Business correspondent

Business correspondent
See also
Inspection fee Carding forum Classification of financial markets Creation of money Caisse populaire Daily money manager Corporate agent Advance funding Taaps

Business correspondent (BC) is a bank-in-person. It is a person that is authorized to collect small deposits and extend small credits on behalf of the banks. Business correspondent is also permitted to: recover the principal interest of small value deposits, sale of micro insurance products, sell mutual funds products, deliver small value remittances. Usually business correspondent is non-government organization (NGO), micro-finance institution (often society), some types of companies, e.g. telecoms. The business correspondent in India was allowed by the Reserve Bank of India in 2006. He is permitted to represent multiple banks, which increases interoperability. The institution of business correspondent allows inhabitants of small villages and distant regions to use bank services. It helps increase speed of development of those regions.

Features of Business Correspodent Model

Eligibility to become a Business Correspondent:

• Persons such as retired bank employees, retired teachers, retired bank employees, retired teachers, retired government employees and former soldiers, individual owners, medical stores, fair price stores, agents of small savings systems of the Government of India, insurance companies, authorized well-managed officers self-help groups associated with banks, etc.
• Non-governmental organizations, IFIs established under associations, laws and trust sections
• Cooperative associations registered in the law
• Post offices
• Companies registered in large and widespread retail outlets.

Business correspodent scope of activities:

• Collection and delivery of low-value money transfers
• Sale of mutual fund products, pension products micro insurance, and other third party products
• Accumulation of small value deposits
• Recuperation of principal, collection of interest
• Disbursal of small value loan
• Post-sanction monitoring
• Processing and filing applications to banks
• Creating awareness about savings and other products as well as education and advice in the field of money management and debt counseling
• Collecting and pre-processing of credit applications, including verification of basic information data
• Identification of borrowers

Know Your Customer (KYC) regulations Banks can use BC services for initial work related to the formalities of opening an account. But, it is up to banks to ensure compliance with KYC standards in the BC model.

Revenues and costs in the Business Correspodent Model

Income in the Business Correspondent model:

• Fee based on the balance paid bybank to BC on customer savings balances
• Commissions paid by the bank to BC Company for new customers
• Commissions paid by the bank to BC for transaction
• License fee paid franchises by the sub-agent BC Business
• Interest on loans paid to sub-agents
• income from other products forwarded by BC

Costs in the Business Correspondent model:

• Commission paid by the BC to its sub-agent
• Cash free interest balances required to be meet customers cash needs and sub-agents
• Payment to the sub-agents
• Cost of the call center for service customer inquiries and complains
• Cost of identification, training the sub-agents
• Fee fpr opening an account and closing
• Recurring construction cost and depreciation of capital investment

References

• Kolloju N. (2014), Business Correspondent Model vis-a-vis Financial Inclusion in India: New practice of Banking to the Poor, Centre for the Study of Law and Governance. Jawaharlal Nehru University, New Delhi
• Laureti C. (2009), Role of Savings in Competitive Microfinance Markets and Feasibility of the Business Correspodondent Model in India, Universite Libre de Bruxelles, Master Thesis and Internship Report
• Mahajan, S. S., & Kalel, N. (2013), An Assessment of Potential Financial Inclusion of Slum Dwellers Through Business Correspondent Model. IUP Journal of Bank Management, 12(4)
• Sundaram N., Sriram M. (2015), Strategies to reach Financial inclusion in India through Branchless Banking: A study with reference to Business Correspodent (BC) models in Vellore district of Tamil Nadu, India", School of Social Sciences and Languages, VIT University, Vellore 632 014, Tamil Nadu, India
• Vasudevan S. (2009), Suitability of business correspondent model for financial inclusion in slums in Mumbai, R. A. Podar College of Commerce & Economics, Mumbai

Author: Wojciech Ślusarczyk