The Evolution Of Agency Banking In India

The agency banking model initiated in India in 2006 when the Reserve Bank of India (RBI) issued guidelines – ‘Financial Inclusion by Extension of Banking Services – Use of Business Facilitators and Correspondents.’ This allowed banks to employ intermediaries to expand their outreach and promote financial inclusion using agents.

Agent networks in India became broadly divided into two categories. These were individual business correspondents that banks manage directly and corporate business correspondents that are managed by intermediaries. The intermediaries came to be known as business correspondent network managers (BCNMs) or agent network managers.

In 2010, the agent network expanded further as RBI widened the list of eligible entities. This allowed banks to include for profit companies as business correspondent network managers.

In 2015, RBI issued in-principle licences of new banking models, such as payments banks and small finance banks. This resulted in new players entering the banking sector, which further expanded the agent network.

Out of the 11 entities that were granted payments banks licence, three dropped out and the remaining may start providing core-banking services when they are infrastructure-ready.

What Initiated The Need Of Agency Banking In India?

Unbanked Population

The most instrumental factor in the initiative of the agency banking was the hardship faced by the people living in remote villages and are excluded from basic banking services.

• A poor man lives in remote village.
• This man has deposited some Rs.2000 in a bank @his tehsil.
• Now, He wants to take out some money from his bank account.
• So He’ll have to make a trip for 10-20 kms =travel =time and cost.
• He is illiterate so he doesn’t know how to fillup bank slips, other paperwork. He needs to ask for help here and there in the bank office.
• And most banks/post-offices don’t treat poor people with respect or priority like they do with regular customers.
• So, he may have to wait for many hours, move from this table to that table, before he gets his money.
• He cannot return to his village and do his daily job/work.
• His one day’s income is lost.
• Same process repeats, when this man wants loan to buy a new cow, pumpset, seeds or fertilizers.
• One the other hand, local money lenders in his village, give money quickly, without asking many questions or requiring him to fillup two dozen application forms. (but then they extract 36% compound interest from this poor man, thus making his life a living hell.)

Problems Faced By Banks

The biggest problems faced by banks was the loss incurred in building banks and ATMs in remote villages. Population is minimal, transactions are minimal and low cost.Illiteracy is the most deterrent factor as it is not possible to educate every member of a village to use banking services.

So, What’s The Solution?

How about a “middleman/agent” between banks and the poor people?

Who/What is Business correspondent?

• Business correspondents are bank representatives.
• They help villagers to open bank accounts.
• They help villagers in banking transactions. (Deposit money, take money out of savings account, loans etc.)
• The business correspondent carries a mobile device.
• The villager gives his thumb impression or electronic signature, and get the money.
• Business correspondents get commission from bank for every new account opened, every transaction made via them, every loan-application processed etc.

Agency Banking Enterprises Are Making More Transactions And Are More Compliant

• In rural and non-metro urban areas, an agent offering G2P services conducts more than twice the number of median daily transactions (44 and 32 respectively) compared to those agents who do not offer G2P services (21 and 14 respectively).
• In metros, G2P agents conduct a median of 28 daily transactions as opposed to 15 by non-G2P agents.

Profits, too, have Nearly Doubled from 2015

• In India, the monthly profits of an agent have doubled in India (from USD 16 in 2015 to USD 31 in 2017) but remain the lowest among all other ANA countries. Lower profits can be attributed to high operating costs of USD 62, which have increased from USD 32 in 2015.
• Higher operating costs are predominantly being driven by rent, utility bill payments, and staff salaries, especially in the metro and some urban areas. Comparatively higher levels of dedication in rural areas also drive the higher operating costs.
• Agents from metro areas make more profits (USD 78 in 2017 compared to USD 61 in 2015), than those in rural (USD 31 in 2017 compared to USD 16 in 2015) and other urban areas (USD 19 in 2017 compared to USD 5 in 2015).

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Espay is a topnotch B2B agency banking software development company having ISO 9001:2008 certification. Started in the year of 2011, Espay is giving excellent efforts on the ground of B2B financial services that can be profitable to any enterprises and white labeled services to develop their own payment solution. Our consumers have always trusted us with our agency banking software solutions as we have years of knowledge in serving number of successful projects. 

We are in the business of service aggregation and distribution, mobile & online payment processing and provides money transfer services. We have enabled 1000+ small, mid and enterprise level businesses to deliver best services to their B2B networks.