Bank correspondent system through venture capital participation b.v.raghunandan

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Bank correspondent system through venture capital participation b.v.raghunandan

  1. 1. Bank Correspondent through Venture Capital Participation -B.V.Raghunandan, SVS College, Bantwal National Conference, KSS College, Subramanya September 8-9, 2011
  2. 2. Money Lending & RBI’s Myopic Policy <ul><li>Money lending constituting unorganised sector </li></ul><ul><li>RBI’s efforts in the obliteration of the sector </li></ul><ul><li>Banks were encouraged through </li></ul><ul><li>priority sector lending </li></ul><ul><li>Nationalised banks opened </li></ul><ul><li>rural branches </li></ul><ul><li>Banks as business models are </li></ul><ul><li>a poor substitute for money lending </li></ul><ul><li>Money lending thrived </li></ul>
  3. 3. Muhammad Yunus & Bangla Desh Grameena Bank <ul><li>2006- Nobel Prize attracted the attention of the world </li></ul><ul><li>Micro-finance became the mantra </li></ul><ul><li>A new terminology of Financial Inclusion emerged </li></ul><ul><li>Prime Minister praised the role of money-lenders in 2006 </li></ul><ul><li>MFIs sprang up </li></ul>
  4. 4. RBI Guidelines in 2006 <ul><li>Branchless Banking </li></ul><ul><li>Involvement of a Wider Categories of institutions </li></ul><ul><li>The Ideas of Outsourcing and Service Providing </li></ul><ul><li>Business Facilitators </li></ul><ul><li>Business Correspondents </li></ul>
  5. 5. Business Facilitators <ul><li>NGOs/SHGs </li></ul><ul><li>Farmers' Clubs, </li></ul><ul><li>Cooperatives, </li></ul><ul><li>Community based organisations </li></ul><ul><li>IT enabled rural outlets of corporate entities </li></ul><ul><li>MFIs </li></ul><ul><li>Insurance agents </li></ul><ul><li>Panchayats </li></ul><ul><li>Village Knowledge Centres, </li></ul><ul><li>Agri Clinics/ Agri Business Centers </li></ul><ul><li>Krishi Vigyan Kendras </li></ul><ul><li>Post Offices </li></ul>
  6. 6. Functions of Business Facilitators <ul><li>identification of borrowers </li></ul><ul><li>collection and preliminary processing of loan applications  </li></ul><ul><li>creating awareness about savings </li></ul><ul><li>advice on managing money and debt counselling </li></ul><ul><li>processing and submission of applications to banks </li></ul><ul><li>post-sanction monitoring </li></ul><ul><li>monitoring and follow-up for recovery. </li></ul>
  7. 7. Business Correspondent Participants <ul><li>NGOs </li></ul><ul><li>MFIs set up under Societies/ Trust Acts </li></ul><ul><li>Societies registered under Mutually Aided Cooperative Societies Acts or the Cooperative Societies Acts of States </li></ul><ul><li>section 25 companies </li></ul><ul><li>registered NBFCs not accepting public deposits and </li></ul><ul><li>Post Offices </li></ul>
  8. 8. Others Allowed to Act as Delivery Channels <ul><li>owners of petrol pumps </li></ul><ul><li>fair price shops </li></ul><ul><li>grocers and chemists </li></ul><ul><li>public call office operators </li></ul><ul><li>insurance agent </li></ul><ul><li>jobless rural youth </li></ul><ul><li>retired teachers </li></ul><ul><li>existing bank borrowers </li></ul>
  9. 9. Functions of Bank Correspondents <ul><li>activities listed under the Business Facilitator Model </li></ul><ul><li>disbursal of small value credit </li></ul><ul><li>recovery of principal / collection of interest  </li></ul><ul><li>collection of small value deposits </li></ul><ul><li>sale of micro insurance/ mutual fund products/ pension products/ other third party products and  </li></ul><ul><li>receipt and delivery of small value remittances/ other payment instruments. </li></ul>
  10. 10. Grievance Redressal Machinery <ul><li>Banks should constitute Grievance Redressal Machinery for services rendered by Correspondents and Facilitators </li></ul><ul><li>give wide publicity about it through electronic and print media </li></ul><ul><li>The name and contact number of designated Grievance Redressal Officer of the bank should be made known and widely publicised. </li></ul>
  11. 11. Three Tier Model <ul><li>On the Top, the Initiating Bank </li></ul><ul><li>Second Layer-Technology Interface </li></ul><ul><li>Third Layer-Bank Correspondent </li></ul>
  12. 12. SBI Model <ul><li>Initiating Bank is SBI </li></ul><ul><li>Bank Correspondent is Zero Mass Foundation </li></ul><ul><li>- financial services, including National Rural Employment Guarantee Scheme (NREGS) wage payment </li></ul><ul><li>- recruit and train people at the customer service points to enroll customers and provide banking services in the villages. </li></ul><ul><li>Banking Outposts-6234 Gram Panchayats in the State of Orissa </li></ul>
  13. 13. Technology Platform <ul><li>use of smart cards and mobile technology by the BCs </li></ul><ul><li>use of biometric scanner cum identifier , a mobile, and a printer </li></ul><ul><li>The biometric device is used for the identification and authentication of the beneficiary. Once authenticated, RFID chip embedded in the card gets charged. This chip communicates with the mobile device.  </li></ul><ul><li>The BC sends a message to the back-end server through the mobile. </li></ul><ul><li>The server authenticates the message, and sends an update back to the mobile, which in turn writes back to the card. </li></ul><ul><li>card is brought close to the printer & a transaction report is printed.   </li></ul>
  14. 14. Problems Faced by Non-VC Models <ul><li>Technology Partners have no business acumen </li></ul><ul><li>More Deposit Oriented than Loans Sanctioning </li></ul><ul><li>Low Commission paid by the Banks </li></ul><ul><li>Individuals found it unviable </li></ul><ul><li>Again they were not prepared to take the risk </li></ul><ul><li>They prefer to work for a fixed salary rather than an uncertain commission </li></ul>
  15. 15. Need for Venture Capitalists <ul><li>Interface between Bank and the BC </li></ul><ul><li>Technology Partners </li></ul><ul><li>Huge Capital </li></ul><ul><li>Enterprising Quality </li></ul><ul><li>Roping in Unemployed Youth </li></ul><ul><li>Need for Scaling up the Model, due to lesser commission </li></ul><ul><li>Need to cover more than one bank on the basis of outsourcing model </li></ul>
  16. 16. Functions of VCs <ul><li>Acting as the BCs </li></ul><ul><li>Reducing the three tier structure to two </li></ul><ul><li>Recruitment & Training of Employees </li></ul><ul><li>Technology Connectivity to the Bank </li></ul><ul><li>Providing them Hand-held Machines </li></ul><ul><li>Supervising and Controlling the BCs </li></ul><ul><li>Collection of Commissions from Banks </li></ul>
  17. 17. Emergence of VCs in BCs <ul><li>SEED-a Delhi based VC founded for helping the corporates to fulfill CSR in June 2006 </li></ul><ul><li>Helped the adoption of villages using SHGs </li></ul><ul><li>Customers were SAIL, NMDC, Jindal Steel, Cairn and ACC </li></ul><ul><li>Adoption of 5 -100 villages in the vicinity of a corporate </li></ul>
  18. 18. Downturn-2008-09 <ul><li>All the customers were mining companies </li></ul><ul><li>The downturn affected all the customers badly </li></ul><ul><li>Contacts with SHGs brought them closer to financial inclusion </li></ul><ul><li>Changed the business model to provide the BC service to the banks </li></ul>
  19. 19. Success of SEED <ul><li>In one year’s time, it has signed up with 19 banks as BC </li></ul><ul><li>Opened more than 15 lakh smart card based savings bank accounts in more than 8000 villages </li></ul><ul><li>Plans are afoot to open about one crore such accounts in the near future </li></ul><ul><li>Employs a workforce of 3500 </li></ul>
  20. 20. Revenue Streams of SEED <ul><li>Charging the Bank for opening an account, involving processing the application, capturing the bio-metric data and creation of the smart cards </li></ul><ul><li>Charging a Fee for each transaction </li></ul><ul><li>Getting a commission for the sale of products like FD, RD, Loans, Insurance and Credit Cards </li></ul><ul><li>A fixed percentage of commission for remittances </li></ul>
  21. 21. Problems <ul><li>Recent troubles regarding micro-finance </li></ul><ul><li>Low Commission fixed by RBI </li></ul><ul><li>Other RBI Regulations: The distance between the linked branch and the customer can not be more than 5 kms in cities and 15 kms in rural areas </li></ul><ul><li>Money collected should enter the bank books within 24 hours </li></ul>
  22. 22. THANK YOU

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