Business Correspondent Model

The Business Correspondent (BC) model is a branchless banking system in which banks appoint third-party agents to deliver basic banking services in areas where opening a full bank branch is not practical. These agents, called Business Correspondents or Bank Mitras, act on behalf of banks and provide banking facilities within local communities, such as villages or small settlements. The model was introduced by the Reserve Bank of India (RBI) in 2006 to address the last-mile problem in financial inclusion.
Under this model, banks authorize individuals or entities to perform specific banking functions. BCs use technology such as micro-ATMs, computers or handheld devices with internet connectivity, biometric scanners, or smart card readers. These tools allow secure, real-time transactions that are directly connected to the bank’s core banking system, even when the nearest branch is far away.

Eligibility to Become a BC

Initially, only select institutions such as microfinance institutions, NGOs, post offices, cooperative societies, and retired bank employees were allowed to act as BCs.
Over time, eligibility was expanded to include local shop owners, village-level entrepreneurs, kirana stores, Common Service Centres, and for-profit companies running agent networks.

A key requirement is that the BC must be trusted locally and remain under the supervision of a sponsoring bank. Each BC is attached to a specific base branch responsible for oversight, cash management, and reporting.

Services Offered by Business Correspondents

BCs provide a range of basic banking services, functioning like a mini-bank at the village level:

• Account Opening and KYC: BCs assist customers in opening bank accounts, especially basic savings accounts, and complete KYC formalities using identity documents or Aadhaar-based biometric authentication.
• Deposits and Withdrawals: Customers can deposit or withdraw cash locally through micro-ATMs or biometric devices.
• Money Transfers and Payments: BCs enable domestic remittances, fund transfers, bill payments, and small digital payments.
• Balance Enquiry and Statements: Customers can check balances, obtain mini-statements, and update passbooks.
• Credit Support: BCs may help source and process applications for small loans, collect repayments, or disburse low-value loans as permitted by banks.
• Insurance and Pension Services: They assist in enrolling customers in micro-insurance and pension schemes and in collecting premiums.
• Government Benefit Payments: BCs play a crucial role in disbursing Direct Benefit Transfers such as wages, pensions, and subsidies through biometric authentication.

How the BC Model Operates

Banks or their technology partners provide BCs with necessary devices such as micro-ATMs or point-of-sale terminals. Customers visit the BC outlet, which may operate from a shop, kiosk, or residence. The BC maintains a cash balance to handle withdrawals and periodically settles excess cash with the linked bank branch.

Transactions are recorded in real time through online connectivity, or temporarily offline in low-connectivity areas and later synchronized. Authentication is done through biometrics or debit card and PIN, and customers receive receipts or SMS confirmations.

Importance of the BC Model for Financial Inclusion

The BC model improves access to banking in underserved areas by bringing services closer to people. It reduces travel time and costs for rural customers, makes bank expansion more affordable for banks, and relies on commission-based payments instead of fixed staffing costs.

Because BCs are often local residents, they enjoy higher trust and can communicate effectively in local languages. Flexible operating hours further improve accessibility. Today, BC outlets far outnumber traditional bank branches and form the backbone of many financial inclusion and government welfare schemes.

Challenges in the BC Model

Despite its success, the model faces several challenges. BC income is often low and dependent on transaction volumes, leading to sustainability issues and agent attrition. Operational difficulties include cash handling risks, poor internet connectivity, and long travel distances to base branches for liquidity management.

Customer awareness and trust can be weak in some areas, making communication and branding essential. Technical failures, biometric mismatches, and cybersecurity risks also affect service quality. Additionally, BCs are limited to basic services, while complex banking still requires branch visits.

Recent Developments

To strengthen the BC framework, regulators and the government have introduced measures such as interoperability of BC services through Aadhaar-based systems, support through ultra-small branches and periodic banker visits, expansion of services including insurance and investment products, improved monitoring and training guidelines, and stronger grievance redressal systems. Digital Banking Units launched in recent years further complement BCs by enhancing digital service delivery in remote regions.