agent s of f i nanc i a l i nc lu s i on
57
The corporate BC model being inherently a high cost-
low margin business model was considered to be unsus-
tainable in the short term. It was inevitable that corporate
BCs would invest little in building infrastructure and also
keep the compensation to their agents as low as possible
until they built a large client base.
10
The withdrawal of
corporate BCs by the banks in favour of individual BCs
is a wider phenomenon reported from other states as
well. Besides, TSP BCs may not have a financial policy
and often are working with a funds constraint. Thus they
neither upgrade technology nor are able to pay the BCs
adequately. Other reasons for banks failing to use BCs to
provided financial services to the excluded are given in
Box 3.3.
3.2.3 Direct Benefit Transfer and Financial
Inclusion through BCs: Experience of
Andhra Pradesh
Great store is set for BC operations in facilitating
government to people (G2P) programmes of Direct
Benefit Transfers (DBTs)
11
in the form of electronic
benefits transfers/direct cash transfers (EBTs/DCTs). The
DBT programme covers 28 government schemes and is
already being implemented in more than 100 districts
of the country. It uses the biometric-based identification
system, Aadhar, to help speeding up payments, removing
leakages and enhancing financial inclusion. However,
see also Box 3.4. BCs were generally located and doing
relatively well in those areas where that EBT transfers
were being made. Since these were in the pilot phase,
BCs would have to await the expansion EBT to all the
districts, for them to have the opportunity to be viable.
Otherwise, stand-alone financial inclusion business by
BCs was still essentially infeasible.
However, even these programmes with assured funds
flow and transaction volumes were not able to ensure
sustainability. In collaboration with the World Bank and
SERP, CGAP carried out a research project from April
to September 2013 to understand the electronic benefit
transfer (EBT) system that the state of Andhra Pradesh
had developed. Using quantitative and qualitative analy-
sis, the research analysed the policy, supply and demand
side of the EBT’s ecosystem, to provide lessons for the
DBT rollout across India, as well as the link of govern-
ment to person payments to financial inclusion.
12
Government of Andhra Pradesh delivers MNREGA
and social security pensions (SSPs) worth Rs. 5 billion
to 10 million beneficiaries through banks, post offices,
BC companies, CSPs and community village organiza-
tions. The demand side findings from a survey of 2,460
households in 12 districts and an ethnographic study
of 18 villages in 3 districts, found that EBT increased
the payment convenience of recipients by reducing the
B
OX
3.3
Reasons for Banks Failing to use BCs to Provide Financial Services to the Excluded
According to a study in Chittoor, Kurnool and Mahabubnagar districts of Andhra Pradesh, despite the potential demand for
financial services, the constraints on individual BCs to expand financial inclusion almost invariably originated with the banks. The
study identified eight reasons for reluctance of banks to expand formal banking services to the financially excluded:
1. Banks viewed financial inclusion (at least until recently) as a corporate social responsibility initiative rather than as a future
business opportunity.
2. Banks were unwilling to spend time and resources to create and nurture a new market.
3. The sizes of financial inclusion portfolios of banks were minuscule compared to other high-growth sectors.
4. Banks perceived a ‘perpetual viability gap’ because of the high costs of servicing this market segment (so-called ‘social’ or
‘holding’ costs).
5. Banks felt that recovery in the rural areas would be difficult.
6. Banks were concerned about the lack of basic financial literacy and the associated information asymmetries.
7. There was a lack of tools or metrics to measure financial exclusion, which made banks unable to quantify the market and the
attendant risks.
8. The geographic distance and inaccessibility of sub-districts from district headquarters also acted as a constraint.
Source
: Ananth and Öncü (2014).
