What changed
RBI issued a circular enabling banks to use intermediaries like NGOs, SHGs, MFIs, and post offices under two models: Business Facilitator (for non-banking facilitation services) and Business Correspondent (for conducting limited banking business outside bank premises). This formalizes the use of third-party agents to extend banking services to underserved areas.
What it means for you
Banks can now leverage local entities to reduce costs and increase reach in rural and remote areas. The Business Correspondent model allows agents to handle small-value deposits, credit disbursal, and recovery, effectively acting as bank extensions. Banks must conduct due diligence and ensure these entities are reputable to avoid misrepresentation risks.
What you must do
- Identify and onboard eligible entities (NGOs, MFIs, post offices, etc.) as Business Facilitators or Correspondents after thorough due diligence.
- Formulate a clear scheme for Business Correspondents covering scope, responsibilities, and compliance with RBI guidelines.
- Publicize the appointed Business Correspondents locally to prevent misrepresentation and build community trust.
- Ensure Business Facilitators do not conduct banking business; restrict them to facilitation services like loan application processing and awareness creation.
Who it affects
All Scheduled Commercial Banks including RRBs, NGOs, SHGs, MFIs, and other Civil Society Organisations, Post Offices and insurance agents (as Business Facilitators), Rural and underserved banking customers
Do banks need RBI approval to use Business Facilitators?
No, RBI approval is not required for using intermediaries as Business Facilitators since they do not conduct banking business.
What activities can Business Correspondents perform?
They can disburse small-value credit, collect deposits and repayments, sell micro-insurance and mutual fund products, and handle small-value remittances, among other services.
What due diligence is required for Business Correspondents?
Banks must assess the entity's establishment, reputation, and local confidence, using parameters from RBI's Internal Group report on Rural Credit and Micro-Finance (July 2005).