Mumbai, India, December, 03 2007 -
These correspondents can disburse small loans, collect small deposits, and sell micro-insurance and mutual fund products.
Ram Kumar Sahu, a vegetable vendor at Malad, a western suburb of the city, doesn’t go to his bank when he wants to transact business with it. Instead, it comes to him, in the form of Ashmit Saha, a young man equipped with the tools of mobile banking.
Saha even speaks Bhojpuri, the one language with which Sahu is comfortable.
Across India, and notably in Mumbai, banks are using “correspondents”, or people who effectively serve as extensions of branches, in an effort to reach out to people who do not have access to banks and banking services.
One such bank, the Corporation Bank, is using the city’s famed dabbawallas, the men who ferry hot lunches to office goers across the city, as its correspondents.
Banking regulator, the Reserve Bank of India (RBI), had in January 2006 permitted banks to use the services of correspondents to extend their banking services in unbanked areas. These correspondents can disburse small loans, collect small deposits, and sell micro-insurance and mutual fund products.
However, it has taken almost two years for the model to catch on with banks.
Saha is a correspondent with Union Bank of India.
He carries a hand-held device which recognizes thumb impressions of customers such as Sahu.
The customers carry smart cards, which serve as digital passbooks. On this day, Sahu wishes to deposit Rs350 and this is written onto his smart card electronically by the machine.
The machine also produces a receipt for him. Union Bank has engaged the services of around 30 banking correspondents from Financial Information Network & Operations Ltd (Fino), a company set up by a consortium of banks in 2006, to find technological solutions that would help the spread of banking.
Apart from this, Fino also recruits and trains people to become correspondents.
Union Bank has enrolled 10,000 vegetable vendors as customers and expects to reach another 90,000 by March 2008. G.S. Mehta, general manager (agriculture business) at Union Bank, says the experiment has been received well by the vendors.
Apart from increasing reach, the correspondent model reduces transaction costs for banks.
Banks pay correspondents a nominal salary and a commission on top of this; the magnitude of the commission is a function of the number of transactions conducted, customers acquired or deposits mobilized by the correspondent.
Union Bank is currently focussing only on mobilizing deposits but plans to roll out credit facilities through correspondents.
According to Krishna Prasad T., group business head, microbanking, ICICI Bank Ltd, banks were not particularly interested in customers such as Sahu. Nor were customers such as Sahu keen to open accounts because most banks needed a lot of documentation.
The correspondent model is simple and calls for much less documentation.
Rishi Gupta, chief financial officer, sales and marketing, Fino, says engaging banking correspondents is rapidly becoming an imperative for banks.
Only correspondents can connect banks and unbanked people such as Sahu, he adds.
Apart from Union Bank, Fino is working closely with other public sector banks such as Punjab National Bank (PNB) in the north, and Indian Bank and Corporation Bank in the south.
It is also working with ICICI Bank, the largest private sector bank in the country.
PNB, which runs eight farmer training centres in Punjab, Rajasthan and Uttar Pradesh that instruct farmers on issues related to farming, irrigation, and financial management, uses correspodents called kisan bandhus (friends of farmer) to reach out to 500-600 customers every day, collecting deposits and disbursing micro-insurance products. S. Roy, a general manager with the bank, says that while farmers were initially sceptical about the benefits of banking, they are now coming around.
PNB plans to reach out to farmers across 13 Indian states using the same model.
If PNB is looking at farmers, Corporation Bank is looking at taxi drivers and maids.
The bank employs dabbawallas in Mumbai and postmen in Goa as correspondents.
An official of the bank, who does not wish to be identified, says these correspondents do not carry hand-held devices but help the bank to identify potential customers.
Still, it isn’t easy being a correspondent.
“These correspondents do not deal with savvy customers. They often find it difficult to explain their relationship with the bank while trying to garner deposits.
“It requires immense patience and even trips to local authorities such as a sarpanch (village headman) and a purohit (priest) to convince customers,” says Anup Nayar, president, strategic initiatives at Fino.
Arnab Banerjee, a Delhi-based correspondent for Fino, recalls an incident when he was almost beaten up by a farmer in Chehnia, a small village in Uttar Pradesh.
“The farmer had not received a passbook from the bank in the past. He could not forget the unhappy experience,” says Banerjee.
Fino’s Nayar says banks and correspondents are better at this now.