What ails the Bank Mitr network?

The low number of transaction-ready Bank Mitrs has always been a point of concern for regulators and the government alike. In 2012, MicroSave provided technical inputs to a national survey on BMs by CGAP-CAB which suggest that BM availability was in the range of 57―78%. Lack of adequate remuneration for BMs was primarily responsible for their discontinuation.

In order to tackle this challenge, the PMJDY vision document mandates a minimum payment Rs. 5,000 (USD 75.75 per month) to BMs; however, an assessment recently conducted by MicroSave highlighted that BMs actually receive an average of Rs. 3,951 (USD 59.86).

However, low compensation is not the only issue, or even the only financial challenge that BMs face. There is a multitude of issues that can be classified in two categories.

1.      Financial issues

a. No support for capital expenditures. There is no incentive for banks to support BMs’ expenses especially on technology, infrastructure, the branding of outlets and other capital items. As a result, BMs try to minimise their fixed cost on furniture and fixtures, computer/communication equipment, marketing, and even liquidity management (deposit in the settlement account, and cash in hand). The ANA report for India suggests that operating expenses for BMs are higher in India than other South Asian countries. The report highlights that rent, electricity and travel expenses for liquidity management constitute the bulk of the operational expenses for agents.

b. Delay in payment of commissions. Remuneration is not only small in absolute terms, but is also paid irregularly by banks/agent network managers (ANMs). The plight of BMs is often aggravated when the manager concerned (of the bank or the ANM) is transferred or retires. Most activities and processes are still person- rather than system-driven; so BMs have to start afresh each time a new manager takes charge. Furthermore, there is typically no intimation of pay out and no break-up or details about the business done by the BM for which payment is made. This leaves BMs unsure about their performance and/or what do they need to do to improve.

2.    Non-financial issues

a. Lack of trust by customers. Many BMs are not recognised as bank agents. Many customers do not trust BMs because banks do not publicly promote the people or organisations working for them as trustworthy legitimate entities.

b. Lack of monitoring by banks and/or intermediaries. Though banks have designated officials to monitor the BMs, very often because of the branch’s routine work and limited staff, monitoring of BMs falls to the bottom of the priority list and is ignored.

c. Ad-hoc and incomplete training. The majority of BMs are trained on how to operate the transaction device and given a few tips on troubleshooting. International experience clearly shows that they should be trained on banking products relevant to the area/ local needs, and on soft skills such as customer service.

d. Absence of a proper grievance redressal mechanism. BMs also complain about the lack of a reliable support system through which their problems can be resolved. Resolution of most technical and non-technical issues takes a lot of time, and this both adversely affects their business and further erodes whatever little trust customers place in them.

e. Lack of awareness among the masses. People in rural areas do not have good information about financial products, government schemes, and allied benefits, which would have otherwise driven BMs’ business. BMs believe that banks and government departments should work to address the prevailing myths associated with agent banking through financial education campaigns.

What can the government, regulator and banks do?

1. Enforce the payment of minimum remuneration in a timely manner to BMs. This single measure will stabilise and encourage thousands of BMs across the country, providing a fillip to financial inclusion efforts of the government.

2. Banks and government agencies should develop and deliver clear customer communication for all key products and government schemes. BMs can then sell these to their customers.

3. Develop and deliver standardised and engaging training programmes that include relevant details about the financial products as well as soft skills, such as dealing with customers. This will both boost the confidence of BMs and allow them to act as real financial intermediaries, rather than just being another transaction point.

4. Our experience in field of BMs’ remuneration tells us that the expectation of remuneration is a function of capital expenditure that BMs make. Currently, individual BMs have to make this expenditure on their own, with no support from the banks that appoint them. If RBI includes loans extended by banks to BMs for capital expenditure eligible as part of Priority Sector Lending (PSL) requirements, it will moderate BMs’ expectations vis-à-vis remuneration and help banks meet their PSL targets.

5. Banks should recognise, promote and market the BMs working for them to generate recognition of, and trust in, the channel.

6. Put in place a comprehensive grievance redress mechanism to ensure adequate (technical or non-technical) support for BMs. Regulatory audits should audit the banks’ grievance redressal systems when reviewing BM channel.

Trusted, committed and liquid Bank Mitrs can (and indeed must) play a much bigger role if the government’s vision for financial inclusion is to succeed. This blog highlights the key challenges and opportunities to address them. The recommendations are not high-cost in nature, and, if implemented, could transform the BM network from an often moribund/dormant channel into a vibrant and profitable one.

[1]MNREGA is the largest livelihood security programme in India, guaranteeing 100 days of wage-employment to rural households whose members volunteer to do unskilled manual work.