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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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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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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Should for-profit companies be permitted to act as business correspondents for banks?

Ramesh S Arunachalam

DFIs and banks, including SIDBI, have miserably failed in their due diligence of NBFC MFIs, and expecting them to do this with regard to the business correspondent model is somewhat naïve. The RBI should undertake an examination of the grass-roots realities before implementing the new initiatives for financial inclusion

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The need for due diligence for business correspondents who deliver financial services to low-income people

Ramesh S Arunachalam

The business correspondent model offers a unique possibility for mainstream low-income financial services. But recent experience has shown that there are huge risks as well, which is why it must be regulated carefully

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Selecting and Appointing Business Correspondents: Critical Issues For Banks…

Ramesh S Arunachalam

Rural Finance Practitioner

While the idea of using business correspondents is perhaps appealing because of various benefits it may seem to provide, as noted earlier in the earlier posts, there are huge risks as well - especially, in the present micro-finance/financial inclusion environment in India (and contexts) where there are many controversies with regard to financial services provided, service delivery methods used, prices charged etc by the outsourced entities (such as BCs). Therefore, it is imperative for banks to have an appropriate due diligence process in selecting their business correspondents (BCs). They must, at all costs, avoid appointing all and sundry as their BCs, just to meet any (internal or regulatory targets), that may be imposed on them from time to time

Specifically, the banks must develop criteria that enable them to assess, prior to selection, a BC’s capacity and ability to perform the various required activities effectively, reliably and most importantly, to a high standard, together with any potential risk factors associated with using a particular BC. Key emphasis must be put on ensuring that the BC is sensitive to the needs and situations of low-income clients and/or excluded segments of the population. The bank must also ensure that adequate client protection measures are in place in the entire scheme of “outsourcing” to BCs and their (internal) auditors must verify the implementation of these in real time.

Among other things, such due diligence should include assessments with regard to the following (not exhaustive by any means):

(1)   Whether the BC is qualified and interested in performing the specified tasks?

(2)   Whether the BC understands and can meet the objectives of the Bank in performing the specified activities?

(3)   Whether the BC’s has the financial soundness, managerial capacity and all other resources in adequate measure to fulfill its obligations and successfully perform its role as a BC and the various (outsourced) activities? and

(4)   Whether the BC has the reach, resources and capacity to meet any special needs of the envisaged clients and/or the bank?

In case the bank has any special needs - such as servicing geographically dispersed/disadvantaged clientele and/or performing any special activities for them – the reach, capacity and resources of the BC must specifically be assessed with regard to such activities and they should not be outsourced to a BC who does not meet these criteria. That is critical and making the assumption that the BCs will over time acquire the expertise has, many a time, proved costly, in similar situations

Further, if a BC fails, or is otherwise unable to perform the outsourced activity, it may be costly or problematic (for the bank) to find alternative solutions. Transition costs and potential business disruptions should thus also be considered as well as the larger (regulatory and other) implications of not being able to complete such activities

Lastly, additional concerns may exist if the BC to be appointed is to service a remote and/or communally sensitive area (Nizamabad in AP is one such example). In such areas, in case of an emergency or extraordinary situation, the bank may find it more difficult to implement appropriate responses in a timely fashion. Therefore, senior management of the bank may also need to assess the local or special conditions that might adversely impact the BC’s ability to perform the various tasks effectively for the bank.

While the above provide some guidelines with regard to assessing BCs and choosing those who meet the various criteria in terms of resources, capacity, goal congruence and other aspects, the key point that should not be missed is the aspect of doing due diligence. Banks have been very naïve in choosing their partners and have consequently, found themselves in rather precarious situations. Therefore, it is sincerely hoped that they follow a proper process of selecting BCs so that there is a pareto optimal situation for all stakeholders concerned…

Have A Great Day!

Internal Control Issues in The Present Indian Micro-Finance Crisis: Lessons For NBFC Supervision and Business Correspondent Regulations

Ramesh S Arunachalam

Rural Finance Practitioner

Even as I write this post, I am aware that there is a special committee of the RBI headed by former Deputy Governor, Mrs Usha Thorat, that is looking into issues related to NBFC supervision. I am also aware that RBI is looking closely into aspects of Business Correspondents. I would like to make a humble submission of what I think are some of the key internal control issues that caused the on-going micro-finance crisis in India. I sincerely hope that these are taken into account while formulating the recommendations of the above committees as well as acting on the recommendations of the Malegam Committee. Read on…

1.       Weakened Internal Audit Function in Many MFIs: Boards of directors are responsible for ensuring that their MFIs have an effective audit process and that internal controls are adequate for the nature and scope of their businesses. The reporting lines of the internal audit function should be such that the information that directors receive is impartial and not unduly influenced by management. Internal audit is a key element of the overall responsibility to validate the strength of internal controls. This sadly did not happen in many MFIs and especially, at the large AP headquartered MFIs. The same weakness continues in many large and fast growing MFIs located in other parts of India

2.       Disregard for Internal Controls by Many Line Managers: Internal controls are the responsibility of line management. Line managers must determine the level of risks they need to accept to run their businesses and to assure themselves that the combination of earnings, capital, and internal controls is sufficient to compensate for the risk exposures. It is clear from the Indian micro-finance crisis that basic tenets of internal control, particularly those pertaining to operating and related risks, were not followed – in fact, from my posts on agents, it is apparent that the line managers in major fast growing MFIs had disregard for even the most basic controls.

3.       Enhanced People Risks Also Causing Failure of Internal Controls: Internal controls and sound governance become even more important when firms' operations move into higher-risk areas. Indeed, when changes are happening, control failures often increase significantly. Rapid growth (as happened during April 2007 – March 2009), introduction of new products and delivery channels (including business correspondents) are examples of situations that put stress on the control environment. When these types of changes occur, "people risks" rise. These are risks that are related to training employees in new products and processes. Employees who join the organization need to learn the culture of the company and the control environment. Employees unfamiliar with their new responsibilities--the systems they use, the services they provide customers, the oversight expected by supervisors and members of internal control functions--are all more likely to create control breaks.

This is what is happening in Indian micro-finance and I have met a number of stakeholders at the grass-roots who state that all and sundry, including those with local criminal records have been brought in as staff, to meet the burgeoning growth requirements. I am 6 foot and three inches tall (and well built) and let me tell you that I was personally intimidated (and petrified) by the kind of staff and agents that I met during the present field visit in various places. They appear to be local toughies often used by local political masters and have no idea of the micro-finance spirit and mission – they just know to quickly disburse and recover money as tough money lenders do and most importantly, have zero tolerance in performing their duties. Much of this is captured on video tape as well. With many staff/agents who are not necessarily attuned to the vision and spirit of micro-finance, I am not at all sure that the current on-going efforts to integrate social performance, client protection and the like will happen on the ground, UNLESS some real fundamental changes are made to the MFI delivery model (I will be making a separate post on this aspect based on my field experiences)

4.       Drive for Efficiency Causing Omission of Key Controls: Rapid growth and change also modify the relative risks to an organization. Further, the pressure to beat competitors to the market with new/old products may also result in adoption of shortcuts (in the process) and important controls. This has happened consistently and today, the drive for efficiency and more standardized process is such that no time is being invested in building the client level relationship, which incidentally was the key feature in the early success of micro-finance. The proliferation of agents and shortest lead time to disburse loans as an incentive criterion are as a result of this efficiency drive and these again, have resulted in omission of key controls in many MFIs.

5.       Irrational Expectations and Internal Frauds: Another form of people risk is internal fraud. When expectations of the market and supervisors, or pressures of personal life become overwhelming key staff may step over the ethical and legal boundaries and cover up errors or purposely commit fraud. This is what has happened in several cases and please see the following post: http://microfinance-in-india.blogspot.com/search/label/Microfinance%20Frauds

6.       Greater Focus on Quantitative Versus Qualitative Risks: Frequent, small losses can generally be absorbed in the operating margin of the product or service and MFIs have tended to focus more on such risks and problems. It is the low-probability, large losses that provide the greatest challenge. And, it is just such risks--the ones that can severely damage, if not kill, an organization--that too many MFIS have not formally take into consideration. And that, in many ways, has resulted in many problems on the ground in the present day Indian micro-finance crisis

7.       Entrepreneurial Drive Results in Lack of Control Infrastructure: Last but not the least, many of the Indian MFIs, which have been at the center of recent governance failures, demonstrate some similar characteristics. They are lead by hard-charging entrepreneurs whose ability to think outside the box (in all fairness) pioneered growth, advances and innovation in micro-finance. But the personalities of these individuals, in many cases, led to a single-minded focus on growth, profits, equity investments and share valuations and this perhaps resulted in very little time being spent on building the control infrastructure so vital for the micro-finance  

I hope that the relevant committees look at these and other issues related to internal controls in the crisis affected Indian micro-finance industry. That is also one area where some rebuilding can and must start ASAP…to put the Indian micro-finance sector back on the rails…

Have A Nice Day!

The Imperative Need For Client Related Controls in NBFCs and BC Models: Key Lessons From The Indian MF Crisis For Central Banks and Others…

Ramesh S Aruanchalam

Rural Finance Practitioner

There is slowly but surely, an increasing recognition of the importance of ensuring that MFI/Other financial intermediaries (and their BCs) have adequate controls and procedures in place so that they know the clients with whom they are dealing. This is one of the first and most important lessons from the on-going Indian micro-finance crisis

A second lesson is that adequate due diligence on new and existing clients has to be a key part of these controls. Without this due diligence, MFIs/Other financial intermediaries (and their BCs) can become subject to reputational, operational, legal and concentration risks, which can result in significant financial cost – this is again very evident from the present Indian micro-finance crisis. So, it is imperative for regulators/supervisors to examine the KYC procedures currently in place and also draw up (more appropriate) recommended standards applicable to all kinds of financial intermediaries (and their BCs) in micro-finance.

A third lesson is as follows: Sound KYC policies and procedures are very critical in protecting the safety and soundness of financial intermediaries in micro-finance (and their BCs) and the integrity of systems within MFIs. Sound KYC procedures must therefore be seen as a critical element in the effective management of various potential failures in MFIs/Other financial intermediaries (and their BCs) in micro-finance and the present Indian experience has a lot to offer on this. What needs to be better understood and appreciated is that KYC safeguards go MUCH beyond simple record-keeping (which can be tampered with very easily) and require institutions to formulate a customer acceptance policy and a tiered client identification program that involves more extensive due diligence and proactive monitoring.

The fourth lesson is that the need for rigorous customer due diligence standards should not be restricted to MFI headquarters alone. It needs to be followed all through the line, right down to the branch and centers (and the infrastructure of their BCs), where appropriate.

The RBI and other Central Banks must therefore attempt to ensure the implementation of KYC Norms in a rigorous manner by all concerned micro-finance related institutions including their BCs. This calls for, among other things, the following:

• Customer acceptance, customer identification and record keeping standards should be implemented with consistent policies and procedures throughout the organization (and their BCs) and especially, at all levels. It must also be backed by a completely integrated MIS that integrates geographies, products and the like

• Each branch office should maintain and monitor information on its accounts and transactions. This local monitoring must also be complemented by a robust process of information sharing between the head office and all its branches (and BC where applicable). This information shared between HQs and branches must also report on any suspicious accounts and activity that may represent heightened risk. A lot of the agent related problems could have been avoided if these had been in place. And of course, all of this must be vetted by a strong internal audit function, independent of line management, reporting directly to the Board. It does not make sense for the internal audit team to report to the very line management, whose procedures and controls they are evaluating.

• Specifically, internal auditors should verify that appropriate internal controls for KYC are in place and that MFIs/Other financial intermediaries (and their BCs) are in compliance with supervisory and regulatory guidance. The audit process should include not only a review of policies and procedures but also a review of customer documentation and their records along with sampling of a significant number of random accounts. Physical verification of clients and in comparison with appropriate photos IDs must also be a part of this random sampling.

• The role of audit is particularly important in the evaluation of adherence to KYC standards on a consolidated basis and supervisors should ensure that appropriate frequency, resources and procedures are established by MFIs in this regard and that they have full access to any relevant reports and documents prepared through the audit process.

• Several MFIs now have multiple institutions as part of the transformation and their overall strategies and this is especially true in India. Customer due diligence here poses issues that may not be present for single entity. Thus, there should be systems and processes in place to monitor and share information on the identity of customers and account activity of the entire Micro-Finance group (including their BCs), and to be alert to customers that use their services through different institutions.

While all of the above can be done at the institutional level, a whole range of controls would also be required at the level of a CRB (Credit Reference Bureau), which we are still eagerly awaiting in the crisis ridden Indian micro-finance industry…

Have a Nice Day!

The Business Correspondent (BC) Model in Indian Micro-Finance: Serious Regulatory Issues for Attention of The RBI and Lessons For Policy Makers Globally…

Ramesh S Arunachalam

Rural Finance Practitioner

Under the proposed BC model, a regulated entity (Bank) is to use a third party (either an affiliated entity within a corporate group or an entity that is external to the corporate group) to perform activities on a continuing basis that would normally be undertaken by the regulated entity, now or in the future – in other words, it would outsource activities to various kinds of business correspondents (other than NBFCs).

Thus, in the BC model, in effect, there is a transfer of an activity (or a part of that activity) from a regulated entity (Bank) to a third party (BC).

There is no doubt that financial services businesses throughout the world have increasingly used third parties to carry out activities that the businesses themselves would normally have undertaken. While industry research and surveys by regulators/others show financial firms outsourcing significant parts of their regulated and unregulated activities, especially because of cost and other considerations, there is no DOUBT in the fact that these outsourcing arrangements are also becoming increasingly complex and as a result, causing significant problems on the ground. The last few years have demonstrated a range of issues that require attention, when financial service businesses outsource activities…and these are highlighted below:

The most fundamental point is that such outsourcing, as envisaged in the BC model, has the potential to transfer risk, management and compliance to third parties who may not be as well regulated and supervised (as in micro-finance and/or the Corporates in the private sector) - especially in line with the financial functions that they may be performing (which certainly calls for an appropriate kind of regulation/supervision). Several concerns arise in this regard:

1.      In these situations, how can the regulator and/or the regulated financial service businesses (banks in this case) remain confident that they remain in charge of their own business and in control of their business/other risks? A look at the recent micro-finance crisis in India suggests that neither the regulator/supervisor nor DFIs/Banks (like SIDBI especially) were aware of any of the ground level problems/happenings in Andhra Pradesh and their REAL causes.

The presence of unscrupulous agents, rampant multiple lending, serious Corporate Governance violations, ghost clients and several other issues including violation of priority sector norms and the like were neither known/anticipated nor dealt with appropriately/nipped in the bud. This is a serious aspect that needs to be recognized by all stakeholders including The RBI and in turn, it calls for appropriate supervision arrangements with regard to the proposed BC outsourcing activities as well. From my limited understanding, I am not sure that these are in place and hence, my cautionary note with regard to upscaling BC type arrangements, especially using corporates. Also, the complete failure of the self-regulatory mechanism with regard micro-finance, over an almost a 5 year period is another aspect that needs to remembered…

2.      How do the regulated financial service businesses (banks in this case) know they are complying with their extant regulatory responsibilities? How can these regulated financial service businesses demonstrate that they are doing so when regulators ask them? Let us take the micro-finance crisis as an example again. There have been serious violations with regard to KYC and in many cases, the last mile end user clients are just not known. Imagine the consequences of this in line with the anti-money laundering regulations and global FSTF (Financial Services Task Force) recommendations. There have been many cases of lending to non-priority sector clients (including loans to founder directors) and there are no safeguards against these even as on date. Many a time, KYC forms include people who are no longer alive and I have personal documentary evidence of several such cases in AP and other states. Again, I am not sure that DFIs/banks have the capacity and ability to ensure compliance in REAL time and therefore, I would like to stress that arrangements like BCs should be upscaled, if and only if, banks demonstrate the willingness and capacity to have appropriate supervisory mechanisms in line with their regulatory responsibilities. We need institutions like SIDBI and commercial banks to be more accountable and transparent…with regard to the regulatory responsibilities they are discharging…after all, they mainly intermediate public deposits…

3.      Most importantly, how can the regulated financial service businesses assure themselves that their agents (=business correspondents), who are 3^rd parties, are not engaging in practices that could contribute to institutional and other failures including client level abuses? Again, as with the on-going micro-finance crisis, the banks and DFIs like SIDBI cannot do so with a good degree of confidence when the regulator/supervisor asks them. In fact, this turned out to be a killer assumption with regard to micro-finance – banks and DFIs assumed that MFI practices were good on the ground (let us give them the benefit of the doubt) and the regulator/supervisor also did do. The consequences are there for all of you to see and judge…a Macro mess (as Senior Colleague Al Fernandez would call it) with regard to micro-finance and financial inclusion on the ground. Anyone who states otherwise, is simply ignoring real ground level facts and perhaps trying to postpone the inevitable but impending collapse of the rural/alternative finance delivery system in India

Therefore, I would really hope that there is serious introspection into issues such as those given above before upscaling BC type arrangements, especially using Corporates. If the necessary safeguards can be built and implemented on the ground, then, there is perhaps a case for using BCs in India, although I still have very serious reservations with regard to using Corporates as BCs, as mentioned in my post of yesterday… http://microfinance-in-india.blogspot.com/2011/04/permitting-for-profit-companies.html

Last but not the least - when we deal with very vulnerable people, let us be extra careful and try to protect them from excesses and abusive practices that are so widely prevalent in micro-finance as well as the larger financial sector in India. The global financial crisis and the present Indian micro-finance crisis are still very fresh in memory and I am sure that all of you will agree that just as financial inclusion is a fundamental right and a noble cause, protecting clients is equally, if not more, important…

Jai Hind!

Have A Nice Day!

Permitting For Profit Companies (Corporates) As Business Correspondents: Lessons for The RBI and Other Stakeholders From The Indian Micro-Finance Crisis…

Ramesh S Arunachalam

Rural Finance Practitioner

The last few months have shown what HAVOC the inability to regulate and/or supervise can do in a field like micro-finance and/or financial inclusion

The proliferation of the decentralized MFI model using different kinds of agents[1] through informal outsourcing arrangements is perhaps responsible for much of the micro-finance mess in India currently. That said, therefore, the RBI must be very careful in pushing through initiatives {like using Corporates as Business Correspondents (BCs)} that it perhaps does not have the wherewithal to supervise and/or monitor[2], especially on the ground.  And for the record, DFIs and banks including SIDBI and others have miserably failed in their due diligence of NBFC MFIs and expecting them to do this with regard to the BC model (especially, after the recent and on-going Indian micro-finance crisis) is somewhat naïve.

The lessons from the present (field level) failure of micro-finance NBFC supervision in India continues to loom large and the RBI must really ponder on (if and) whether such new initiatives are indeed required and worth it for furthering financial inclusion. What I am arguing for here is an unbiased and objective evaluation of the pros and cons in “having Corporates as BCs”, especially in the light of the present micro-finance and financial inclusion field experiences. Everything seems okay on paper including PROs and CONs but when you visit the field and look at grass-roots realities, the problems and risks are totally different and I sincerely hope that the RBI does initiate such an exercise before facilitating large-scale implementation of these and other new initiatives for financial inclusion

While proponents of the model may claim many advantages with using Corporates as BCs, the risks are many and plenty too and I attempt to outline some of these here[3]:

First of all, there are huge conflicts of interest because a strong “Corporate BC - Bank Tie Up” could push unnecessary products onto the (vulnerable) people in garb of financial inclusion. Cross-selling of products is a huge aspect that cannot and should not be discounted and I can provide numerous examples from the India experience with regard to financial services

Second, Corporates tend to adopt models similar to the decentralized model that many NBFC MFIs are currently using and that is fraught with problems as has been pointed out with clear evidence in many of my previous posts – If anyone from RBI were to travel with me deep into Tamilnadu, AP, Karnataka, West Bengal and Orissa, I can VISIBLY show them what havoc “informal” outsourced micro-finance agents, solely focused on growth and profit, have (are) caused (causing) on the ground. I am not sure that there is a GOOD case for a Corporate BC category as that could result in formalizing these informal micro-finance agents – who are sure to picked up by the Corporates, who lack the last mile connectivity and familiarity with financial inclusion, in the event of them (corporates) being allowed to function as BCs. That could prove disastrous and I hope the RBI looks into this risk carefully

Third, with any initiative, we need to ask, what is the purpose and I am not sure that the outlook on BCs is all that clear. Financial inclusion is a must and a fundamental right but the methods used to achieve financial inclusion also need to be carefully considered as otherwise, the efforts may turn out to be counter productive. The crisis in AP and the unfolding problems in few other states are a great reminder of what can happen when the methods go wrong

Fourth, and here in lies the primary risk with Corporates – if to include some one, I provide them access to a loan but with the rider that they also buy my (group companies’) fertilizer or any other product, then, I am not sure that this is fair financial inclusion. This is one simple example and I can provide numerous examples from the financial inclusion space with regard to extremely literate (but vulnerable) people who have been forced to buy products that did not need in the first place. Many of them even considered approaching the Banking Ombudsman but did not do so because of the high perceived transactions cost in doing this. And if this is the case for literate and knowledgeable people, who are used to reading fine print, imagine what can happen to real vulnerable people at the grass-roots.

Fifth, the lessons from the personal loan saga of 2005/6/7 are still fresh in memory where many customers did not even receive their agreements and were not in the knowledge of the loan terms and conditions (usually in fine print and/or filled in subsequent to getting the signatures and sent much later to the customer etc). This happened primarily because (Corporate) agents of banks for personal loans were solely focused on fast and indiscriminate selling personal loans to people to make huge profits – today banks have almost withdrawn from the personal loan market due to the high levels of delinquency

I really hope that the RBI learns lessons from the on-going micro-finance crisis involving NBFCs, the past personal loan saga of 2005/6/7 involving (corporate) agents of banks and other such failures in the larger financial sector in India.

The case for financial inclusion is always a sound one but the risks in methods employed for financial inclusion must also be carefully weighed and addressed as otherwise, all our efforts could turn out counter productive…

Have a great day!

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[1] Please refer to posts in the following category: http://microfinance-in-india.blogspot.com/search/label/Micro-Finance%20Agents

[2] This is a genuine concern and the intention is not to offend any stakeholder including The Central Bank. I hope my views are taken in the right spirit! Thanks

[3] While the Bill and Melinda Gates Foundation paper cites some of the serious risks in Chapter 9, I am unable to understand the easy manner in which they explain away some of these very serious risks. I am also deeply concerned that the risks have been more mentioned, rather than dealt with in a comprehensive fashion.