National Level Initiatives:
Reserve Bank of India (RBI) vides its circular no. RBI/2005-06/288 on January 25, 2006 has enabled banks to use the services of Non Governmental Organisations/Self Help Groups (NGO’s /SHG’s), Micro Finance Institutions (MFI’s) and other civil Society Organisations (CSO’s) as intermediaries in providing financial and banking services through the use of business facilitator and correspondent models. This has furthered the scope of extending banking facilities in untapped /non banked areas.
Under the Business Facilitator model banks may utilize the services of above listed entities in terms of utility services like application processing for savings products, collection and processing of Loan Application, promotion and nurturing SHGS, Post Sanction monitoring and Recovery Follow-up.
Under the Business Correspondent model banks use the eligible entities for the purpose of utility as well as they are empowered to collect cash on behalf of banks. Products include
1.) Small Value Cash Receipts and Payments
2.) Disbursal of small value credit
3.) Recovery of principal /Collection of interest
4.) Deposit Collection
5.) Sale of Micro Insurance/mutual fund products /Pension products/Other third party products
Business correspondence model envisages Development agencies as a sort of intermediary banks representing the respective brand name in the Non banked spaces on behalf of the banks. Both Facilitator and correspondents are well paid off for these services. This is indeed a stepping stone in the history of Micro finance. But how far is this initiative proved to be successful is an important question to ponder over.
The Response from the banks:
Many private banks have pioneered the project. This is because it is beneficial for both the sides of bank and the NGO. Following points would have pushed through the banks and NGO’s to pioneer the project.
1. Better reach and Increased business for the banks
2. On the other hand NGO’s benefit from a transaction based remuneration for their achievement of social mission.
Andhra Bank:
Apart from playing a major role in SHG linkages in Andhrapradesh they have also opened more number of No frill accounts in the financial year 2007-2008 (1, 41,826). The bank has undertaken a pilot project of achieving 100% financial Inclusion by providing No-frill A/c’s in Srikakulam District, Andhra Pradesh. Though the bank claims itself they have achieved the same by March 2007 itself, the question remains the same how many such a/c’s are operational.
Axis Bank:
Within a short span of 3-4 years Axis bank has disbursed to the tune of 37.47 crores towards SHG Linkages. They have pioneered in participating towards disbursement of wages/allowances for the people working under AP Rural Employment Guarantee (APREGS) Scheme and for pensioners under Social Security Scheme (SSP) along with five other public sector banks by issuing Bio metric Smart Cards.
This Biometric card is capable of storing Biometric Information about the a/c holder along with photograph and personal details and also serves as an electronic passbook. The project also involves special POS(Point of Service) Machines equipped with a smart card reader as well as finger print reader which is capable of recording the transactions in online as well as offline mode. Account holders are serviced by Business correspondents.
Axis Bank has taken up this project in Raghunathpally Mandal, Warangal District, in Andhrapradesh and proved to be highly successful. They have served more than 24 villages and approximately they have served 8900 beneficiaries under both the schemes in the financial year 2007-2008. With the initial success the bank is robust in gaining momentum further in their working areas at Andhrapradesh.

Corporation Bank:
This is one bank which has worked much in rural areas before initiating the BC model. Extensive field work has gone into before evolving a system for BC. This is again the same Bio metric Card system not much details were available about the success of the projects undertaken by the Corporation Bank. They have a typical no frills account namely Crop Pragathi Savings account.
ICICI Bank:
ICICI Bank has joined hands with NGOs like KAS Foundation, the Banyan etc for the Business Correspondent Model. As far as the fees/commissions part for the BC’s is concerned they pay the lowest among all the banks. And they also have posed a limit on the total transaction for the Savings account opened by BC’s if it exceeds the limit then the said account will be transferred to the base branch and they will be treated as normal customer of the bank. ICICI Bank is very cautious in its approach. KAS foundation is promoted by an ex-banker who enjoyed good association with ICICI Bank as well as they have promoted SHG’s for tying up with the bank and the other one had long association with the bank.
State Bank of India:
State Bank of India (SBI) is running pilots of BC model in Several places like Aizawl (MIZORAM), MEdak and Warrangal (Andhrapradesh), Pithoragar (Uttarkhand) and at West Garo Hills (Meghalaya). SBI has declared that atleast 1% of total lending to the SHGs should be for the promotion of Micro Enterprises. SBI has partnered with post office network nationwide for the BC model. They have plans to operate in 198 selected branches of post offices throughout India.
Punjab National Bank:
Punjab National Bank ventured with Bharat Integrated Social Welfare Agency (BISWA) as Business Correspondent at Orissa state. Their first BC project at Kandhalpur District of Orissa proved to be successful. They have started Financial Education and Credit Counselling Centre at Chandigarh as a part of their efforts in Financial Inclusion.
Union Bank of India:
Union bank of India has initiated the concept of Village Knowledge Centres. Village Knowledge Centres are small units attached to rural branches of the bank. Each centre is equipped with a computer with internet facility. An official of the bank acts as a relationship manager to the local population. This village knowledge Centre helps the farmers to know the climatic conditions, Crop varieties, new pesticides available. Etc. Simultaneously the relationship manager explores the credit/banking needs of the customer. Union Bank of India currently have some 198 Village knowledge Centres which is a base for serving dual purpose of helping the rural people as well as Identifying potential customers for their banking needs.

As far as Union bank of India is concerned they have appointed M/s Zero Mass at Warrangal Dist, Andhrapradesh, M/s Cashpor Micro credit at Chandauli District in Uttarpradesh as Business Correspondent. Fino Fintech foundation has been appointed as BC’s on PAN INDIA basis and through them they are identifying the potential BC’s.

Let us also explore the experiences of NGO’s in the model.

KAS Foundation:
KAS Foundation partnered with ICICI Bank as Business correspondent and started its operations in Orissa. 1, 17,000 (One Lakh and Seventeen thousand) clients have been enrolled in different districts of Orissa to avail saving services thru Business Correspondent. In BC, a savings bank account is opened in the name of the client in ICICI Bank. All the financial transactions are done through Smart Cards and Biometric POS Machines to ensure authenticity of the transactions. Daily transactions are transferred to ICICI Bank server and to the server and to the savings bank account of the client. Client deposits, withdraw cash and get the summary of last ten transactions at her/his door step.
As KAS is the first BC of the ICICI Bank it started its operations at Sakhigopal and Nimapada branches in Orissa and has been successful.
Zero Mass Foundation:
Zero Mass Foundation has tied up with Union Bank of India for the BC Model. They are in the process of recruiting and training Customer Service Points and collecting the details on behalf of the bank. It has entered into agreements with 15 banks for the BC model in different states.
But not much sounds of success spelled out of NGO’s/Section 25 Companies except the KAS Foundation success story. One could observe that the model has not gone flashy around the country. Banks are reluctant to pursue the project. And they are very careful in selecting the Business correspondents.