Bank Correspondent

through Venture Capital

Participation-B.V.Raghunandan, SVS

College, Bantwal

Bank Correspondent

through Venture Capital

Participation-B.V.Raghunandan, SVS

College, Bantwal

National Conference,

KSS College, Subramanya

September 8-9, 2011

National Conference,

KSS College, Subramanya

September 8-9, 2011

Money Lending & RBI’s Myopic Policy

Money Lending & RBI’s Myopic Policy

• Money lending constituting unorganised sector

• RBI’s efforts in the obliteration of the sector

• Banks were encouraged through

priority sector lending• Nationalised banks opened

rural branches• Banks as business models are • a poor substitute for money

lending• Money lending thrived

• Money lending constituting unorganised sector

• RBI’s efforts in the obliteration of the sector

• Banks were encouraged through

priority sector lending• Nationalised banks opened

rural branches• Banks as business models are • a poor substitute for money

lending• Money lending thrived

Muhammad Yunus & Bangla Desh Grameena Bank

Muhammad Yunus & Bangla Desh Grameena Bank

• 2006- Nobel Prize attracted the attention of the world

• Micro-finance became the mantra

• A new terminology of Financial Inclusion emerged

• Prime Minister praised the role of money-lenders in 2006

• MFIs sprang up

• 2006- Nobel Prize attracted the attention of the world

• Micro-finance became the mantra

• A new terminology of Financial Inclusion emerged

• Prime Minister praised the role of money-lenders in 2006

• MFIs sprang up

RBI Guidelines in 2006RBI Guidelines in 2006

• Branchless Banking

• Involvement of a Wider Categories of institutions

• The Ideas of Outsourcing and Service Providing

• Business Facilitators

• Business Correspondents

• Branchless Banking

• Involvement of a Wider Categories of institutions

• The Ideas of Outsourcing and Service Providing

• Business Facilitators

• Business Correspondents

Business FacilitatorsBusiness Facilitators• NGOs/SHGs• Farmers' Clubs, • Cooperatives, • Community

based organisations

• IT enabled rural outlets of corporate entities

• MFIs

• NGOs/SHGs• Farmers' Clubs, • Cooperatives, • Community

based organisations

• IT enabled rural outlets of corporate entities

• MFIs

• Insurance agents• Panchayats• Village

Knowledge Centres,

• Agri Clinics/ Agri Business Centers

• Krishi Vigyan Kendras

• Post Offices

• Insurance agents• Panchayats• Village

Knowledge Centres,

• Agri Clinics/ Agri Business Centers

• Krishi Vigyan Kendras

• Post Offices

Functions of Business FacilitatorsFunctions of Business Facilitators• identification of borrowers• collection and preliminary

processing of loan applications 

• creating awareness about savings

• advice on managing money and debt counselling

• processing and submission of applications to banks

• post-sanction monitoring• monitoring and follow-up for

recovery.

• identification of borrowers• collection and preliminary

processing of loan applications 

• creating awareness about savings

• advice on managing money and debt counselling

• processing and submission of applications to banks

• post-sanction monitoring• monitoring and follow-up for

recovery.

Business Correspondent Participants

Business Correspondent Participants

• NGOs• MFIs set up under Societies/

Trust Acts• Societies registered under

Mutually Aided Cooperative Societies Acts or the Cooperative Societies Acts of States

• section 25 companies• registered NBFCs not accepting

public deposits and • Post Offices

• NGOs• MFIs set up under Societies/

Trust Acts• Societies registered under

Mutually Aided Cooperative Societies Acts or the Cooperative Societies Acts of States

• section 25 companies• registered NBFCs not accepting

public deposits and • Post Offices

Others Allowed to Act as Delivery Channels

Others Allowed to Act as Delivery Channels

• owners of petrol pumps• fair price shops• grocers and chemists• public call office

operators• insurance agent• jobless rural youth• retired teachers • existing bank borrowers

• owners of petrol pumps• fair price shops• grocers and chemists• public call office

operators• insurance agent• jobless rural youth• retired teachers • existing bank borrowers

Functions of Bank CorrespondentsFunctions of Bank Correspondents

• activities listed under the Business Facilitator Model

• 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.

• activities listed under the Business Facilitator Model

• 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.

Grievance Redressal MachineryGrievance Redressal Machinery• Banks should constitute

Grievance Redressal Machinery for services rendered by Correspondents and Facilitators

• give wide publicity about it through electronic and print media

• The name and contact number of designated Grievance Redressal Officer of the bank should be made known and widely publicised.

• Banks should constitute Grievance Redressal Machinery for services rendered by Correspondents and Facilitators

• give wide publicity about it through electronic and print media

• The name and contact number of designated Grievance Redressal Officer of the bank should be made known and widely publicised.

Three Tier ModelThree Tier Model

• On the Top, the Initiating Bank

• Second Layer-Technology Interface

• Third Layer-Bank Correspondent

• On the Top, the Initiating Bank

• Second Layer-Technology Interface

• Third Layer-Bank Correspondent

SBI ModelSBI Model

• Initiating Bank is SBI

• Bank Correspondent is Zero Mass Foundation - financial services, including National Rural

Employment Guarantee Scheme (NREGS) wage payment

- recruit and train people at the customer service points to enroll customers and provide banking services in the villages.

• Banking Outposts-6234 Gram Panchayats in the State of Orissa

• Initiating Bank is SBI

• Bank Correspondent is Zero Mass Foundation - financial services, including National Rural

Employment Guarantee Scheme (NREGS) wage payment

- recruit and train people at the customer service points to enroll customers and provide banking services in the villages.

• Banking Outposts-6234 Gram Panchayats in the State of Orissa

Technology PlatformTechnology Platform

• use of smart cards and mobile technology by the BCs• use of biometric scanner cum identifier , a mobile, and a printer• The biometric device is used for the identification and

authentication of the beneficiary. Once authenticated, RFID chip embedded in the card gets charged. This chip communicates with the mobile device. 

• The BC sends a message to the back-end server through the mobile.

• The server authenticates the message, and sends an update back to the mobile, which in turn writes back to the card.

• card is brought close to the printer & a transaction report is printed.  

• use of smart cards and mobile technology by the BCs• use of biometric scanner cum identifier , a mobile, and a printer• The biometric device is used for the identification and

authentication of the beneficiary. Once authenticated, RFID chip embedded in the card gets charged. This chip communicates with the mobile device. 

• The BC sends a message to the back-end server through the mobile.

• The server authenticates the message, and sends an update back to the mobile, which in turn writes back to the card.

• card is brought close to the printer & a transaction report is printed.  

Problems Faced by Non-VC Models Problems Faced by Non-VC Models

• Technology Partners have no business acumen

• More Deposit Oriented than Loans Sanctioning

• Low Commission paid by the Banks

• Individuals found it unviable

• Again they were not prepared to take the risk

• They prefer to work for a fixed salary rather than an uncertain commission

• Technology Partners have no business acumen

• More Deposit Oriented than Loans Sanctioning

• Low Commission paid by the Banks

• Individuals found it unviable

• Again they were not prepared to take the risk

• They prefer to work for a fixed salary rather than an uncertain commission

Need for Venture CapitalistsNeed for Venture Capitalists

• Interface between Bank and the BC

• Technology Partners

• Huge Capital

• Enterprising Quality

• Roping in Unemployed Youth

• Need for Scaling up the Model, due to lesser commission

• Need to cover more than one bank on the basis of outsourcing model

• Interface between Bank and the BC

• Technology Partners

• Huge Capital

• Enterprising Quality

• Roping in Unemployed Youth

• Need for Scaling up the Model, due to lesser commission

• Need to cover more than one bank on the basis of outsourcing model

Functions of VCsFunctions of VCs

• Acting as the BCs

• Reducing the three tier structure to two

• Recruitment & Training of Employees

• Technology Connectivity to the Bank

• Providing them Hand-held Machines

• Supervising and Controlling the BCs

• Collection of Commissions from Banks

• Acting as the BCs

• Reducing the three tier structure to two

• Recruitment & Training of Employees

• Technology Connectivity to the Bank

• Providing them Hand-held Machines

• Supervising and Controlling the BCs

• Collection of Commissions from Banks

Emergence of VCs in BCsEmergence of VCs in BCs

• SEED-a Delhi based VC founded for helping the corporates to fulfill CSR in June 2006

• Helped the adoption of villages using SHGs

• Customers were SAIL, NMDC, Jindal Steel, Cairn and ACC

• Adoption of 5 -100 villages in the vicinity of a corporate

• SEED-a Delhi based VC founded for helping the corporates to fulfill CSR in June 2006

• Helped the adoption of villages using SHGs

• Customers were SAIL, NMDC, Jindal Steel, Cairn and ACC

• Adoption of 5 -100 villages in the vicinity of a corporate

Downturn-2008-09Downturn-2008-09• All the customers were mining companies• The downturn affected all the customers badly• Contacts with SHGs brought them closer to financial inclusion• Changed the business model to provide the BC service to the

banks

• All the customers were mining companies• The downturn affected all the customers badly• Contacts with SHGs brought them closer to financial inclusion• Changed the business model to provide the BC service to the

banks

Success of SEEDSuccess of SEED

• In one year’s time, it has signed up with 19 banks as BC

• Opened more than 15 lakh smart card based savings bank accounts in more than 8000 villages

• Plans are afoot to open about one crore such accounts in the near future

• Employs a workforce of 3500

• In one year’s time, it has signed up with 19 banks as BC

• Opened more than 15 lakh smart card based savings bank accounts in more than 8000 villages

• Plans are afoot to open about one crore such accounts in the near future

• Employs a workforce of 3500

Revenue Streams of SEEDRevenue Streams of SEED

(1)Charging the Bank for opening an account, involving processing the application, capturing the bio-metric data and creation of the smart cards

(2)Charging a Fee for each transaction

(3) Getting a commission for the sale of products like FD, RD, Loans, Insurance and Credit Cards

(4) A fixed percentage of commission for remittances

(1)Charging the Bank for opening an account, involving processing the application, capturing the bio-metric data and creation of the smart cards

(2)Charging a Fee for each transaction

(3) Getting a commission for the sale of products like FD, RD, Loans, Insurance and Credit Cards

(4) A fixed percentage of commission for remittances

ProblemsProblems

• Recent troubles regarding micro-finance

• Low Commission fixed by RBI

• Other RBI Regulations: The distance between the linked branch and the customer can not be more than 5 kms in cities and 15 kms in rural areas

• Money collected should enter the bank books within 24 hours

• Recent troubles regarding micro-finance

• Low Commission fixed by RBI

• Other RBI Regulations: The distance between the linked branch and the customer can not be more than 5 kms in cities and 15 kms in rural areas

• Money collected should enter the bank books within 24 hours

THANK YOUTHANK YOU