Lenders perceive women borrowers as riskier and costlier to serve, and many women themselves are not credit-ready
India has almost eliminated the gender gap in access to bank accounts with the Pradhan Mantri Jan Dhan Yojana (PMJDY). More women have access to bank accounts, and more women are saving in these accounts. Women’s accounts hold 20% of all deposits by amount. In the era of shrinking bank deposits, women savers are holding up the bankers. Per capita, savings by women in bank accounts are approximately 3% higher than men, with an average bank deposit of INR 42,503 by women[1]. Women have been good suppliers of savings to banks; however, they remain severely unserved and underserved when it comes to credit.
According to a 2020 study, women in India receive credit equivalent to only 27 percent of the deposits they contribute to the banking system, while men receive credit equal to 52 percent of their deposits.
IFC estimates an INR 1.37 trillion gap in the demand and supply of credit for women-led enterprises in India. Interestingly, this gender gap in credit persists despite women demonstrating lower credit risks across various loan categories. In 2022, 57% of women borrowers had a prime (credit score of nearly 700 and less risky) and above, compared to 51% of male borrowers, as per TU CIBIL.
If figures from CIBIL are any indication, only 65 million women are credit active in India as compared to 156 million men. This means financial providers serve barely 14% of 453 million credit-eligible women in India.
Limited to small value.
The curious case of system-wide credit allocation to women begins and ends with small ticket-size loans in India. Lending to women has become synonymous with microfinance lending under “weaker sections” and loans to individual women up to 1 lakh under PSL guidelines. The average ticket size of microfinance loans (with 98% female clientele) in 2023 stood at INR 43,200, per the Bharat Microfinance Report. As per RBI, which classifies loans under 2 lakhs as “small borrowal accounts,” women’s share of the total outstanding amount, even under this category, was only 35.5% compared to 58% for men. Women constitute 20% of India’s 63 million MSMEs; however, they constitute only 7% of outstanding credit to the MSMEs sector.
The poor supply of credit to women is due to multiple factors. Primary among them is biases that impact both the supply side (the lenders) and the demand side (the women borrowers). Lenders perceive women borrowers as riskier and costlier to serve, with limited data footprint, credit history, and less formal sector experience.
Many women borrowers (individual as well as women-led collectives) are not credit ready. This is because they lack the documents, guarantors, and collaterals required for accessing productive credit. They also lack the time and confidence to follow through the application process in many cases.
There is also a hidden segment that is credit-ready but credit-averse and decides not to borrow from formal lenders. This self-exclusion is due to various reasons, ranging from bad user experience, time-consuming processes, social norms that discourage debt from formal lenders, lack of support systems, fear of backlash on loan default, and lack of confidence in their ability to repay.
It is time that the sector invests in gender-intelligent banking and does not treat women as customer segments limited to priority sector lending, government schemes, and the microlending portfolio. Without access to adequate credit, women entrepreneurs struggle to tap into higher-value areas of even the sectors they dominate, and lenders find it difficult to graduate them beyond microloans. A vicious cycle that needs to be broken. Credit is an important tool to support women’s growing entrepreneurial aspirations across India. Research shows that closing that gap can add as much as US$6 trillion to global GDP. When offered with the right features, in the right context, and responsibly, it can help women and India realize their economic aspirations.
The Interim Budget announced on February 1 had a significant focus on growing the country’s economy. The Finance Minister highlighted her vision for growing the country’s economy at the recent Vibrant Gujarat Summit. She said “It is possible that we will be the third largest economy by 2027–28, and our GDP will cross USD 5 trillion by that time. By 2047, it is a conservative estimate that we will reach at least USD 30 trillion in terms of the economy.”
In pursuit of creating a $30 trillion economy, it is imperative to prioritize not only economic growth but also ensure that development is inclusive and sustainable. It is of utmost importance to create a world where people from all sections of society have access to high-quality, affordable, market-led financial, economic and social services in the digital age.
According to the UNDP Report titled “Making Our Future: New Directions for Human Development in Asia and the Pacific,” India has made significant progress in increasing per capita income from USD 442 to USD 2,389 from 2000 to 2022. However, poverty alleviation remains a major challenge.
Numerous individuals find themselves highly susceptible to changes in economic circumstances, often teetering on the brink of poverty, of which women, interstate migrants, and informal workers are at greater risk.
Here are some strategies and focus areas for inclusive and sustainable growth:
Focus on climate change and food security in India
As the world grapples with environmental issues, India must find sustainable solutions to mitigate the impact of climate change. It is of the utmost importance to create climate-resilient agri-food systems that not only tackle the problem of hunger but are also sustainable and aligned on the path to net zero.
Climate change will have adverse effects on not only crops but also on forestry, fisheries, and livestock. India has to formulate policies and take necessary action to ensure that agricultural technology innovations undergo testing and expansion, aiming to enhance productivity at reduced expenses.
Agri-Stack is one such initiative by the government that has the potential to revolutionize the agricultural sector in India forever. AgriStack will facilitate more convenient access to affordable credit, superior farm inputs, tailored and specific guidance, and enhanced access to markets, which will also foster more agri-tech innovations that will benefit smallholder farmers.
As India has committed to becoming net zero by 2070, several green initiatives were announced in the Interim Budget 2024. These initiatives include the phased mandatory blending of compressed biogas (CBG) with compressed natural gas (CNG) for transport and piped natural gas (PNG) for domestic purposes, the expansion of the electric vehicle ecosystem, and promoting climate-resilient activities for the Blue Economy.
Creating a more enabling ecosystem to nurture skills in India
The Finance Minister made a statement during the Budget 2024 that “Skill India Mission has trained 1.4 crore youth and upskilled and reskilled 54 lakh youth.”
As many as 13 million young people join the workforce every year in India. There is a critical need to create an enabling environment for harnessing and honing their managerial, technical, and entrepreneurial skills. This will not only help in fostering entrepreneurship but will also create a more talent-ready workforce to meet the growing global demands for products and services across the world.
Skill development is one of the cross-cutting sectors that has enormous potential for not only the youth of the country but also for the healthcare, MSME, manufacturing, and consumer-tech industries.
Capsule-based training programs using intuitive learning tools by leveraging the existing digital infrastructure can be a game changer.
Healthy urbanisation and formal sector employment in India
India finds itself poised at the threshold of a profound urbanization surge, due to which an emphasis has to be laid on the urban poor, vulnerable communities, and rural migrants.
As more people migrate to cities in search of better income and opportunities, we have to not only focus on biodiversity protection but also ensure that we foster more employment in the formal sector. India has effectively transitioned a significant portion of its workforce from the less productive agricultural sector; however, the majority of employment opportunities still predominantly exist within the informal economy.
According to findings from the National Sample Survey Organization (NSSO) and the Periodic Labor Force Survey (PLFS), spanning from 1999 to 2019, the data reveal that a substantial portion (16%) of the labour force that shifted away from agriculture found employment in the construction sector (11%).
India must have a long-term strategic vision that not only promotes sustainable infrastructure practices but also promotes gender equality to create more formal job opportunities and reduce reliance on the informal sector. Emphasis has to be on the manufacturing sector, with an emphasis on local production and expansion within India for more inclusive growth.
The Production-Linked Incentive Scheme and the Semicon India Programme are some of the initiatives that are contributing to the encouragement of global investments with a focus on MSMEs and small enterprises to drive economic growth.
Enhancing the overall delivery of healthcare services in India
One notable aspect of the budget is the emphasis placed by the government on preventing cervical cancer through vaccination and the introduction of the U-Win application designed to streamline and manage immunizations across the country.
The government has also taken a series of initiatives, like the Ayushmann Bharat Digital Mission, which aims to create a unified digital healthcare stack to promote digital health and improve healthcare outcomes.
However, there is an abject paucity of healthcare infrastructure; there are merely 1.4 beds per 1,000 people, 1 doctor per 1,445 people, and 1.7 nurses per 1,000 people.
There are issues in infrastructure which often cause difficulties in accessing healthcare services. Though there has been an increase in the total expenditure on health from ₹79,221 crores in 2023-24 to ₹90,171 crores in 2024-25, India has to make a long-term strategy to ensure that at least 6-7% of GDP is utilized in healthcare spending. Efforts have to be made to keep a tap on healthcare inflation.
The article was first published on the Economic Times website on 9th February 2024.
The first blog of this series discussed the importance of diversifying BC agents’ service offerings to include non-CICO products for enhanced economic viability. We also highlighted the need for training to support this shift. In the second blog, we identified potential non-CICO products through a structured framework. This blog will explore ways to train agents effectively to sell these new products.
How are agents trained when a new product is launched?
Public sector banks generally train BC agents based on the Indian Institute of Banking and Finance (IIBF) curriculum, which focuses more on regulatory compliance than practical product knowledge. This results in inadequate training on new products, shifting the responsibility to the field staff of Business Correspondent Network Managers (BCNMs). These staff members, who handle onboarding and training, often lack the resources or skills for effective knowledge transfer, leading to misinformation, often developing a ‘chinese whispers effect’ by passing on incorrect information or faulty training to agents. While some private sector and payment banks manage their own BC agent networks, their training also tends to focus mainly on operational aspects.
MSC’s analysis further reveals that almost all the providers we have worked with share a similar approach to introduce new products, train agents, and market these new products. Typically, most providers follow this method:
Several providers provide digital training by developing and posting instructional videos on their apps to inform agents about various products they can sell. However, a significant area for improvement that affects agents’ active use of these videos is their narrow focus on basic operational tasks. Agents are often confused about which buttons they must press or options they must select to open an account for a customer. But in addition to this, these videos fail to address the need to upskill agents to match the right product with the right customer and deliver accurate product pitches.
How can these issues be addressed?
We propose the development of a “communication toolbox” to bridge this gap and ensure that the non-CICO products have a higher uptake among agents and, ultimately, among customers. A communication toolbox is a collection of marketing materials, training guides, and communication templates designed to standardize and streamline information sharing. This will ensure consistency and effectiveness. We believe a communication toolbox is essential for BC agents, specifically for non-CICO use cases, due to its flexibility and the range of resources. Non-CICO use cases include insurance, e-commerce, and logistics, among others.
MSC has developed several communication toolboxes in the past using a design thinking approach. These are designed with in-depth behavioral research to understand the agents, their awareness levels, their preferences, their motivations, their skills, their contexts, and the challenges they face. Agent personas can be developed through this research. It can help identify key challenges and bottlenecks. These insights can be used to create the content and determine the nudges required for each agent type or persona.
A communication toolbox can potentially have the following features:
Tailored training for diverse agent personas: Insights into agent personas and agent segmentation
Not every BC agent is alike. Thus, stakeholders must identify different agent personas to understand their needs, experiences, behaviors, and goals. We have identified two types of BC agents based on their performance, skills, and willingness to work as BC agents to understand how they can use the communication toolbox effectively:
These personas have been developed based on our many studies with agents over the past two years. A high-performing agent is generally younger, agile, digitally savvy, and understands the customer. In contrast, a low-performing agent is often a middle-aged or older person with limited education who is uncomfortable with technology and does not have a strong customer base.
It is clear that a single line of communication will not be effective for these two agent personas due to their inherent differences in motivation and business acumen. While a high-performing agent may quickly grasp product details and target the right customers, a low-performing agent may struggle to understand the product’s technical aspects and identify suitable customers. Thus, they may struggle to pitch the product effectively.
Therefore, we believe that a communication toolbox can be easily deployed for both types of agents with the agent segmentation in mind, as can be seen below:
As the agent network in India matures with 2 million agents, training remains a critical yet underdeveloped area. The development of need-centric communication toolboxes is essential to improve communication and reduce information asymmetry. MSC’s previous work (1 and 2) on communication toolboxes highlights that agents become more engaged and effective in their roles when they are equipped with the right tools and training and also increase their income by 36%.
A well-designed communication toolbox can be tailored to suit the unique characteristics of different agent outlets and customer segments. It can enhance agents’ knowledge of products and their ability to pitch them to the right customers. For instance:
Outlet size and layout: In small agent outlets cluttered with posters and other materials, signages can be developed for desks instead of walls. This will ensure the message is clear and unobstructed.
Targeted customer segments: The images and captions on posters and signages can be customized to the target demographic.
Use of audio tools: If the agent outlet has a speaker system, audio briefs can be tailored to directly address the target customer group’s specific needs, which will make the communication more effective and engaging.
The toolbox is a customizable template that enables agents to adapt communication strategies as per their customized contexts. This approach enhances agents’ income potential, equips them to market and sell non-CICO products more effectively, and improves providers’ overall economics.
In conclusion, the adoption of agent-segmented communication plans should be a key focus in industry players’ marketing strategies. The industry can ensure that all agents can effectively contribute to their businesses’ growth and sustainability regardless of their background or skill level through the development of communication tools that are both need-centric and customizable.
Blog 1 in the series indicated the need to diversify use case offerings for Indian business correspondent (BC) agents so they can become economically viable and, hence, serve as a long-term sustainable model. In this blog, we will delve into possible ways to achieve this.
MSC has worked with many prominent financial service providers for the past 25 years. We have developed a framework that can help financial service providers identify ways to enhance their use case offerings through BC agents and make them suitable for LMI customers. This framework is based on the experience and insights generated from multiple behavioral research studies with agents, low- and middle-income (LMI) customers, and financial service providers, such as banks, payment banks, rural banks, FinTechs, and business correspondent network managers (BCNMs).
What are non-CICO use cases?
Cash-in and cash-out (CICO) refer to cash deposits and withdrawals from one’s bank accounts or mobile money wallets. LMI customers primarily use BC agents to deposit the wages they often receive in cash into their bank accounts through digital financial services. They sometimes also deposit cash at the agent point to transfer money to their families and withdraw DBT (direct benefit transfer) funds or salaries from their bank accounts to use the money for daily needs, such as groceries.
Besides this, customers also use BC agents to open bank accounts, conduct balance inquiries, and process insurance registrations, airtime top-ups, utility bill payments, and travel ticket bookings. These transactions or activities are classified as non-CICO products, where the customer obtains essential services through BC agent points beyond cash deposits and withdrawals. As per MSC’s Agent Network Accelerator (ANA) research (2018), providers and BC agents had a limited uptake of these non-CICO use cases. MSC’s extensive fieldwork since then suggests only marginal improvements in adoption in India. While innovative use cases like EdTech and logistics have been introduced by a few providers, their uptake remains limited to specific agents of these providers. However, a comprehensive ANA survey is needed to quantify the changes over the past six years.
MSC has classified non-CICO use cases into three categories based on the complexity of the products and their requirement for the LMI customer segment:
Scale-up use cases: These refer to the use cases that BC agents have offered for some time, such as utility payments, customer service centers (CSC), and ticket booking. While these use cases potentially generate significant revenue for agents, insufficient provider support has hindered their widespread adoption. Diversification to these use cases helps providers immensely as it does not require extensive research, has a predefined customer base, and uses the providers’ existing capabilities. Therefore, providers can adopt them quickly and effectively.
Incremental use cases: A few providers have experimented with these use cases. However, the development of such use cases requires qualitative and quantitative research. This would allow them to offer tailored products, such as social protection, grievance resolution, and wealth management, to improve relevance and uptake. Providers can, therefore, explore solutions for high-commission use cases to create new opportunities for growth and expansion. Such use cases include logistics, insurance aggregation, and digital credit products.
Adjacent use cases: Businesses have significant opportunities to explore new customer segments and innovative use cases, such as EdTech, telemedicine, and MSME-embedded finance. CICO agents can expand their reach and grow their market share if they understand these customers’ latent needs and the incentives that drive them. These are potentially innovative and revolutionary use cases.
Successful scaling up of non-CICO use cases
MSC’s preliminary research on non-CICO use cases available in the market reveals some interesting, successful case studies. Eko’s partnership with EnglishBolo, an English learning app, is a rare success story among adjacent use cases. 150,000 agents were used to extend EnglishBolo’s services through the partnership to those who lacked access to digital payment mechanisms. Similarly, a few providers, such as Vakrangee, have been working to provide logistics services to underserved communities through its BC agents.
More recently, providers, such as Airtel Payments Bank and FINO Payments Bank have launched a range of microinsurance products. These include hospicash, a small-value medical insurance product to cover hospitalization and related expenses, alongside insurance, which cater to LMI needs. Airtel Payments Bank could scale up its hospicash insurance product to more than 600,000 LMI customers in the past year (2023-24) alone. This highlights the demand for such innovative products in the market. The uptake among customers has also directly led to an increase in the agent’s commission. Such examples are few and far between. However, they highlight the importance and potential of the successful launch of new and innovative use cases through BC agents.
How can providers identify which use case is a perfect fit for them and their agents?
The identification of the perfect use case for agents is crucial for financial service providers (FSPs) to enhance their service offerings and ensure agent effectiveness. Providers can use MSC’s and the enabling ecosystem to determine the most suitable use case. This can be seen below:
Providers must analyze their current market position and infrastructure to identify suitable use cases. This involves qualitative and quantitative research on the customer base to understand their needs, aspirations, perceptions, and behaviors. Providers can identify the most suitable use cases for their agents and customers through the integration of these insights with the seven-factor outline.
The way ahead
Looking forward, financial service providers can use this structured approach to expand their service offerings strategically. It will ensure they meet LMI customers’ evolving needs.
Additionally, it is time for the industry to view BC agents as more than just facilitators of financial transactions and recognize them as “distribution service providers.” As many agents are in underserved and unserved areas, they can enhance access to essential products and services, such as M-health, M-power, M-insurance, M-agriculture, and M-everything. This not only improves accessibility but also fosters economic growth through the integration of rural populations into the broader market through “universal agents.”
“I have been an agent for a Payments Bank for more than six years. My business correspondent (BC) business has reduced since people started to use UPI (Unified Payment Interface). I used to earn more than INR 10,000 (USD 121) a month from the BC business, and now I only earn around INR 1,500 (USD 18) to INR 3,000 (USD 36) in a month. This paltry amount does not help me run my household. I have stopped paying much attention to the BC business and only focus on selling groceries.”
– A payments bank agent, rural Odisha
MSC’s recent qualitative interviews with agents in Delhi National Capital Region, Bengaluru, Sambalpur (Odisha), Ranchi (Jharkhand), and Raipur (Chhattisgarh) shed light on the low profitability of the CICO business for CICO agents. It revealed that rural agents, on average, earn INR 8,000 (USD 97) per month, which varies from INR 600 (USD 7) to INR 20,000 (USD 243). Agents who earn higher incomes of more than INR 15,000 (USD 180) are located in prime areas within districts with high migrant traffic and a relatively higher volume of daily transactions.
Most CICO agents have failed to make ends meet through CICO agent business due to low profitability and competition from emerging technologies, such as user-friendly UPI, QR-based payments, and internet banking, among others. As a result, CICO agents scout for alternate income streams and lose interest in the CICO business, which leads to higher dormancy rates.
The profitability problem
An analysis of the agents’ unit economics reveals that this business provides limited economic benefits to agents. Traditional agents typically reach breakeven in seven to eight months due to higher setup costs. In contrast, new-age agents achieve breakeven within two to three months. Further, as illustrated in the infographic, MSC’s cost-benefit analysis for new-age BC agents in India shows a monthly profitability that ranges from INR 4,000 (USD 48) to INR 11,000 (USD 131). In contrast, traditional agents earn around INR 7,000 (USD 85) to INR 15,000 (USD 180) monthly. However, these traditional agents have to make significant investments of $600-2,400 for capital expenditure to set up their outlets. When these investments are amortized, even over five years, the profitability of traditional agents is significantly eroded. Indeed, many are making losses.
* Traditional agents incur higher one-time setup cost ( USD 600- USD 2400), whereas the operational expenditures remain similar for all agent types with minor variations depending on the bank’s model; Source: MSC, 2022
The profitability for both agent types indicates they do not earn high incomes, especially if we consider the effort and operational costs involved. The profits generated by these agents are modest and may not prove beneficial for long-term financial stability. The market saturation, evolving customer needs, and increased competition contribute to their struggle for profitability. Moreover, the need to hold large amounts of liquidity for CICO operations introduces an opportunity cost, as this capital can potentially earn higher returns if invested in other ventures, such as a grocery store business.
The retail digital payment sector in India has experienced impressive growth, with transaction volumes increasing at a CAGR of 50.84% from 2017 to 2023. However, the BC channel’s use remains limited, with transactions at BC agent outlets comprising only 3% of the total digital payment transactions. More than 80% of the transactions at the agent outlet comprise basic CICO transactions, which earn the agents less than 1% commission on the transaction value.
Most agents manage 10 to 50 daily transactions, especially in rural areas, with a maximum transaction value of around INR 50,000 (USD 595). On average, an agent earns 0.10% commission on a transaction of INR 1,000 (USD 12). Based on this, the agent’s monthly commission is around INR 3,000 (USD 35) to INR 5,000 (USD 60). Agents must conduct transactions worth INR 30 million monthly (USD 0.35 million) to earn at least INR 30,000 (USD 365). Such a high volume of transactions is restricted to certain areas and districts and depends on agents’ financial capability – is how well they invest in and manage liquidity, and soft skills – such as clear communication that builds customer trust.
Graph 1: Volume and value of transactions at agent points
The Reserve Bank of India’s annual report, 2023-24 (Graph 1), reveals that the value and volume of transactions at BC agent points have grown since the dip in 2021. Still, the total transaction growth has been limited to 11% per year, while the growth of the volume of transactions is at 40%. This has had limited economic benefit for the agents as the percentage of commissions earned on transactions has reduced over the years. MSC’s market intelligence has revealed that the banks have reduced agent commissions on several services due to mergers of public sector banks, high cost of intercharge fees, and oversaturation of agent points in key geographies/markets. This makes it difficult for agents to sustain the BC business and meet the rising cost of living. Low commission and profit-earning potential make it difficult for agents to cover operational costs, especially in rural areas where transaction volumes may be high, but the value per transaction is low. This led to a net decline in the number of CICO agents by approximately a from 2022 to 2023.
Stiff competition from other modes of payment
In 2021, during the COVID-19 pandemic, UPI saw a significant surge in its usage as digital payments became more prevalent. Innovations, such as QR codes, made digital transactions more accessible to low- and moderate-income (LMI) groups.
As of 2024, India has 884 million Internet users with a 52.4% Internet penetration rate. The increase in Internet users has led to a significant uptick in digital transactions, with a colossal average daily volume of transactions worth INR 480.47 million (USD 5.7 million). UPI’s instant money transfer capability has reduced the reliance on BC agents.
Can BC agents dream of a brighter future?
An analysis of the total savings accounts opened at bank branches versus BC agent outlets reveals that BC agents have consistently opened more accounts than bank branches (Graph 2). This proves their relevance to the expansion of financial inclusion. Per the RBI’s Annual Report 2023-24, the total basic savings account opened by BC agents is 427 million. However, deposits made at BC agent outlets are on par or slightly lower than those made at bank branches (Graph 3). Therefore, while CICO agents open more accounts, they do not get enough “cash-in” transactions, which serve as an important source of income for agents.
Graph 2: A comparison of savings accounts opened at bank branches and BC agent outlets
Source: RBI annual reports (2019-24)
Graph 3: A comparison of deposits made at bank branches and BC agent outlets
Agents are crucial in the delivery of essential formal financial services to underserved communities from the LMI segment. However, they find the current overreliance on basic CICO transactions economically unsustainable due to low commissions. Agents can earn more through a broader range of non-CICO use cases, such as savings, deposits, insurance, and utility payments. Although providers, such as public sector banks and payment banks, offer some of these services through their agent networks, the uptake among agents remains limited. This is due to a lack of clear value propositions and insufficient training and support from banks and business correspondent network managers (BCNMs).
Providers must, therefore, invest in the development of innovative, LMI-friendly products with higher commission structures and provide uniform training on these non-CICO products to ensure BC agents’ economic viability. By doing so, agents can better serve the growing number of LMI customers they enroll in formal financial services. For instance, they can open basic savings accounts while they increase their income by selling non-CICO products. This strategy also provides banks a valuable opportunity to decongest their branches, as well-trained BC agents can handle more transactions and allow branches to focus on more complex and higher value banking services.
Blogs 2 and 3 in this series delve deeper into these two critical aspects: The development of innovative LMI-friendly products and the tailored training required for different agent segments to sell non-CICO products.
Nearly 48% of customers in Bangladesh, India, and Kenya have stopped using CICO agents, with around 20% shifting to alternatives like ATMs and mobile apps. MSC’s multi-country research on customer journeys with CICO agents reveals that convenience—driven by accessibility and seamless user experience—and trust, anchored in customer perceptions about the agent, are crucial for retaining customers.
CICO agents have revolutionized financial access in underserved regions, but their role and quality of services need to evolve. Explore our report to discover strategies for enhancing customer retention among CICO agents.
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