Understanding the BC Model of Banking

Understanding the BC Model of Banking

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BCs or, the Business correspondents are retail agents that banks hire to offer banking services outside of a bank's ATM or branch. A bank can offer its limited range of banking services at a low cost thanks to BCs. As a result, they play a crucial role in encouraging financial inclusion. The Reserve Bank of India (RBI) has granted banks permission to appoint organizations and individuals as agents for providing basic banking services in remote areas where they are unable to practically open a branch. Business correspondents are the name given to these agents. BCs are regarded as viable options for providing basic banking services to the nearly 600,000 villages in the nation. As a result, business correspondents play a crucial role in promoting financial inclusion in the nation.

Functions of BCs - BCs are required to perform a variety of tasks, including identifying borrowers, collecting small-value deposits, disbursing small-value credit, recovering principal and interest, selling microinsurance, mutual fund products, pension products, and other third-party products, receiving and delivering small-value remittances, spreading awareness about savings and other products, providing education and advice on managing money, and counseling borrowers on debt, among other things.

What kinds of goods can BCs sell? - According to RBI guidelines, BCs can sell the following goods: Remittance to any BC customer, microcredit, and general insurance, as well as small savings accounts with low minimum deposits, fixed deposits, and recurring deposits. The last-mile issue is addressed by the BC model, which enables banks to deliver services, particularly "cash in – cash out" transactions, directly to customers' homes in rural areas.

Who can serve as BCs? - The RBI has provided a comprehensive list of organizations and individuals who can serve as BCs. At first, registered organizations like NGOs and MFIs were allowed to act as BCs. Later, the list included people like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana/medical/fair price shops, individual operators of Public Call Office (PCO), agents of Small Savings schemes of the Government of India/Insurance Companies, individuals who own petrol pumps, and authorized functionaries of well-run Self-Help Groups (SHGs) that are connected to banks. Anyone else, including those who run Common Service Centres (CSCs), is permitted to serve as Bank BCs.

Despite its attractiveness, the BC model has not delivered effectively due to its numerous flaws. First, BCs' operations are restricted more tightly by banks. Second, BCs were paid very little for the physical labor they put in to cover faraway areas. The JDY also heavily rely on BCs to keep the account activities going by the village residents who started it as part of the program.