A Study on cost and Revenue Pattern of Business Correspondaents andAssessing Clients’ Willingness to Pay

Principal Investigators: Amulya Champatiray, Ujjawal, Santadarshan Sadhu
Research Team: Amulya Champatiray, Ujjawal, Santadarshan Sadhu
LEAD Centre: Centre for Microfinance
Focus Area: Savings
Project Geography: India
Status: Completed


One of the recent policy initiatives spearheaded by the Reserve Bank of India to achieve the goal of financial inclusion is the business correspondent model (BC Model), or the third-party agent model of banking. Under this approach, banks can appoint third party agents who offer banking services to unbanked populations. Since its inception, the RBI has licensed many institutions and individuals to be business correspondents/ facilitators for banks. Though these agencies are experiencing business growths in terms of client outreach and number of transactions, they are still struggling to achieve financial sustainability. A study conducted by Skoch Development Foundation[1] reveals that, at the end of two years, the gap between costs and what banks actually pay their BCs is between Rs. 26.25 to Rs. 73.45 per account. While, currently it seems the model is not viable in the short/medium term, some advocates believe that the model has the potential to be profitable in the long-run by expanding its client base and providing value-added services. Client dropout and limited transactions are also key problems that the model faces in terms of sustainability.
Since practitioners and researchers know little about the various BC models available in the public sector, it is difficult to gauge the potential advantages and disadvantages of the model. CMF researchers, in an attempt to find ways to increase the financial viability of the BC model, will examine a host of issues related to its sustainability. Specifically, they aim to:

–     understand the financial model of various BCs
–     understand the reasons behind client drop out and poor transactions
–     gauge how the incentives offered by different BC models affects the behavior of agents

Methodology and Research Design
CMF is conducting this research study in collaboration with Bankers Institute of Rural Development (BIRD) – an institute supported by the National Bank for Agriculture and Rural Development (NABARD). Researchers plan on conducting a two-step analysis. For the first phase of the project, they will look at the crucial aspects of costs incurred and revenue generated by business correspondents. This step will involve collecting detailed data on cost and revenue patterns of selected business correspondents. For the second half of the project, researchers will focus on issues relating to agent behavior and client behavior. Agents and clients of BCs will be selected from different locations across the country and different operational models will be chosen to provide a representative sample for the study.

Study Status
The study is in its exploratory phase. CMF’s researchers will first visit the central and the field offices of business correspondents to collect information on their finances and interview representatives of these organizations. Subsequent field visits will be conducted to interview both agents and clients of BCs. Researchers aim to present the findings of the study at the organization’s annual conference (Microfinance: Translating Research into Practice) which attracts policymakers, practitioners and academic audiences.

Related Resources
PUBLISHED PAPER – Business Correspondent Model: An analysis of the financial viability of customer service providers and slient satisfaction