer service points (CSP), to deliver doorstep banking to the millions of unbanked Indians (Uzma and Pratihari 2019 ). The Bank Mitras are responsible for delivering financial services like transfer of money, opening of a bank account, facilitating withdrawal and deposits on a commission basis (Ujjawal et al, 2012 ).…”

Banking the Unbanked: Conceptualizing Success of the Business Correspondent Model

“…They published reports on the performance of the BC-Model conveying lack of transparency of information and coordination among BC agency and BCs as impediments to the success of the BC-Model. Considering one of the strategic goals of the model is to be sustainable (Uzma & Pratihari, 2019), this was added as a measure under the strategic dimension. Review of consultancy reports (IFMR, 2013;Kumari et al, 2014;MicroSave, 2014) indicated issues regarding transparency of information among the stakeholders as well as lack of cooperation and co-ordination hampering satisfaction of stakeholders thereby impeding progress of the model.…”

“…However, 48% of these bank accounts have seen no transactions since being opened. Furthermore, additional studies indicate that the BC-Model is not performing in an optimal manner (Mehrotra et al, 2018;Uzma & Pratihari, 2019). There is a growing need to understand the facets contributing to the success of the BC-Model (Uzma & Pratihari, 2019).…”

“…While some consultancy reports discuss the success of the BC-Model (GrameenFoundation, 2013;Sa-Dhan, 2012), the only measure they use is 'profitability'. And though prior research reinforces the requirement that the model be profitable for banks in order to ensure sustainable operations (GrameenFoundation, 2013;Uzma & Pratihari, 2019), given the broader goals of the BC-Model (i.e., primarily devised to achieve the goal of financial inclusion), a solely profitoriented view is blinkered. Success is a multi-dimensional concept, where different dimensions may mean different things to different stakeholders at different times and for different projects (Gable et al, 2008;Shenhar et al, 2001;Wach et al, 2020;Zhou et al, 2013).…”

Leveraging Financial Inclusion Through Technology-Enabled Services Innovation

“…The role played by bank branches can be replaced by the Business Correspondent (BCs). The role of BC is to perform the banking services on behalf of banks, such as cash services, opening bank accounts using mobile, issuing small amounts of credits (Uzma et al, 2019). However, the critical challenge to successfully implement this concept lies in identity creation, verification, and entitlement establishment of the person to open/ enable mobile-enabled savings account (Chopra et al, 2013b).…”