Financial Inclusion: A Study on the Efficacy of Banking Correspondent Model

Authors: Sa-Dhan and Citi Foundation, 2012

Abstract: What are the strengths and weaknesses of the banking correspondent model in India?

This study evaluates the challenges faced by the banking correspondent (BC) model in India and suggests possible solutions. It examines different BC models, pinpoints viability issues, and discusses strengths and weaknesses of each model. The study also evaluates different products and services offered by BCs.

The study was conducted by Sa-Dhan, an association of community based organizations and MFIs. It covered different geographical regions and various legal forms of BCs like self-help-group federations, societies, and trusts. Findings include:

Commercial viability is the biggest challenge faced by the BC model; Banks’ commitment to the BC program gets diluted because they perceive it as a mandated activity; Using the opening of customer service points and no-frills-accounts as indicators of financial inclusions does not present accurate findings; BC model does not usually include a financial literacy program, which is a key success factor; Banks hesitate to offer more products because they are afraid of the operational risk associated with the model; Most clients have little knowledge of the range of BC services.

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