The history of India’s efforts to achieve digital financial inclusion has been diverse, but largely top-down. These efforts have produced a mixture of RBI regulations and advices for banks, and government policies and directives. Most recently, the RBI provided guidelines for differentiated banks (Payments and Small Finance Banks) specifically designed to deepen outreach and enhance financial inclusion. And in August 2015, the RBI issued provisional payments bank licenses to a fascinating array of 11 very different organisations and consortia.


Source: The Helix Institute of Digital Finance Agent Network Accelerator Survey - India Country Report 2015

However, on occasions, most notably in 2012, the advices and directives have provided conflicting signals, making the road to achieving financial inclusion considerably more fraught than it need have been.

Despite this, the number of agents available in India has continued to grow — in both rural and urban areas. Given India’s sheer size, it is perhaps unsurprising that the number of agent outlets is considerable. Kenya has around 100,000 agent outlets; India (despite its faltering efforts at digital financial inclusion) has nearly six times this number. The annual growth rate of Indian urban and rural agent outlets remains in the range of 50%-60%.

However, questions remain about the levels of churn and dormancy amongst this apparently impressive spread of agents. In early 2012, “The Curious Case of Missing Agents in Rural India” documented how:

  • only 7% of the villages had transaction ready (MicroSave defines “transaction ready” as a customer being able to walk in and conduct a transaction) agents;
  • only 4% had agents available to transact every day (because of the high number of mobile or roving agents);
  • a little over 2% of the appointed agents were doing more than 10 transactions a day; and
  • less than 4% are earning more than Rs. 2,000 a month; with a median monthly income as low as Rs. 1,500, and quite likely to quit the business soon.

However, two years later, 54% of the agents were “transaction ready” (and this rose to 79% by mid-2015) and were on average earning a gross revenue of Rs. 2,724 (US$42) per month (this rose by 45% to Rs. 3,951 or US$61 per month by mid 2015)1.

Some of the growth can be attributed to the government’s financial inclusion drive — the Pradhan Mantri Jan-Dhan Yojana (PMJDY) — which directed banks to push transactions through agents. As a result, the fiscal year to March 2015 saw a 45% rise in the number of transactions at agents to 477 million and a 64% increase in the value of transactions at agents to Rs. 859.8 billion (US $13.2 billion). As the government extends digitalisation of its direct benefit transfer schemes — building on the success of “Pahal”, the programme for liquid petroleum gas subsidies — we can expect this growth to further accelerate.

But it will have to accelerate fast if the agent network is not to face further churn and dormancy. Our April/May 2015 survey revealed that 72% of agents started this business less than 18 months ago. Further, at an aggregate level, the proportion of dissatisfied Bank Mitras is almost double (46.1%) of those who are satisfied (23.4%). A closer look at the data shows that a higher proportion of agents, who have been appointed recently (fiscal year to March 2015), belong to the “undecided” category (who are neither satisfied nor dissatisfied), while others who have spent one year or more are mostly dissatisfied.

Previous MicroSave studies ANA 2015 India survey found that 52% of agents report monthly profits below US$18 and 44% report profits below US$11. Clearly, there is a long way to go to address this problem. The government needs to use the potential that its direct benefit transfer schemes offer to significantly increase the agents’ income on a priority basis. MicroSave analysis shows that it can afford to do so. But it cannot afford to see further churn and dormancy in the rural agent networks that are expected to provide the backbone for the nation’s financial inclusion programme.
Low agent profitability is not solely due to the low levels of transactions performed by agents in India, but also because of their high operational expenditure (opex). Part of the high opex seems to be driven by high liquidity management costs, indicating that Indian agents have to travel much further to rebalance than agents in other countries MicroSave has studied.  Perhaps as a function of the 2011 Swabhimaan scheme, many agents are in relatively remote villages. This means that they have to travel a median of 6.6 km (journeys taking a median of 26 minutes, nearly twice that of agents in Uganda and Tanzania; and nearly three times that of agents in Kenya) to rebalance. In Pakistan and Bangladesh, a small section of agents have to travel to rebalance; instead agent network managers deliver liquidity to agents’ outlets. Furthermore, Indian agents travel an average of 16 times/month to rebalance. This is more frequent than in any other ANA country (compared to Kenya: 8 times, Tanzania: 6 times and Uganda: 10 times). This may be because Indian banks require their agents to report to branches regularly.

Additionally, more (67%) Indian agents are dedicated to solely performing financial transactions than most other countries. These agents have no other source of income or business over which to spread fixed and semi-variable costs.

This is in contrast to what is perhaps expected by RBI and other architects of India’s digital financial infrastructure, who have typically talked about agents operating out of local stores, thus spreading their opex costs across a range of businesses.

The ANA 2015 India survey showed that only 35% of agents in metro areas were dedicated and thus offering only financial services. Conversely, 70% of rural agents were trying to earn a living from just offering agent banking services.  This will remain a challenge while G2P commissions are low and the PMJDY financial inclusion drive remains in start-up mode. Introduction of the JanSuraksha, mass market insurance programme, may help drive some transaction volume, but, until savings account holders start to use the facilities regularly, decent profits will remain a distant dream for these agents. A part of the solution will rest in involving agents in loan origination and collection, something that we highlighted in “Great Business for Banks – So Why Are They Slow To Build Agency Banking?”. Another key component could be through Payments Banks offering creative savings products appropriately tailored for the mass market — and sold and/or serviced through these agents.

The road to financial inclusion in India has been tortuous, fraught and replete with pot holes, but the early signs of more positive future are coming into sight. Let’s hope that the government continues to create an enabling regulatory and policy environment to nurture the green shoots that are emerging.

1Source MicroSave Surveys of Bank Mitra agents conducted for the Department of Financial Services in September/October 2014 and April/May 2015.






  1. Envisaged framework for banking services sector

    A close examination of various layers (Tiers) of Banking sector indicate that savings deposits/term  deposits, credit are common functions among all types of units across the layers barring NBFC MFIs and NGO MFIs which are barred from taking deposits. Services are generally classified as primary/basic, secondary and tertiary. A Tertiary services provider may also provide other services. Similarly Secondary services provider may provide basic services also. However basic services provider provides only basic services. But NBFC MFIs and NGO MFIs providers even fall short in providing basic services since they are not permitted by law to accept any kind of deposits be it savings or term deposits. Then why Social Entrepreneurs are risking their money in extending just credit services? Answer to financial inclusion lies in this answer. Another strategic inference is that NGO MFIs or NBFC MFIs are by law allowed to carry out credit card business service in other name or should it be called a sub-prime credit activity where in high operational and high fund costs are recovered through high interest rate caps. These juxtaposed against tasks, activities, functions and operations of credit line portfolio namely Customer acquisition, Credit disbursal and Credit recovery that are common and fundamental to a bank or credit card services or NBFC MFI/NGO MFI or Coop Bank or RRB or Chit fund etc. offer specific solutions to financial inclusion. These answers may be summarized simply as process of metamorphosis of a life cycle of Formal Financial Services Providers offering Banking Services which means shedding some structures while enhancing some.  This progression called process of metamorphosis in conjunction with robust information technology services platform could be a solution for effective, sustainable financial inclusion (Preferred expression is Inclusive Banking Services) in India.

    Envisaged banking services sector Profile

    Envisaged Banking Services Sector Profile

    Regulator→ Banking Services Providers↓




    Central Bank for Micro Banking Services Regulation and Development                                      

    Only State Government

    1. All Public Sector Banks

    1. District Central Cooperative Banks (Incl. State Coop/Apex Banks

    Special Purpose Banks/Micro Finance Services and Development Banks / Small Banks (Micro Finance) – To be Licensed – Some 113 applicants have submitted their applications for Small bank License (July 2014 – Till date)

    Multi Sate Urban Cooperatives (MSUCBs must obtain license from every state where they desire to operate) – BR act shall not be applicable – Shall be Governed by state laws and acts

    2. All Private Sector Banks


    Regional Rural Banks

    UCBs – – BR act shall not be applicable – Shall be Governed by state laws and acts

    4. Branches of Foreign Banks in India



    NBFC, Including multi state NBFCs

    (must obtain license from every state where they desire to operate)

    -– BR act shall not be applicable – Shall be Governed by state laws and acts

    5. All Small Banks (Existing) like ING/ Kotak Mahindra, KaroorVysya, Laksmi Vilas, Ratnakar banks etc.



    NGO MFIs – – BR act shall not be applicable – Shall be Governed by

    state laws and acts

    Payment Banks; Differentiated Banks – Under discussions/active consideration



    Chit Fund Companies including multi state Chit funds (must obtain license from every state where they desire to operate) – – BR act shall not be applicable – Shall be Governed by state laws and acts

    PS: Please note: As on date MUDRA Bank as regulator of MFIs/Micro Finance, Bharatiya Mahila Bank, Small Banks etc. have taken shape and at different stages approval to grounding and in operation. Data in above table needs to be appropriately aligned.

    Towards Designing appropriate Micro Bank Cards

    Micro Bank Credit Cards

    A simple and effective solution for inclusive banking lies in introduction of products and services designed and built around credit cards. Rationale in support of credit card based products and services may be listed as followed.1. Every Bank has credit card business portfolio 2. The service charges and interest rates (for default payments) are exorbitant as against normal bank interest rates 3. As per RBI guide lines interest cap for NBFC MFIS is 27% excluding credit insurance premium (All MFIs are corporate insurance agents) 4. Already Prime Minister’s Jan DhanYojana is in vogue 5. All these in backdrop: Government and RBI can come together and design credit card based financial products 6. These credit cards could be categorized as Micro Bank Credit Cards (Classification could be i. Crop loan credit card ii. SHG member credit card iii. Income Generating/Self Employment credit card iv. Working capital credit card v. Daily vending business / Hawker business credit card etc. 7. Crop loan card can be valid for 5 years with activation period coinciding with crop season and payment being linked to bank account (payments in ATM – cash covers – could be made as per choice of credit customer) and payable through loan period 8. If full payment is not recovered by the end of loan period /cycle card bank account and credit card account can be deactivated (PAR>30 days, 60 days, 90 days, 120 days and 180 days also could be built in for appropriate NPA and recovery adjustments, reviews and strategies) 9. The interest amount and repayment installments can be different for different cards with in the RBI cap limits 10. This will reduce many of the operations and functions of credit operations work and bring down the costs and also will easily achieve financial inclusion with ease and efficiency. Summary: If MFI operations are broken into details from customer acquisition to full and final repayment it is Customer Appraisal Credit disbursal and Recovery with doorstep actions for customer acquisition and appraisal and recovery. Credit Card kind of product also has similar functionalities and tasks. But from Customer acquisition to appraisal can be minimized as credit card validity can be fixed for 3 to 5 years and then credit disbursal gatherings, meetings and issue of cheques etc. can be done away with. Automatic deactivation (activation or deactivation is linked to repayment dates and period) of bank and credit card account would pressure on filed level and door step level recovery functions from undue pressures. Thus this system if institutionalized by all public sector banks and particularly the newly introduced small payment banks there can be best possible financial inclusion success and sustenance and benefits all the poor for decades (Poor for decades means over a period poor replace by lower income or may be even lower middle income with some shifts in banking service requirements) to come and the costs of operations and funds will get minimized to a very fair extent. For illustration purpose an archetype of credit card based products and services (Micro Bank Cards) is discussed below.

    Micro Bank Cards – Illustrative Model

    Micro Bank Cards – Illustrative Model

    Sl. No.

    Type/Product/Service (Only Indicative and illustrative)

    Tasks (Only Indicative and illustrative)

    Operations (Only Indicative and illustrative)

    Functions (Only Indicative and illustrative)

    Conditions (Only Indicative and illustrative)


    Micro Bank Card: Agriculture – Equipment/Tools/Implements

    Customers' Acquisition

    Background checks, Appraisals, Data profiling, Agricultural Land and house coordinates mapping digitally, 

    Data warehousing, Data embedding (chips), Automation of customer finalization based on data and appraisals stored, Automation of generating schedules, calendars for activations, deactivation, repayments, default penalties, auto renewals, auto credit and savings account generation (all financial tasks, operations, function) etc., Micro Bank Cards (production, delivery and maintenance) so on and so forth

    Credit limits, Credit activation/Deactivation calendar, Repayment schedules, Validity duration etc. shall be based on customers’ appraisals' (Land Extent, Irrigation source, crop type, Land Value, Tenant Farmer etc.). A crop loan Micro Bank Card Holder who has one acre land, irrigated by Bore with electrical pump raises two paddy crops will have a credit eligibility of Rs. 25000 for first crop and Rs.20000 for second crop. His/her Card activation schedule is June to September and December to February in any year. Repayment is either in three installments after every harvest or once after every crop or EMIs. Micro Bank Card deactivation and penalties are as per PAR <30 days, 60 days, 90 days.


    Micro Bank Card: Land Development

    Micro Bank Card Sanction and Release to the customer

    MBC linked Bank savings and credit account generation and delivery of MBC kit to the customer

    Complete and comprehensive Automation – Start to End and beyond

    Utilising existing ATMs network of banks, White label ATMs, Adding New ATMs network


    Micro Bank Card: Conversion from Agriculture to Horticulture and vice versa

    Establishment of ATMs network

    Operations, Maintenance, Servicing, Supervision, Safety and Security, Technical administration, Coordination, Management, etc.

    Complete software design, piloting, testing, approval by apex regulators, licensing etc.


    Irrigation – Drip, Micro-drip



    Incorporation of software and installation


    Micro Bank Card: Agricultural Renewable -energy system like Solar power, Bio Gas etc.



    Establishment of empowered Micro Bank Card authority on the lines of Master/Visa Cards entrusted with software, hardware, production, operation, maintenance, supervision of all digital and technological functions.


    Micro Bank Card: Crop Loans



    Establishment of empowered Micro Bank Card recovery and default payments authority on the lines of credit card divisions of Best Banks such as SBI, ICICI bank, HDFC Bank, Axis Bank etc.


    Micro Bank Card: Self Help Group – Group Loan/Member Loan




    Micro Bank Card: Income Generating Activity/Self-employment/Microenterprise




    Micro Banking: Working Capital




    Micro Banking: Daily Vending / Hawking Business




    Micro Credit Bank Card: Ware House Receipts




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