The Answer is “Yes”—Cost and Willingness to Pay in India

This study examines the business case for Indian banks using Business Correspondents (BCs) to extend financial inclusion in rural areas. MicroSave conducted the study in the Indian states of Rajasthan, Tamil Nadu, and Uttar Pradesh.

The Reserve Bank of India has sanctioned reasonable service charges to defray banks costs of maintaining low-deposit accounts and to encourage BCs. The study focuses specifically on the services that BCs provide in rural areas and whether customers think the greater convenience and other potential benefits are worth paying for. Findings include:

• Most respondents indicate willingness to pay for BC services and find banking transactions difficult;
• Most respondents accept the rationale behind charging a small fee for withdrawal and account-opening if branch visits are eliminated;
• Price sensitivity and customer awareness of how banks make money is high;
• Customer trust will take time;
• Adoption of the BC model will be cautious at first;
• Full use of bank services will depend on the efficacy and reliability of initial transactions;
• High fees could cause the high numbers currently willing to pay to drop.