Challenges and Potential for Indian Banks to Implement Business Facilitator and Business Correspondent Models

This paper reports on the activities of banks in implementing the use of business facilitators (BFs) and business correspondents (BCs) as described in the RBI circular on Financial Inclusion by Extension of Banking Services dated January 25, 2006.

The paper states that BF and BC models have not generated the enthusiasm that would have been normally expected. Several applications related to the use of BFs and BCs, particularly in extension of doorstep banking services, loan recovery, and promotion of SHGs have already been enabled by other recent measures and the initiatives taken by banks. Findings include:

• Public sector banks are only just beginning to formulate schemes for the utilization of the services of such agents;
• BC model bears close similarity to the bank-MFI partnership already introduced by some private banks;
• Provision debarring BCs from collecting fees from clients has created an anomaly in relation to the already existing model and resulted in a cap on the interest chargeable by banks from clients;
• Subsequent circular excluding NBFCs, except non-profit companies, from acting as BCs will deny banks the opportunity to work with leading MFIs adopting this legal form.