South Asia Agriculture and Rural Growth Discussion Note Series March 2020 4 Self-Help Group Members as Banking Agents for Deepening Financial Inclusion Context Due to the limited penetration of bank barriers, such as interacting with male staff to withdrawal transactions. Awareness of branches across rural India, access to to avail banking services, constrain rural financial products, services and government formal financial services has been a pipe women even further. schemes was quite low. Low literacy levels, dream for millions of rural poor for decades. low mobility and cultural barriers further Facilitating access to adequate, affordable However, with the advent of branch-less inhibited women’s participation in the formal and timely institutional credit and other banking channels and advancements in financial system. In 2013-14, NABARD and financial services for the rural poor is central technology, this situation has improved GIZ jointly implemented a proof of concept to the DAY-NRLM strategy. considerably over the past decade. In 2014, entitled SHG Members as BC Agents2 under the Government of India (GoI) launched the the Rural Financial Institutions Programme Pradhan Mantri Jan Dhan Yojana (PMJDY) - (RFIP)3 and successfully demonstrated Under the World Bank supported a financial inclusion program, which intended that SHG members as banking agents or Digital Financial Inclusion (DFI) for every household to have a bank account. Customer Service Points (CSPs) could initiative focused on Lower This led to the opening of over 356 million deliver last mile banking services to the Income States (LIS), several State bank accounts between 2014-19, of which rural community in a cost-effective and Rural Livelihood Missions1 (SRLMs) 59% (211 mn) belonged to rural customers sustainable manner. have developed strategies to and 53% (190 mn) to women. Despite this enhance access to formal (digital) It was in this context, that the Bank Sakhi significant improvement, access to suitable financial services for program (female banker friend) Model - a gender- formal financial services still remained beneficiaries. focused variant of the traditional BC model, elusive for many among the rural poor was adapted by NRLM and piloted in 7 for various reasons. Women and other states4 - via special funds made available marginalized rural communities especially The ultimate objective is to establish the under the dedicated funding line created face hurdles while performing the most basic rural poor as preferred clients of the formal under the NRLP5 in 2015-16. banking transactions such as depositing and banking system and enable ease of access withdrawing savings, accessing remittances, This pilot initiative was scaled up by several to bank credit. pensions and other government direct SRLMs, which charted different pathways benefit transfers. The remote nature of some Needs assessment exercises and field to improve formal financial access for rural villages and lack of well-trained banking interactions conducted by SRLMs revealed women-led households, and promoted agents deployed there, further compound that almost all SHG members had bank linkages with public & private and non-bank the problem. Finally, social and cultural accounts but their usage was typically limited financial institutions. Intervention: The Bank Sakhi/Business Correspondent (BC) Model under NRLM The Business Correspondent model or the when banks were permitted to appoint third the country, using new technologies such agent-led banking model has been a key party agents to offer banking and financial as Micro-ATM devices (integrated with a driver of financial inclusion in India. The services on their behalf. Several formats printer and biometric readers) and mobile RBI propounded the BC model in 20066, of this model have been adopted across phones to conduct secure transactions. 1. SRLMs are autonomous bodies under the State governments, setup to oversee the implementation of all NRLM-related activities in the state 2. https://www.giz.de/en/downloads_els/repguide.pdf 3. https://www.nabard.org/demo/auth/writereaddata/File/Rural%20Financial%20Institutions%20Programme%20(RFIP).pdf 4. Bihar, Jharkhand, Odisha, Chhattisgarh, Madhya Pradesh, Rajasthan and Maharashtra 5. NRLP – The National Rural Livelihoods Project provides investment support and technical assistance in partnership with the Ministry of Rural Development (MoRD) for the implementation of the NRLM, http://projects.worldbank.org/P104164/national-rural-livelihoods-project?lang=en 6. Based on recommendations of the Khan Committee report and Committee on Financial Inclusion Chaired by C. Rangarajan which recommended the expansion of the BC model. Under this model, SRLMs identify, Capacity Building Financial Support train and deploy SHG members as BC agents – locally known as Bank Sakhis. Capacity-building, training and back-end Initial triaining Establishment support is provided by the SRLMs in to Bank Sakhis support to Bank partnership with local banks and their Sakhis in the corporate BC agent network managers form of grants Continuous and loans (BCNM) partners as well as other hand-holding and financial institutions. monitoring of The state missions also provide financial Bank Sakhis Income defiicit support through partial grants/incentives support to Building capacity of Bank Sakhis and low cost credit through community community based for the first six institutions to meet the initial investment organizations to months requirements of these Bank Sakhis, handle Bank Sakhis including procurement of hardware devices and working capital to conduct initial transactions. As a standard practice, until operations and revenue streams eligible SHG members as BC agents in Bank Sakhis are paid on a per-transaction stabilize. association with partner banks as depicted basis by banks for rendering services to in figure below. In February 2020, 6,094 Since 2016-17, SRLMs in several low- customers on their behalf (at no extra cost Bank Sakhis across 12 states collectively income states including Bihar, Jharkhand, to the customer). However, most most of completed 748,454 transactions7 worth Madhya Pradesh, Odisha, Rajasthan and these SRLMs also provide honorariums to over INR 26,635 lac (approximately Chhattisgarh have made steady progress the Bank Sakhis for the initial few months USD 40 Million). in identifying, training and deploying Status of SHG members as BC agents Rajasthan Bihar 517 68544 2433 894 252520 9900 Madhya Pradesh Jharkhand 728 54167 2299 1051 179826 5799 Chhattisgarh Odisha 850 50518 1284 572 95598 3680 TOTAL VOLUME OF SHG MEMBERS TRANSACTIONS TRANSACTIONS AS BC AGENTS PER MONTH PER MONTH (LACS) SOURCE: MIS, February 2020 Implementation of the Bank Sakhi Model: Experiences of State Missions a. Jharkhand and Madhya Pradesh: SRLMs have trained and deployed 1051 institutions with their BC network managers Innovative pathways for digitizing fund and 728 Bank Sakhis, respectively. In both (Corporate BCs) deploying (prepaid flows and Dual Authentication states, the initial roll out was in partnership payment instruments based) digital wallets with Regional Rural Banks (RRBs). Since and micro-ATMs such as at Oxigen Since the rollout of the Bank Sakhi model in then, multiple partnerships were developed (Jharkhand), Spice Digital and Subk with 2015-16, Jharkhand and Madhya Pradesh with public and private sector financial RBL Bank and Yes Bank (Bihar), tablets at 7. Includes both DAY-NRLM and NRETP progress. IDFC Bank (private sector) as well as the and transaction volumes that BC agents accounts, thereby ensuring that funds generic kiosk model (involving laptops and could achieve by servicing larger group remain within the bank for a longer period, desktops). transactions at the CSP and continued to post disbursement. Further, SHG members crowd bank branches with group level small were able to build a credit/transaction In Jharkhand and Madhya Pradesh a dual- value transactions. history within the formal financial system, authentication technology was adopted to providing them an opportunity to approach further the digitization of Community Based formal financial institutions directly to Organization (CBO) transactions. This graduate to individual loans. small tweak in technology at the Bank- BC level successfully encouraged SHG To overcome this constraint Madhya Pradesh and Jharkhand This application is now also being extended members and their federations (cluster SRLMs launched the “dual to other (male) BC agents at these level federations, village organizations authentication application” banks and enthused by this experience, and producer groups) to transact via their facility in partnership with the the MoRD - in coordination with the bank accounts for loan disbursement and Narmada Jhabua Gramin Bank Department of Financial Services, Ministry repayment transactions between members in MP and Jharkhand Gramin of Finance - has requested all banks to and their collectives. Bank in Jharkhand. enable the facility. As of March 2019, 10 One of the gaps in the BC agent model that public sector banks (and their RRBs) had persisted even after the launch of the DAY- enabled dual authentication in the ON-US NRLM Bank Sakhi model was that only (intra-bank only) mode. individual accounts could be serviced at Via the application, debit transactions (cash It is encouraging to note that sensing a the agent level. For group accounts - as in withdrawal and fund transfers) from SHGs business opportunity, a new generation the case of SHGs, where a minimum of two accounts, which are jointly operated by a of private sector banks, such IDFC First office bearers/signatories were needed to minimum of two signatories took place in Bank, have come forward to pilot the facility authenticate transactions (cash withdrawals real-time during the SHG meetings. Routed at several SRLMs, as well as extend it to or fund transfers) - physical visits to the through the biometric reader devices with Producer Groups (PGs). Bank accounts bank branches were still necessary. This Bank Sakhi, these transactions were also for PGs are opened at the CSP (so group inconvenienced a large section of the captured in real time in the core banking members are not required to visit a bank Bank Sakhis customer base – SHGs and system (CBS) of the partner Bank. The branch) and thereafter debits from the PG their members - who expected to get banks also benefitted as cash based account are processed within the village both their individual and group accounts transactions that were performed outside via tablet based BC application with Bank served at a single Customer Service Point the formal banking system (in group Sakhis. (CSP). It also limited the business activity meetings), were now routed through bank dual authentication and micro atms As per the standard practice, all support multi-signatory SHGs were mandated to open authorizations, the dual- group accounts and a minimum authentication application of two group leaders (who evolved in consultation with were account signatories) were partner banks, helped address required to authorize operations this anomaly. such as withdrawals and fund transfers. The BC/CSP in the village could now access the details of group While early iterations of the accounts opened within the core- micro-ATM system did not banking system (CBS) as well as the biometric identities of signatories, online and in real-time through the Micro-ATM. Individual savings accounts of members were linked with the group’s bank account in the CBS and transactions conducted by SHGs – such as withdrawals from or transfers to the member’s individual account – could be processed via the Micro-ATM and biometrically authenticated by any two signatories present. Multiple Benefits of Dual-Authentication Technology Cash transactions performed outside the banking system are now routed through bank accounts ensuring that funds remain with the bank for longer, post disbursement. A credit/transaction history of all SHG members can gradually be built up. There is an increase in the number and value of transactions. The model supports the migration of low value transactions Banks from bank branches to Bank Sakhi/CSP. This process saves time and money spent on travelling to bank branches for SHG transactions. SHG members receive prompt services and accurate digitized records of all financial transactions within the group. Building individual credit histories with banks allows members to potentially graduate to direct individual loans in the future. There is more transparency and increased trust as the operations take place in the presence of all SHG members and transaction receipt from the bank are instantly printed via the Micro-ATM. SHG Members Since the group savings are deposited multiple financial products and services. directly into the SHG group account There is an increase in the number without the hassles and delays in visiting of active individual accounts of SHG bank branches, these savings attract an members. increased interest. Transactions can be conducted on The funds can thereby also be churned holidays, festival days and faster between group members. emergencies, when Bank Sakhis are Besides simple transactional services, available, while most Banks are SHG members can now potentially avail closed. Bank Sakhis Bank Sakhis can perform all transactions to and from SHG accounts, incrementally increasing the number of transactions and therefore the transactional revenue earnings. SHG Transactions that can be Performed Through a Micro-ATM SHGs can collect individual member savings through the Micro-ATM into its own savings account via a digitized fund transfer or directly by way of cash deposit into the group’s savings account. SHGs can transfer funds from its savings account to individual members’ savings account using the dual authentication facility. SHGs can transfer funds from its savings account to CCL (cash credit loan) account using the dual authentication facility. SHGs can transfer funds from its own CCL account to the group or its individual member’s account directly using the dual authentication facility. b. Rajasthan, Rajeevika: Mobile wallet for bank branches, an easy cash-in facility is metrics at the bank level (such as number SHG loan repayments available at M-Pesa wallet dealers within and volume of transactions) to ensure the village. Presently, 800 SHG groups sustainable and consistent income accrual Rajeevika, the Rajasthan SRLM, has and 9000 SHG members use their M-Pesa at the agent level. initiated a pilot to use a mobile-based wallet to deposit their loan repayments into electronic wallet to provide “anytime- As on February 2020, Bank Sakhis in the SHG account. anywhere banking”. Their collaboration Bihar achieved a cumulative of 4.74 c. Bihar, JEEViKA: SHG members as million transactions worth INR 17.14 with Vodafone’s M-Pesa (mobile wallet) banking agents billion, covering a range of services such allows instant payments to individuals, money transfers to any bank account, and as savings, deposits, withdrawals and The Bihar Rural Livelihoods Project - remittances. The average earning The utility payments including mobile and DTH JEEViKA – has adopted a holistic approach average earning in February 2020 of all recharges. This facility can be accessed to the BC model where the aim is not just Bank Sakhis in Bihar was INR 3971 and through a basic feature phone without an to increase access to financial services approximately 26% Bank Sakhis earned Internet connection, using USSD7. SHG but also to establish strong systems and more than INR 5000 per month. members in rural Rajasthan are therefore processes, which ensure that Bank Sakhis able to instantly pay loan installments to JEEViKA Bank Sakhis are breaking become profitable and self-sustaining. banks via their M-Pesa service, using a the myth that women agents are less The program tracks several operational mobile phone. enterprising or less capable than male parameters - such as numbers of agents, Besides the time and costs saved by transactions per agent, commissions earned agents. In fact, recent data from one of the avoiding long and expensive trips to etc. - and adapts lessons from key success partner banks shows that JEEViKA Bank 7. Unstructured Supplementary Service Data (USSD) is a communications protocol used by GSM cellular telephones to communicate with the mobile network operator’s computers. Sakhis are out-performing male banking JEEViKA team regularly monitors their A majority of Bank Sakhis are able to agents as well as non-JEEViKA female performance and provides support to achieve monthly commissions amounting banking agents. non-performing Bank Sakhis. to at least INR 5000 within 6 to 9 months of their operations, making this a viable Through the continuous support from This has helped in maintaining the number and sustainable career and livelihood BRLPS, they have experienced an of dormant/inactivate Bank Sakhis at less option. incremental growth in both number and than 5%, which is much lower than the volume of commissions earned. The general attrition in the sector. jeevika bank sakhi: breaking stereotypes 486 Average Commission (INR per BC) AVG. no. of 8,000 transactions per BC 440 7,742 AVG. amount of 223 transactions 7,500 per BC IN 10,000s 192 7,043 AVG. no. of 53 accounts opened per BC 50 JEEVIKA BANK SAKHI MALE BC AGENT 7,000 Source: MIS of a JEEViKA partner bank jeevika Male Based on Data collected upto February 2020 bank sakhi bc agent Key Lessons and the Way Forward NRLM has successfully developed the models piloted by SRLMs have important channel, where group/members can deposit capacity of community members by implications for rural financial inclusion or withdraw cash as required, through Bank graduating SHG members into individual globally. Sakhis, at their doorstep. For success in banking agents to further financial inclusion. the next phase, financial service providers Employing SHG members as banking The conducive policy environment initiated and SRLMs collectively need to work on agents has benefitted the rural community by the PM-JDY coupled with continuous addressing some of the supply and demand and provided gainful employment to many support from SRLMs, have allowed BC side constraints while scaling up to cover women. The initiatives have helped women agents to improve awareness in the 100,000 Gram Panchayats. Some proposed become more respected members of community about financial services, provide recommendations are below. their families and the community at large, alternate banking channels as well as last earning the epithet ‘Banker Didi’. Given the i. Supply-side initiatives mile connectivity. continuous support provided by the SRLMs, Given the success of the BC model in The BC model initiatives by various it is expected that these SHG members improving financial inclusion, a wider SRLMs have not only improved usage of are likely to continue as BC agents once spectrum of services such as loans, bank accounts by women and the rural revenue streams stabilize. insurance, pensions, savings products such community at large, but are also likely In the first phase of this project, SRLMs as RD, FD and mutual funds should be to help improve loan repayment rates have successfully provided SHGs and their provided on the BC technology platform by due to improved access to banks. The members with a Cash In Cash Out (CICO) all banks to deepen financial inclusion. emerging lessons from the various cash-lite There is a need to engage with banks to Bankers also encourage the Bank Lastly, clear guidelines for customer develop a differentiated strategy to migrate Sakhi model, as this has helped protection as well as a strong local “micro-transactions” (such as recurring migrate low value transactions grievance redressal architecture needs deposits) and micro-loan accounts of SHGs to a low-cost ICT-enabled to be established to protect both rural to low cost channels such as the BC platform channel, reducing attrition customers as well as BC agents. or Internet/Mobile banking platforms, as well amongst BC agents. iii. Sustainability and global relevance as to explore targeted, customized product offerings and incentives to encourage such Given that the flow of funds between Deploying SHG members as banking channels. Such changes at the bank level will SHGs and members can be in lacs of agents has demonstrated that the Bank help operationalize the millions of inactive/ rupees, requiring higher transaction limits Sakhi model is both an innovative strategy zero-balance bank accounts of rural women than currently allowed, both in value and to achieve financial inclusion as well as well as improve bank business operations. volume, banks must re-evaluate currently as a cost-effective, sustainable means permissible limits and enhance them to of delivering financial services in hard- The current “dual-authentication application” allow disbursement of funds from SHGs to to-reach rural areas. Minimal project of the BC platform works on the ON-US members’ accounts through the BC channel. support is needed as partner banks pay mode, which supports only intra-bank commissions for transactions provided transactions. Very often the SHG group ii. Demand-side initiatives to their customers. This market-driven account is maintained at a different bank from While there is a growing acceptance of the approach to model not only provides the individual members, thereby restricting BC agent within the community, there is a regular stream of income for the the quantum of digital SHG transactions that still skepticism while transacting on a digital Bank Sakhi, but also allows banks to can be conducted. There is a need for NPCI platform. This calls for investment in (digital)expand their customer base within these to develop standard protocols for an OFF- financial literacy training to capacitate SHG communities. US dual-authentication solution across its payment products spectrum. members and their federations to transact on The intervention also helps address self-service platforms or through BC agents. the financial inclusion gender gap and Just as “dual authentication” based joint There is a need for structured monitoring is particularly relevant for geographies account operations have been successfully and evaluation to inform the project and where women are often excluded from the operationalized at the BC channel using policymakers of the progress and impact mainstream banking system and financial Aadhar Enabled Payment System (AEPS) of the BC agent intervention. The need for inclusion programs. However, the success based biometric authentication, similar solutions are required in mobile banking, evidence on the efficacy of this intervention of the intervention is also linked to a strong wherein signatories of a joint account can is particularly critical given the call to scale base of community-led institutions of the up the BC platform across the country. poor, most notably women. avail mobile banking services. About the discussion note series This note is part of the South Asia Agriculture and Rural Growth Discussion Note Series, that seeks to disseminate operational learnings and implementation experiences from World Bank financed rural, agriculture and food systems programs in South Asia. Author(s): Alreena Renita Pinto, Amit Arora, Sourav Roy Series editors: Alreena Renita Pinto, Deepti Kakkar Publication design & illustrations: Satwik Gade We are grateful for the generous support from the Ministry of Rural Development, The Bill & Melinda Gates Foundation, The Department for International Development, and various State Rural Development departments. Disclaimer: The findings, interpretations, and conclusions expressed in this note are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent.