Where Angels Prey

Where Angels Prey is a novel by Ramesh S Arunachalam. Please refer to www.whereangelsprey.com for more information

Thursday, June 28, 2012

Business correspondents: Bank boards must be made responsible for outsourcing

Ramesh S Arunachalam

With the ongoing bids for becoming BCs approaching near zero percent, the boards of the banks should be made responsible for any outsourcing done by their respective banks through the common BC

The ongoing bids for becoming bank business correspondent (BC) in 20 clusters across India is getting to be more interesting with Vakrangee supposedly having won the bid for being the common BC for Rajasthan and Delhi at 0.02%. From the time Vakrangee bid and won the Maharashtra common BC bid at 0.48% to their recent successful bid at 0.02% (for Rajasthan/Delhi), they have not been alone. Fino’s and Strategic Outsourcing Services have bid 0.35%/0.19% and 0.11% respectively to be selected as common BC for Jharkhand/Chhattisgarh and Orissa.

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Thursday, June 21, 2012

Bank business correspondent models need to have controls to safeguard clients’ interests

Ramesh S Arunachalam

Client-level controls assumes great importance in the common BC model, as without these banks and BCs could lose control of their operations and be exposed to significant costs and risks

If there was one major learning (at least for me) from the 2010 Andhra Pradesh (AP) and Indian microfinance crisis, it is the fact that strong controls and procedures need to be place (at the grass-roots) with regard to (end-user) clients. Since microfinance institutions (MFIs) did not have good client-level controls, the last mile operations were easily manipulated and the microfinance crisis occurred. Many of the problems-ghost clients and related frauds, multiple lending, over indebtedness, lack of adherence to KYC norms, proliferation of broker agents, burgeoning growth-that were evident (during the 2010 crisis) can be directly attributed to this lack of appropriate client level controls in MFI operations.

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Wednesday, June 20, 2012

Critical risk and issues in regulating bank business correspondents

Ramesh S Arunachalam

The business correspondent model to financial inclusion can work, but since it transfers various types of risk, responsibility and management compliance to third parties, it requires appropriate regulation and supervision

With the ongoing bidding for the whole of India, the business correspondent (BC) model is surely on its way to become a pan-India effort of huge scale and deep penetration with regard to financial inclusion. While I am certainly not comfortable with the (low) bidding values and have discussed it in a previous article Business correspondent model at near-zero cost may fail with deep negative impact, I do however believe that the BC model can perhaps effectively serve the cause of financial inclusion if it is structured appropriately. That said, in my opinion, there are many risks and serious regulatory and supervisory issues that need to be addressed by the RBI for this to become a reality. The key ones are briefly highlighted hereafter.

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Business correspondent model at near-zero cost may fail with deep negative impact

Ramesh S Arunachalam

Winning bids for BC model is at such low prices that it will either fail or service levels will be pathetic. Let’s hope regulators would strictly monitor what is happening on the ground

Something strange is happening in the financial inclusion and business correspondent (BC) space in India. The Maharashtra BC bid was won by Vakrangee Finserv for 0.48% of the reserve price of the bid. If that surprised most people, FINO’s winning BC bid of 0.35% for Jharkhand and parts of Bihar started to make people wonder. The icing on the cake was that FINO’s bid at 0.19% for being the common Chhattisgarh BC . And before I could complete this article, the bid results for the Orissa cluster are out and it has been won at 0.11%. Wonder what the next winning BC bid would be? I certainly do not want to hazard a guess!

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Bank Business Correspondents: Miles to go

Ramesh S Arunachalam

Banks needs to avoid appointing all and sundry as their business correspondents, just to meet internal or policy targets

The government in India has adopted a very important strategy to try and achieve financial inclusion, using business correspondents (BC) to serve and service excluded segments of the population, especially those living in rural areas. However, while this is yet to take off in any serious manner, of late we have witnessed greater activity in this area during the BC model being pushed as an alternative route to financial inclusion (vis-à-vis MFIs—microfinance institutions).

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