Zeyaul Haque, who runs a sparse market stall in rural eastern India, likes the respect he earns as the village banker. He has 10,000 customers who previously didn’t have access to savings accounts or cash withdrawals. There’s one drawback: Police escort Haque and his bags of money to work, and their protection is only temporary.
“I bought a pistol,” said Haque, 31, who said he took over the business after his brother was robbed of 500,000 rupees ($8,200) and shot to death in April by a customer and motorcycle-riding accomplices who had staked out his daily route to the nearest State Bank of India branch. “This is a dangerous business. I’ve lost my own brother, but what else can I do?”
Risking his life to bring financial services to rural India is just part of the job for India’s correspondent bankers like Haque: almost 200,000 traders, shopkeepers, and small business owners across India who are part of a push to reach the estimated 65 percent of the adult population which, according to the World Bank, doesn’t have a bank account. That’s about 530 million people, more than the U.S. and Brazil combined, or the whole European Union. In China, by contrast, 36 percent of adults don’t have a bank account.
Since the program’s rollout accelerated three years ago after starting in 2006, more than 100 million Indians have been brought into the banking system, according to the Reserve Bank of India, which regulates the initiative. While banks have previously shied away from the capital-intensive work of opening branches too far from India’s cities, being able to outsource the job means lenders including SBI, Axis Bank Ltd. and Bank of Baroda have been signing up thousands of small shops as outposts.
The number has grown by an average 90 percent a year in the three years to March 2013, the latest data available show. As of March, SBI alone had opened 32 million accounts transacting 225 billion rupees through mini banks, according to the bank’s website.
“A lot of effort has gone into reaching out to the unbanked people,” Arundhati Bhattacharya, chairman of SBI, the country’s largest bank by assets and branches, said in an interview in her Mumbai headquarters last month. “But we still have a lot more ground to cover to make banking accessible to everyone in this vast country.”
Providing banking services in India’s hinterlands will help Prime Minister Narendra Modi’s government tap rural savings and increase lending in the world’s second-most populous nation, which is recovering from the slowest pace of economic growth in a decade.
On Friday, the anniversary of India’s independence, Modi plans to announce a goal of having each of the nation’s households hold two bank accounts by 2018, according to public statements by Finance Minister Arun Jaitley.
Providing financial services outside of India’s cities could generate $21 billion in bank revenue by next year, or more than a fifth of the total, making it the industry’s fastest-growing segment at 18 percent annually over the past few years, according to a McKinsey & Co. report. The government could also save $22.4 billion a year by being able to pay subsidies such as for education and health care directly into people’s accounts, McKinsey said, reducing corruption and the middle-man inefficiencies currently afflicting the system.
Top-performing village bankers can earn as much as 20,000 rupees per month, while those with little cash flow and few accounts can expect around 900 rupees, according to interviews with a dozen operators. They earn a commission for each new account and fees for deposits or cash withdrawals. At SBI, rates are as much as 12 rupees per transaction.
Banking correspondents, frequently using snail-paced Internet connections, log in to banks’ web-based platforms. They travel to branches themselves to deposit and pick up cash.
Because central bank regulations permit mini banks to make small loans, villagers can avoid predatory moneylenders, said Kishor Kharat, general manager for financial inclusion at state-owned lender Bank of Baroda, the nation’s second-largest by assets based in the western state of Gujarat. Moneylenders can charge more than 30 percent interest for loans, while a bank loan, via a kiosk, would typically come with a rate of around 10 percent.
“We are helping them come out of the moneylenders’ clutches,” Kharat said in an interview at his Mumbai office.
The mini-bank business doesn’t generate much profit for the banks because costs currently eat into revenues, Rajiv Anand, group executive for retail banking at Mumbai-based Axis Bank, the country’s third-largest private lender, said in an interview. With central bank regulations prohibiting minimum balances on such accounts, many are empty. About half of registered kiosk operators in the northeast state of Assam have shut down or operate sporadically for lack of business, according to a draft report from the central bank.
If the government begins using the mini banks to issue subsidy payments, it should allow them to charge “reasonable commissions,” central bank Governor Raghuram Rajan said yesterday in a speech in Mumbai.
“Financial inclusion cannot be achieved without it being profitable,” Rajan said. “There should be profits at the bottom of the pyramid.”
Banking correspondents are also licensed to sell insurance and pension products, according to central bank rules. So far, few such sales have been made.
“These people are really coming into the banking system from having no bank account at all,” Anand said. “This is a journey where the customer will start by using the simple banking products like remittances and will eventually move up to credit and deposits products. At the later stage we will be able to provide them products like insurance and mutual funds.”
Having a bank account is a big step for customers like Akthara Khathion, a farmer’s wife who hikes 4 kilometers (2.5 miles) every week to a shipping-container-sized mini branch in a village in Assam, known for its national parks and distinctive black teas. Nestled amid rice and jute fields, the branch is empty except for two desks, a computer and a dozen people standing in a line snaking out to the dusty road of Alitangani village, awaiting a turn to withdraw cash.
“I’ve been setting aside some money in this account and have saved up 30,000 rupees,” said Khathion, one of only two people there to deposit money, while showing off the entry in her passbook. “It has helped me save for my family’s future, and whenever I get some extra cash, I deposit it right away.”
The others haven’t saved much, mainly using their accounts to receive money transfers from family members out of state. Before banking correspondents, people relied on postal money orders and informal money transfer networks with commissions.
“Having this bank makes it easy,” said 54-year-old retiree Abdul Majid who withdraws money his son working in Bangalore sends every month. “It’s very close to my house, and I don’t have to ride my cycle or spend money on a bus ride.”
People tend to withdraw all their cash as soon as it arrives, and kiosk operator Mohibur Rahman said he handled 10 million rupees in transactions in June alone.
“Making sure we have enough money to give to customers every day is the biggest problem,” Rahman said, as his assistant handed two 500-rupee notes to a customer. “I have to go to the bank daily and withdraw lots of money.”
Rahman is also vexed by Internet trouble. USB dongles plugged into his computer connect to the Internet to reach SBI’s web-banking services, as the village doesn’t have wired broadband service. On his desk are dongles from Vodafone Group Plc, Bharti Airtel Ltd. and Bharat Sanchar Nigam Ltd., the region’s major cellular operators.
“I have to keep changing the dongle till I get a connection that works properly, and even then it’ll get disconnected soon,” Rahman said. “It’s very frustrating for me and the customers.”
To securely identify his 6,000 customers, he uses a fingerprint scanner. At another kiosk about 70 kilometers away, rice farmer Dulomoni Bordolai had to run her fingers over the scanner at least 20 times before accessing her account. She spent about four hours at the kiosk to withdraw money.
“The fingerprint sensor doesn’t work for people who work in the fields or do manual labor,” said Dinesh Regmi, who runs the kiosk in a village near a government-run paper mill. “The prints get wiped out and the sensor can’t read them properly.”
Security is the primary concern. Rahman said fear of robbers forces him to vary his route to the bank or ask relatives to carry the money. Haque’s brother’s death was one of at least 14 attacks on bank kiosk operators in eastern Bihar state, near Nepal, in the last two years. Attackers there using guns and grenades have made off with at least 3.2 million rupees of depositors’ cash since 2012, according to reports compiled by Bloomberg.
“The government has not thought this through,” said Haque, who intends to protect his 5 million rupees a week in cash transactions with his own gun when his security detail ends following the arrest of his brother’s killers last month. “They want bank correspondents to work in villages, but they have to look after us. The job is good, but there’s no security.”
Underwriters in India only insure cash if it’s carried in a vehicle with at least two guards present at all times, and most kiosk operators only own motorcycles, said Akhilesh Kumar Akhil, president of Sanjivani Vikas Foundation, which operates 750 banking correspondent outlets in Bihar for SBI and Punjab National Bank.
Lacking insurance, Haque, who with his family also runs a tire shop, said he borrowed from moneylenders and friends to compensate depositors after his brother was robbed and murdered.
The Reserve Bank in April said banks are responsible for insuring all the cash handled at the kiosks. Banks haven’t yet implemented the rules, said Ajeet Kumar Singh, president of the Society for Advancement of Village Economy, known as Save, based in Buddhism’s holy city of Gaya in Bihar, which runs about 1,300 kiosks for SBI.
Organizations like Save that employ village agents are the ones responsible for ensuring safety, said Sribash Sen, Assam-based assistant general manager for outreach at SBI. Banks don’t have the resources to provide security to the hundreds of thousands of kiosk operators, he said.
“There are so many bank branches where we don’t have the budget to have a guard, so how can I afford guards for these people?” Sen said in an interview at his office in Guwahati, the capital of Assam. “They have to find their own ways to provide security.”
An increase in robberies has led banks to restrict new kiosks to what are determined to be low-crime zones close to the main branch, said Mukesh Sadana, a financial inclusion specialist at consultancy MicroSave Pvt. in Lucknow. That “defeats the purpose” of financial inclusion because kiosks are most needed in India’s remote areas, he said.
While there’s no national data compiled for attacks on rural banking agents, Bihar is one of the worst states for attacks, he said.
The most-recent incident occurred on July 31 as two gunmen ambushed one of Save’s kiosk operators and stole 126,000 rupees, according to Singh, who had to coordinate staff to reach the scene and file a police report.
“These attacks have become quite frequent in the last two years,” Singh said. “We live in constant fear.”