Post on 13-Apr-2015
transcript
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Rethinking Branchless Banking in India
Doug Johnson
Centre for Microfinance
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Introduction to Branchless Banking
branchless banking: outsourcing the processing of transactions by
banks to third party agents
Branchless Banking’s USP:
Reduces cost of servicing clients
for banks while increasing
convenience for clients leading
to greatly increased financial
inclusion.
Branchless Banking’s Risks:
Increased risk of fraud as agents
are smaller, less easily
monitored, and (potentially) less
concerned about their long term
reputation than banks.
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Branchless banking in Brazil
* Source: Planet Finance
Results•19 million new accounts opened in only four years (Brazilial pop = 200 mn)
•Total flows in 2006 > $100 bn
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Branchless Banking in India
In 2006 the RBI created a new model of branchless banking for
Indian banks: the “business correspondent model.”
Details of the Business Correspondent model
•Banks permitted to outsource to outsource transaction processing to non-
profits (section 25 cos), co-ops, post offices, societies, trusts, and ex-service-
people
•All transaction information must be updated in bank’s CBS by end of day
•Agents must be located within 15 kms of a partner bank branch
•It was hoped that the model would allow banks to offer financial products,
especially savings accounts, to previously unreached populations.
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The business correspondent model two years on
Use of BC model to deliver savings accounts remains relatively
limited due to…
•Restrictions on what types of organisations can serve as business
correspondents.
•Lack of a clear business model for agents serving as business
correspondents
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The business correspondent model two years on
Yet the business correspondent model has been used very
successfully to deliver government benefits.
Sub-district government
OfficePartner bank
FINO district office
FINO agentNREGA workers
Worksite details
Cash and info on individual disbursement amounts
Cash and info on individual disbursement amounts
Disbursement info downloaded to mobile transaction device
Cash hand delivered to agents
Wages
Example of the BC model used for delivery of government benefits: the FINO smartcard payment system
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Benefits of using branchless banking for delivery of government benefits
•Greater convenience for beneficiaries
•Increased empowerment for female beneficiaries
•Reduced leakage due to fewer duplicate / fictitious
beneficiaries
…All while being profitable for the agent and only marginal
extra cost for the government.
An independent CMF case study of one such payment system revealed that the
payment system resulted in benefits for both the beneficiaries and the
government.
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Need for an effective mechanism to deliver government benefits in India
Direct government benefits in India
ProgrammeEstimated outlay under 2008-09
Union Budget (crore rupees)
NREGA 29000*
Indira Awas Yojana 5400
National Old Age Pension Scheme 3772
SGSY 2150
Conditional Cash Transfer to the Girl Child 13.5
*Updated budget estimate as of October, 2008. Original budget estimate was 16000.
Total = 40335.5 crore rs!
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Limitations of the BC model for delivery of government benefitsYet the restrictions in the business correspondent model severely limit the
scaling up of branchless banking for delivery of government benefits.
Bank
Semi-independent section 25 co
FINO for profit co
Beneficiaries
Payments + service fee
Payments
“Technology transfer fee”
FINO
Legal model adopted by FINO for smartcard payment system
•ALW and FINO in regulatory
limbo
•Only companies which can both
develop the technology and
disburse payments on the ground
can deliver government benefits in
this way
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A new approach to branchless banking
The RBI should create a new type of banking agent, “payment processors”,
authorized to deliver government benefits but not to collect savings.
Details of the proposed “payment
processor” model:
•Payment processors allowed to
deliver government benefits but not
to conduct other banking transactions
such as handling savings
•Payment processors required to
implement biometric verification
systems so that physical presence of
beneficiaries at time of transactions
can be confirmed
•NBFCs allowed to serve as payment
processors
Benefits of the “payment processor”
approach
•Increase in proportion of
government benefits routed through
formal financial system would lead to
reduced corruption and increased
convenience for beneficiaries
•Allows the RBI to take a cautious
“wait and see” approach to
branchless banking
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Why NBFCs could be allowed to serve as payment processors
•Lower risk of misallocation of funds
•Any problems apparent immediately
•With some government programmes, social audits could provide
additional information on functioning of agents
The risks associated with allowing an organisation to disburse government
benefits are much less than the risks associated with allowing the organisation
to handle savings.
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Why this would lead to much greater use of branchless banking for delivery of government benefits
Disbursing government benefits would be a natural fit for many
large MFIs and deposit taking NBFCs.
•Unlike technology companies, MFIs already have presence in rural areas and capacity to disburse cash in
these areas
•In some cases, field staff visit villages according to exact same cycle as government benefits are disbursed
…Still, incentive structure should be carefully calibrated to ensure that
agents can make profit.
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Leveraging payment processor model to increase financial inclusion in the long termRBI could take a “wait and see” approach to payment processors, gradually
lifting restrictions on what type of transactions they are permitted to conduct if
and when it deems prudent.
•RBI would gain better understanding of their own capacity to
monitor these agents
•RBI would get a better idea of which types of organisations can be
trusted