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the for-profit NBFCs in financial service delivery to the
poor in rural and even urban areas. These developments
are documented along with the outstanding issues in this
relationship.
The changing role of BCs in the new financial inclu-
sion strategy is discussed. There appears also to be a retreat
from the promotion of a universal model of a mobile BC
delivering doorstep financial services to a more limited
objective of providing services through a mix of fixed and
mobile service points. In this model BCs operating com-
mon service centres (CSCs) and kiosks play a greater and
more effective role in financial services delivery while at
the same time being involved in the provision of other
government to citizen services.
Finally the changing technology paradigm is exam-
ined. Here too, the cost effectiveness of various technol-
ogy platforms has come in for question over the years.
Kiosk banking and banking through point of sale (POS)
devices linked to core banking solution (CBS) systems
and servers have experienced poor connectivity and
glitches related to both the hardware and software com-
ponents of the technologies the improvement of which
has become an urgent requirement. In this context, the
mobile technology platform holds the promise of bank-
ing solutions at a fraction of the cost of other technolo-
gies for the majority of the population which has access
to mobile phones. Nevertheless, challenges remain in
respect of ensuring necessary capabilities to deal with
m-banking and associated technologies for the unbanked
population and an alignment of interests between the
mobile network and financial services providers. The
challenges and potential of technology will thus be an
important determinant of whether the new financial in-
clusion strategy can indeed be a game changer.
3.1 BC MODEL: BACKDROP AND ROLE IN
FINANCIAL INCLUSION
On 25 January 2006, Reserve Bank of India (RBI) no-
tified guidelines for outsourcing of financial services by
banks through BFs and BCs. The BCs were allowed to
transact with clients, i.e., dispense and receive cash on be-
half of the bank, while the BFs were confined to non-cash
operations. A list of eligible entities to act as BCs and BFs
was also notified, which has over the years been modified
from time to time. At that time the direct involvement of
such agents had not been seriously examined or proposed
by the public sector banks. One of the leading Indian
private banks, ICICI Bank, had, however, launched new
arrangements and financial structures involving part-
nership with MFIs in order to expand the flow of loans
to their clients. This ‘partnership model’ had also been
adopted by a couple of other private banks who, with
their limited branch network, started to use MFIs as BCs
as part of their business strategy. It was felt, therefore,
that the RBI guidelines were intended to facilitate the
already existing partnership model adopted by certain
banks. In both models (bank-MFI partnership model
and the RBI BC model) funds
passed through
the hands
of the agent on account of the bank loan to the clients
instead of being borrowed and on-lent. Thus the MFI/
BC was not a true financial intermediary. There were
differences in the sourcing of the fees of the partner-MFI
and the BC [as also the absence of the First Loss Default
Guarantee (FLDG) in the RBI BC model]. Under RBI’s
BC model the bank was required to pay commission to
the BC and the BC was not allowed to charge any fees
from the clients.
1
Substantial funds flowed to MFIs, particularly in the
leading southern states, through the partnership model.
The availability of easy funds for on-lending to their
clients led to MFIs handling funds greater than their
capacity to manage. This was seen as a contributory
factor that led to the first microfinance crisis in Andhra
Pradesh in 2006. The partnership model was withdrawn
soon thereafter. At the same time, pilot projects were also
launched for the delivery for liability products such as
micro-savings, micro-insurance and micro-pensions.
Experience and studies in different contexts suggested
that the cost of raising small deposits through BC-MFIs
was extraordinarily high, making such products unviable
and resulting in the lack of interest of MFIs to participate
as BCs in savings collection.
In November 2009, RBI advised banks to draw up a
roadmap to provide banking outlets in every village with
a population of more than 2,000 by March 2013. These
services could be provided through a brick-and-mortar
branch but also various forms of ICT-based models of
branchless banking, including through BCs. Accompa-
nying the provision of banking outlets was a drive for the
opening of no-frills accounts for the target population of
these villages. Given the fact that technology had emerged
