The National, an English-language newspaper owned by the Abu Dhabi government, recently reported that the branchless banking model in which local agents, or business correspondents, use handheld computers to offer banking services in areas of India with no traditional banking branches is “transforming lives”. The article cites an unnamed study by the University of Pennsylvania’s Wharton School in the United States indicating that the cost of a banking transaction is USD 0.10 if done through an agent, or banking correspondent, as compared to USD 1 at a bank branch.
Ms Usha Thorat, who manages the financial inclusion portfolio at the Reserve Bank of India (RBI), said, “A large population in India is unbanked. They have to travel long distances to the nearest bank branch to collect payment for social schemes. Technology has made doorstep service possible.” RBI reportedly says the total number of bank accounts opened through the new model increased to 74 million this March from 50 million last year. In expectation of increased demand for banking services as the rural working population grows, RBI seeks to connect 350,000 villages across the country with branchless banking over the next two financial years. In addition, the central bank has asked banks to make sure that approximately 223,000 villages have basic financial services access by March of next year.
By Carol Kim, Research Associate
About the Reserve Bank of India (RBI): Established in 1935, the Reserve Bank of India undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD, RBI reduced its stake in NABARD from 72.5 percent to 1 percent in October 2010.
Sources and Additional Resources:
The National: “’Banks on Foot’ a great leap in India”, http://www.thenational.ae/thenationalconversation/industry-insights/finance/banks-on-foot-a-great-leap-in-india?pageCount=0
MicroCapital.org: “MICROCAPITAL BRIEF: Indian Microfinance Institutions (MFIs) May Become Business Correspondents (BCs) for Commercial Banks”, July 7, 2011, https://www.microcapital.org/microcapital-brief-indian-microfinance-institutions-mfis-may-become-business-correspondents-bcs-for-commercial-banks/
MicroCapital.org: “MICROCAPITAL BRIEF: Indian Bank Receives Skoch Financial Inclusion Award 2011 for “Self-Help Group (SHG) Initiatives – Urban Financial Inclusion”, January 28, 2011, https://www.microcapital.org/microcapital-brief-indian-bank-receives-skoch-financial-inclusion-award-2011-for-“self-help-group-shg-initiatives-urban-financial-inclusion”/
MicroCapital.org: “MICROCAPITAL BRIEF: Reserve Bank of India (RBI), in Move to Expand Rural Financial Access, Updates Guidelines to Allow Individuals, Nonprofits and Corporations—But Not Microfinance Institutions—to Serve as Business Correspondents for Banks”, October 16, 2010, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-in-move-to-expand-rural-financial-access-updates-guidelines-to-allow-individuals-nonprofits-and-corporations—but-not-microfinance-institution/
MicroCapital’s Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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