Constraints of the BC Model of Banking

Constraints of the BC Model of Banking

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The business correspondent (BC) model, which is similar to the agent network that makes it possible for mobile money services to be offered, is the most ground-breaking strategy for effective last-mile delivery of financial services in India. While there are no bank branches in remote Indian villages, they do have other retail establishments like convenience and grocery stores, pharmacies, kiosks, and post offices. A network of agents can use these locations as low-cost delivery channels to deliver financial services to customers who visit them, especially in rural areas where mainstream banking is financially unavailable. Technology-oriented tools like mobile phones, biometric scanners, point-of-service handheld devices, and even micro ATMs support the BC model.

Constraints of the BC Banking Model - The business correspondent model has not been able to alter this outlook, despite India's significant progress on financial inclusion. The 2017 Findex report found that 80% of adult Indians now have a bank account, up 27 points from 2014. In addition, 77% of Indian women now have a bank account, up from 26% and 43% in 2014 and 2011, respectively. However this progress is tempered by the way that around 48% of these financial balances have seen no exchanges somewhat recently, and that India has the world's most elevated portion of idle records - about two times the normal of 25% for creating economies. The following factors have stymied the BC method:

1. Functional obstacles: BCs have struggled especially with cash management issues like transporting and protecting cash and preventing theft and fraud. Additionally, BCs have limited overdraft facilities and transaction limits that may not meet account holders' daily needs.

2. Issues with viability: The majority of BC-opened accounts are inactive, despite growing awareness of the value of banking services. As a result, there is a lack of funding for expanding into unbanked areas and building BCs' capacity. In some cases, BCs have lost money, which has caused a lot of people to leave, and banks have trouble covering the costs of expanding into areas where there are no banks.

3. Problems with the law: Within 24 hours of a transaction, BCs are required by current regulations to complete accounting and settle withdrawals with bank branches. However, due to the distances involved and the possibility of having an impact on BCs' business if they are absent from their centers, this may not be possible.

Business correspondents may not be able to handle all banking services, particularly more advanced credit functions, in light of these obstacles, as is now becoming clear. At least until BCs acquire the necessary expertise and support, the credit functions required of modern banks can only be handled by larger entities with competent personnel and adequate logistical support.