Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Financial Sustainability of Business Correspondent Model in Mirzapur District (Uttar Pradesh, India)


Affiliations
1 Department of Humanities and Social Sciences, Indian Institute of Technology, Bombay, Powai, Mumbai 400076, Maharashtra, India
     

   Subscribe/Renew Journal


Achieving financial inclusion through brick and mortar banks is a complicated task because of the huge operational cost and infrastructural issues involved in it. In recent years an innovation in the form of Business Correspondent (BC) model has evolved. It attempts to accelerate the pace of financial inclusion in the Indian banking system. Business correspondent channel essentially involves using third-party agents as a tool to carry out the banking operations on behalf of the banks, the latter being the regulatory and controlling agency for the business correspondent operations. Using primary data collected from the BCs operating in the Mirzapur district of Uttar Pradesh, the present study attempts to explore the determinants that affect the financial sustainability of the BC model in India. It concludes that if the BC model has to be financially sustainable, then continued generation of transactions backed by proper training facilities is a must. Further, the BCs need to take up more area-specific approach to deal with the challenges confronting them.
Subscription Login to verify subscription
User
Notifications
Font Size

  • Adams, D.W. (1995), Transaction Costs in Decentralised Rural Financial Markets. In Dina Umali Deininger and Charles Maguire (Eds.), Agriculture in Liberalizing Economies: Changing Roles for Governments, Washington, D.C., World Bank.

  • AFI (Alliance for Financial Inclusion) (2012), Agent Banking in Latin America, AFI Discussion Paper, March.

  • Akhavein, J., W.S. Frame and L.J. White (2001), The Diffusion of Innovations: An Examination of the Adoption of Small Business Credit Scoring by Large Banking Organisations, Working Paper 2001-9, Federal Reserve Bank of Atlanta.

  • Al-Jabri, I. and S.M. Sohail (2012), Mobile Banking Adoption: Application of Diffusion of Innovation Theory, Journal of Electronic Commerce Research, 13(4): 379-391.

  • Allen, F. and A.M. Santomero (1998), The Theory of Financial Intermediation, Journal of Banking and Finance, 21(1998): 1461-1485.

  • Ananth, B. and K.A. Asha (2010), Deepening Financial Access in India - A Blue Print for Commercial Banks: Using Business Correspondents and Business Facilitators, Chennai: IFMR Finance Foundation.

  • Ananth, S. and S.A. Oncu (2013), A Critical Look at the Expansion of Banking Services through Business Correspondent Model: Observations from Andhra Pradesh, Working Paper No. 2, Centre for Advanced Financial Research and Training.

  • Arunachalam, S.R. (2012), Critical Risks and Issues in Regulating Bank Business Correspondents, Money life, Retrieved on 21st January 2015 from http://microfinance-in-india.blogspot.in /2012/06/critical-risk-and-issues-in-regulating.html

  • Atandi, F.G. (2013), Challenges of Agent Banking Experiences in Kenya, International Journal of Academic Research in Business and Social Sciences, 3(8): 397-412.

  • Balani, J., P. Barooah, S. Chadha and R. Kumar (2015), Lessons from the Costing Study on BC Networks, Micro Save India Focus Note # 115, MicroSave.

  • Bansal, Y. and N. Srinivasan (2009), Business Correspondents and Facilitators: The Story So Far, CAB Calling, April-June, 2009.

  • Bricker, R. and N. Chandar (1998), On Applying Agency Theory in Historical Accounting Research, Business and Economic History, 27(2): 486-499, Winter.

  • CGAP (Consultative Group to Assist the Poor) (2010), Branchless Banking Agents in Brazil: Building Viable Networks. Washington D.C. Retrieved on 20th March 2015 fromhttp://www.gsma.com/mobilefordevelopment/wpcontent/uploads/2012/06/agentnetwork sinbrazilcgapfgv1_7.pdf

  • Chaipoopirutana, S., H. Combs, Y. Chatchwanwan and V. Vij (2009), Diffusion of Innovation in Asia: A Study of Internet Banking in Thailand in India, Innovative Marketing, 5(4): 27-31.

  • Champatiray, A. (2012), A Closer Look at the Financial Viability of the BC Model, Eye on Microfinance, 2012(17): 5-7, Chennai: IFMR.

  • Chopra, P., M. Sharma and M. Sadana (2012), Is the Business Correspondent Model in Policy Paralysis? Policy Brief ≠ 7, MicroSave.

  • Cracknell, D. (2004), Electronic Banking for the Poor: Panaceas, Potential and Pitfalls, Micro Save, Retrieved on 20th March 2015 from http://www.microfinancegateway.org/sites/default /files/mfg-en-paper-electronic-banking-for-the-poor-panacea-potential-and-pitfalls-sep-2004 .pdf

  • Dekle, R. and K. Kletzer (2003), The Japanese Banking Crisis and Economic Growth: Theoretical and Empirical Implications of Deposit Guarantee and Weak Financial Regulation, Journal of the Japanese and International Economics, 17(3): 305-335.

  • Dias, D. and M. Katherine (2010), Protecting Branchless Banking Consumers: Policy Objectives and Regulatory Options, Focus Note No. 64, CGAP: Washington D.C. Retrieved on 15th December 2014 fromhttp://siteresources.worldbank.org/FINANCIALSECTOR/Resources /P-ReadingProtectingBranchless.pdf

  • Elsig, M. (2010), Principal-Agent Theory and the World Trade Organization: Complex Agency and Missing Delegation, European Journal of International Relations, 20(10): 1-23.

  • Gailmard, S. (2012), Accountability and Principal-Agent Model, Oxford Handbook of Public Accountability, Oxford, UK.

  • Ganeshan, L.M. (2011), Study on ICT Based Financial Inclusion Through BC - Impediment and Corrective Actions, Pune: College of Agricultural Banking.

  • Garg, N. and S. Mehta (2010), Listening to Agents of Mobile Banking in India, Micro Save India Focus Note 38, MicroSave.

  • George, D., N. Nitish, S. Vartikaand, G. Nitin (2012), Training E/M Banking Agents: What is Missing? Briefing Note #135, MicroSave.

  • Ghiyazuddin, A.M., V. Shivshankar and C. Linder (2011), Sustainability of BC Network Managers (BCNMs): Business Scenario and its Effects, MicroSave India Focus Note 73, MicroSave.

  • ---------- (2011), Sustainability of BC Network Managers (BCNMs): Review of Commission Structures, MicroSave India Focus Note 72, MicroSave.

  • Grameen Foundation (2013), Building Sustainable Business Models for Providing Financial Services to the Poor - A Study to Understand the Business Case of Cashpor as Business Correspondent, Grameen Foundation India Series.

  • Hoffman, J. (2006), Issues in Mobile Banking- Implementation Choices, MicroSave, Retrieved on 12th October 2015 from http://www.microsave.net/files/pdf/BN_51_Issues_in_Mobile_ Banking_1_Implementation_Choices.pdf

  • Ivatury, G. and M. Ignacio (2008), The Early Experience with Branchless Banking, CGAP Focus Note 46, CGAP: Washington, D.C.

  • Janda, K. (2006), Agency Theory Approach to the Contracting between Lender and Borrower, Oeconomica Pragnesia, 14(3).

  • Jos, A. and D. George (2013), Implementing a Bank Supervised Agent Network, MicroSave India Focus Note≠103, MicroSave.

  • Jos, A., D. George and H.S. Pandey (2013), Bank Managed Networks - The Challenges, MicroSave India Focus Note ≠ 102, MicroSave.

  • Kapoor, R. and V. Shivshankar (2012), State of Business Correspondent Industry in India - The Supply Side Story, MicroSave.

  • Laureti, C. (2009), Role of Savings in Competitive Microfinance Markets and Feasibility of Business Correspondents Model in India, European Microfinance Program (2008-2009), Universite de Libre Bruxelles Master Thesis and Internship Report, Brussels: Belgium.

  • Laureti, C. and B.H. Matthews (2009), Making Business Correspondence Work in India, MicroSave India Focus Note # 24, MicroSave.

  • Leach, J., Anand M. Menon, and N. Sandwise (2014), Achieving Scale and Efficiency in MicroInsurance through Retail and Banking Correspondents, Paper No.37, Rome: International Labour Organisation.

  • Mas, I. (2009), The Economics of Branchless Banking, Innovation, 4(2): 57-76.

  • Mas, I., and S. Hannah (2008), Banking Through Network of Retail Agents, Washington D.C.: CGAP.

  • Matthews, H.B. (2010), Making Business Correspondence Works - Crossing the Second ‘Break Even’, MicroSave India Focus Note ≠ 32, MicroSave.

  • McCafferey, M., and I.O. Isaac (2014), The Ebbs and Flows of Liquidity Management, Blog Helix Institute of Digital Finance, Nairobi: Kenya.

  • Meh, C. and K. Moran (2003), Bank Capital, Agency Costs, and Monetary Policy, USC FBE Macroeconomics and International Finance Workshop.

  • Mehrotra, A. and D. George (2015), Agent Network Accelerator Survey: India Country Report 2015, Helix Institute of Digital Finance.

  • Mohammad, A.G., V. Shivshankar and L. Linder Chris (2011), Sustainability of Business Network Managers (BCNMs): Business Scenario and its Effects, India Focus Note # 73, MicroSave.

  • Murdoch, C. and G.A.N. Wright (2013), Successful Banking Correspondents Need a Compelling Product Mix, MicroSave India Focus Note ≠ 65, MicroSave.

  • Ndungu, G.C. and N. Agnes (2014), Assessment of Factors Influencing Adoption Banking in Kenya: The Case of Kajiado North Sub County, International Journal of Business and Commerce, 3(8):91-111, April.

  • NSSO (National Sample Survey Organization) (2005), Household Indebtedness in India as on 30.6.2002, All India Debt and Investment Survey, 2003, NSSO 59th Round, Government of India.

  • Palia, D. and R. Porter (2007), Agency Theory in Banking: An Empirical Analysis of Moral Hazard and the Agency Cost of Equity, Bank and Bank Systems, 2(3): 142-156.

  • Pareek, A., N. Garg, R. Shayandeep Dhawan, S. Agarwal, A. Tiwari, P. Chopra, S. Mehta and G.A.N. Wright (2012), Remittances: The Evolving Competitive Environment, Policy Brief # 3, MicroSave.

  • Platt, A. (2011), The Business Case for Branchless Banking - What’s Missing? MicroSave Briefing Note # 97, MicroSave.

  • Platt, A.B. and A. Tiwari (2012), The State of Business Correspondence: Agent Networks in India, MicroSave.

  • Pollack, M.A. (2006), Principal-Agent Analysis and International Delegation: Red Herrings, Theoretical Clarifications, and Empirical Disputes, Paper prepared for presentation at the Workshop on Delegating Sovereignty, Duke University, 3-4 March, 2006.

  • Rath, B., R. Minakshi and K. Alexandar (2009), Business Correspondent Model: A Preliminary Exploration, Microfinance India Summit 2009.

  • RBI (Reserve Bank of India) (2009), Report of the Working Group Committee to Review the Progress of Business Correspondent Model, Mumbai.

  • ---------- (2014), Report on Trends and Progress of Banking in India, Mumbai.

  • ---------- (2015), Reserve Bank of India Annual Report 2014-15, Mumbai.

  • Romen, R. (2004), Diffusion of Innovations as Theoretical Framework for Telecentres. Information Technologies and International Development, 1(2): 53-66, Winter 2003, Massachusetts Institute of Technology.

  • Ross, S.A. (1973), The Economic Theory of Agency: The Principal’s Problem, American Economic Review, 63(2): 134-39, Papers and Proceedings of the Eighty-fifth Annual Meeting of the American Economic Association, May, 1973.

  • Sa-Dhan (2012), Financial Inclusion: A Study on the Efficacy of the Banking Correspondent Model, Labour Life, 35.

  • Sanford, C. and C. Laura (2013), Do Banking Correspondents Improve Financial Inclusion? Evidence from National Survey in Brazil, Somerville: Bankable Frontier Associates.

  • SIDBI (Small Industries and Development Bank of India) (2014), Business Correspondents Model in Bihar -Constraints and Way Forward, MicroSave.

  • Siddik, N.A., G. Sun, C. Yanjuan and S. Kabiraj (2014), Financial Inclusion through Mobile Banking: A Case Study of Bangladesh, Journal of Applied Finance & Banking, 4(6): 109-136.

  • Singh, M. (2012), Assessing Agent Profitability, Policy Brief ≠ 6, MicroSave.

  • Srinivasan, N., L.M. Ganesan and T. Amithy (2012), Financial Inclusion - A National Survey on Functionality and Sustainability of Customer Service Points, College of Agricultural Banking (CGAP).

  • Wright, G.A.N., K.S. Manoj and C. Puneet (2013), Behind the Big Numbers: Improving the Reach and Quality of Agent Networks in India, Policy Brief # 9, MicroSave.


Abstract Views: 670

PDF Views: 1




  • Financial Sustainability of Business Correspondent Model in Mirzapur District (Uttar Pradesh, India)

Abstract Views: 670  |  PDF Views: 1

Authors

Vijeta Singh
Department of Humanities and Social Sciences, Indian Institute of Technology, Bombay, Powai, Mumbai 400076, Maharashtra, India
Puja Padhi
Department of Humanities and Social Sciences, Indian Institute of Technology, Bombay, Powai, Mumbai 400076, Maharashtra, India

Abstract


Achieving financial inclusion through brick and mortar banks is a complicated task because of the huge operational cost and infrastructural issues involved in it. In recent years an innovation in the form of Business Correspondent (BC) model has evolved. It attempts to accelerate the pace of financial inclusion in the Indian banking system. Business correspondent channel essentially involves using third-party agents as a tool to carry out the banking operations on behalf of the banks, the latter being the regulatory and controlling agency for the business correspondent operations. Using primary data collected from the BCs operating in the Mirzapur district of Uttar Pradesh, the present study attempts to explore the determinants that affect the financial sustainability of the BC model in India. It concludes that if the BC model has to be financially sustainable, then continued generation of transactions backed by proper training facilities is a must. Further, the BCs need to take up more area-specific approach to deal with the challenges confronting them.

References





DOI: https://doi.org/10.21648/arthavij%2F2015%2Fv57%2Fi4%2F111489