IMPACT OF AGENT CUM FEDERATION MODEL IN
INANCIAL INCLUSION: EMPIRICAL EVIDENCE
Dr. Veerashekharappa[1]
1.1. Introduction
A large segment of the population, especially the poor, are still excluded from formal banking services, which has led to income inequity (Baldacci et al 2002), a number of studies support that the poor need financial services to help them manage their lives (Morduch and Rutherford 2003). Considering this various countries have designed financial inclusion programme with suitable legislature and delivery models[2].
In India too since independence enormous efforts were made to provide formal credit access to the neglected sectors and the poor. In fact, the state adopted repression approach (state intervention) since nationalization (1969) in expansion of bank branches and preferential lending to priority sectors and venerable sections. . This has contributed to increased density of branches across area and population. However, with the introduction of reforms in banking sector led to dilution of preferential lending to the poor. The banks concentrated more on efficiency and profitability. As result, the number of metropolitan went 93 per cent against rural branches 12 per cent (Sameer Kochar,2013) during 2004 to 2013. This is enough to derive the negative approach towards rural and poor.
Nevertheless, the Government of India in its Union Budget 2005-06, requested Reserve Bank of India (RBI) to examine the issue of allowing banks to adopt the agency model to facilitate access formal credit to the poor. The RBI constituted an Internal Group to examine Issues Relating to Rural Credit and Micro Finance (Chaired by Sri. H.R. Khan, 2005). The group recommended agent models; viz, the Business Facilitator (BF) and the Business Correspondent (BC). Under the BC Model, institutional agents/other external entities may support the banks for extending financial service[3] to the poor.
Based on recommendation almost all the banks appointed agents (means BCs) to reach out to the poor and excluded community. However, the agents are heterogeneous in their function, operation and in adopting technology to reach out to the clients. Some of them adopted federation approach, due to their earlier experience in microfinance. The federations are self financed through user charges and meets establishment expenditures, etc. However, it is subject to criticism for long term sustainability of these federations. In this context it is planned to make a study with the following objectives:
1. Objective and methodology
1. The impact of the overall financial inclusion program in the state due to Agent model.
2. Examine structure and operation of federation, its viability in self sufficiency.
2. Sources of data
Secondary sources such as RBI, NABARD publications, state of the sectors reports and the studies carried out by institutions and individuals are largely depended upon for the information and data. The primary data has been collected from the groups and members involved in management. The programme was implemented in Kunigal taluk which has six hoblis comprising 36 Gram Panchayats (GP). To understand the financial inclusion and the federation structure, 33 JLGs and 23 SHGs were randomly selected. In order to have complete representation, in the first stage, from each Hobli two Gram Panchayats (GP) were selected randomly. For second stage, groups were classified into different strata based on the year of formation (see table 10). Further, groups were randomly selected from each stratum to have representation from each year of formation. The number of SHGs and JLGs chosen from each GP depended on the number of groups that existed in the particular GP.
This study examines both the agent model as well as federations structure. The presentation is structured into five sectors, section two provides progress of agent model, section three documents status of agent model in Karnataka, sector four presents’ federations function, operation, last sector derives conclusions from earlier sections.
Section 2
Progress of Agent Model
2.1. Status of Agent Model
In India, various outreach activities have been implemented since reforms, such as: no-frill accounts, SHG-BL programme and agent model to include poor in formal institutional credit programme. The agent model is two types, Business Correspondents (BC) and Business Facilitators (BF). While BCs are permitted to carry out transactions on behalf of the bank as agents, BF’s refer clients, pursue the client’s proposal and facilitate the banks to carry out its transactions. These agents are allowed to have their own strategy in adopting suitable new technologies into banking transactions.
The banks including those in private sector have appointed agents (BCs), the total number of agents appointed touched to 96,000 in 2012; similarly ICT A/Cs handled by these agents reached to 153 million, thus, touching a total transaction of Rs 97 billion in 2012 (Table-1). The agents are getting service charges, which is their revenue[4]. The appointment in this model rapidly increasing every year, for instance during 2010, the total strength was around 33 thousand, by 2012 it has gone up to 97 thousand. And the villages covered by this model are 1.20 laths. The other models, such as no frill accounts, SHG - BL GCC and KCC not matching to this growth.
Table 1: Progress of Financial Inclusion in India
S No. / Particulars / March 2010 / March 2011 / March 20121 / 2 / 3 / 4 / 5
1. / BCs and CSPs deployed / 33,042 / 58,361 / 96,828
2. / Villages covered through the Branches / 21,499 / 22,684 / 24,701
3. / Villagers covered through the BCs / 33,158 / 76,801 / 1,20,355
4. / Villages covered through other modes / 100 / 355 / 2,478
5. / Total Villages covered / 54,757 / 99,840 / 1,47,534
6. / No Frills A/Cs (no. in millions) / 49.55 / 74.39 / 103.21
7. / No Frills A/Cs savings (no. in Rs. billion) / 48.55 / 65.65 / -
8. / KCCs (no. in millions) / 24 / 27 / 30
9. / KCC- Credit (Rs. billions) / 1,240 / 1,600 / 2,068
10. / GCCs (no. in millions) / 1 / 2 / 2
11. / GCC- Credit (Rs. billions) / 35 / 35 / 42
12 / ICT A/Cs- BC Total transactions (no. in millions) / 27 / 84 / 156
13 / ICT A/Cs- BC Total transactions (Rs. billions) / 7 / 58 / 97
Source: Microfinance: India State of the Sector report 2012, Report on Trend and Progress of Banking in India- 2012-13
Section 3
Agent Model in Karnataka
3.1. Introduction
Karnataka state well known in the expansion of banking intuitions, similarly it has contributed in promoting financial inclusion programme. According to the Report by Crisil called Inclusix Index (2012), this state ranks ninth with a score of 61.4 among all the 35 States and Union Territories, which is above all-India at 42.8. The major parameters considered for this rating are bank branch, deposit and credit penetration. Further, as per 2013 Debt and Investment Survey, 73.11 per cent of rural and 82.77 per cent of urban households having Bank accounts respectively (Annexure 1). The number of rural households having access to credit was also quite high i.e., 67.1 per cent. 49.6 per cent of households had an access to credit from formal institutional agency. However, this access is biased towards other backward class i.e., mostly dominant caste like vokkaliga and Lingayats (Table 2). Only 44 per cent of ST households and 45 per cent of SC households had an access to formal institutional credit. On the other hand nearly half of households belonging to other backward class had an access to formal institutional credit. However, incidence of indebtedness was also quite high i.e., 46.4 per cent, which ranks five among the states (Annexure 1).
Table 2: Distribution of credit access from inst and non inst.
Agency from where Loan taken in Karnataka 2012Area / Institutional Agency / Non-in-InInstitutionsInstitutional Agency
Scheduled Tribe / Rural / 44.51 / 55.49
Urban / 47.03 / 52.97
Total / 45.06 / 54.94
Scheduled caste / Rural / 44.20 / 55.80
Urban / 45.70 / 54.30
Total / 44.53 / 55.47
Other Backward Class / Rural / 49.01 / 50.99
Urban / 51.72 / 48.28
Total / 49.78 / 50.22
Others / Rural / 51.84 / 48.16
Urban / 67.36 / 32.64
Total / 58.06 / 41.94
Total / Rural / 48.29 / 51.71
Urban / 55.34 / 44.66
Total / 50.35 / 49.65
Source: NSS 70th round AIDIS, 2013
The reasons attributed for more banks accounts are branch expansion as well as out reaching activities. In the state presently 8,430 bank branches, of which 80 per cent are commercial banks and 20 per cent regional rural banks. Due to high density of the bank branches, the population and area per branch is less compared to other states.
Table 3: Distribution of Bank Branches across various areas over Years in Percentage
S No / Branch Network / 2009 / 2010 / 2011 / 2012 / 20131 / 2 / 3 / 4 / 5 / 6 / 7
1. / Rural / 39.2 / 38.7 / 38.7 / 38.7 / 39.0
2. / Semi Urban / 21.3 / 20.18 / 20.6 / 21.1 / 21.6
3. / Urban / 19.3 / 21.1 / 21.0 / 20.9 / 20.1
4. / Metro/PT / 20.2 / 19.3 / 19.6 / 19.2 / 19.1
5. / Total Branches / 100 (5628) / 100 (7064) / 100 (7393) / 100 (7885) / 100 (8430)
Source: Economic Survey Report, Karnataka 2012 to 2013
Agents were appointed in almost all the banks, the total number of agents are 8077. The agents are paid Rs 1500 to 3000 /-plus conveyance up tot Rs 600 per month. Further, Rs 10, 000 in the form of overdraft. But, with discussions NABARD and SLBC officials reveal that it is cumulative figures are misleading as many CSP have closed down and number of BC withdrawn is not mentioned. The NGOs, who have establishments, are combining this opportunity with their developmental work.
Table 4: Financial Inclusion in Karnataka
S No. / Particulars / As on December 20131 / 2 / 3
1. / No. of Business Correspondents( BCs) / Business facilitators (BFs) Appointed / 8,077
2. / No. of villages with population less than 2,000 identified for Financial Inclusion / 23,126
3. / Out of this, No. of villages covered under Financial Inclusion so far / 10,850
4. / Total No. of villages covered under ICT (Information and Communication Technology) based Financial Inclusion (FI) or other modes / 13,611
5. / Cumulative No. of Basic Savings Deposit Accounts opened (in lakhs) / 107.86
6. / No. of overdrafts in basic savings deposit accounts (in lakhs) / 10.75
7. / No. of general purpose credit cards (GCCs) issued (in lakhs) / 3.67
8. / No. of Kisan credit cards (KCCs) issued (in lakhs) / 21.16
9. / No. of smart cards issued (in lakhs) / 18.96
10. / No. of smart cards transactions (in lakhs) / 81.75
11. / No. of financial literacy centers (FLCs) established / 102
12. / No. of RSETIs established / 33
Source: SLBC, Karnataka 2013
Section 4
Community Based Organisation
4.1. Introduction
In Karnataka, there are eight Community Based Organisations (CBOs) are functioning with membership of 0.2 million poor households. The CBOs try to be autonomous, self sustaining, to organise the poor to come out of poverty through various services facilitated by Organisations. They do involve in making grass roots democracy robust and make governmental, bank and corporate, civil society services effective.
Similarly, the Initiative for Development Foundation(IDF)has promoted five Community based organisations (CBOs), functioning at Tumkur, Haveri, Dharwad, Gadag and Belgaum distracts. The IDF is functioning as Business Correspondent (BC) attached to State Bank of India, Kunigal, in addition to their developmental work. Under federation the services are provided along with financial inclusion livelihood programmes. The financial inclusion services are accessed from SBI, through the BC activity. The organisation functions on basic principles such as participation, accountability and transparency. The basic delivery objective is equity, efficiency and sustainability. The resources identified were finance, human resources and organisational structure. The social capital is the base for providing above services.
4.2: Rotation of Leadership
It is generally observed that smooth functioning of any organization depends on participation of everyone, transparency of activities and accountability. The representative in the group is rotated to provide everyone opportunity to act as representative. Such change is also necessary to provide an opportunity to other members of the group to acquaint themselves with leadership skills, which will avoid the dominance and vested interest of few people. However, the gathered data and focus group discussion show that only 19 per cent of JLGs and 13 per cent of the SHGs changed their leaders. In rest of the groups, the same representatives continued in position since inception of the group (Table 5). Some members were found to avoid leadership as they felt that it might involve lot of responsibility for which they were not prepared.
Table 5 Rotation of Representatives (in per cent)
Sl. No. / Particulars / JLG / SHG / Total1. / Rotated / 19 / 13 / 16
2. / Not Rotated / 81 / 87 / 84
3. / Total / 100 (33) / 100 (23) / 100 (56)
Note: The values in the parentheses are the total number of groups interviewed.
4.3: Governance of Groups
Participation in the meetings by everyone helps in improving efficiency in delivery of services. The number of meetings held in a month, percentage of attendance and percentage of members participating in the discussion indicate whether the groups have been functioning well or not.. Ideally, meetings should be held once a week to facilitate regular interactions among the members, to forge a stronger connection among them.