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The demand for e-float in northern Uganda: Is agricultural activity at play?

Posted on by MSC

It’s a common belief that agents in rural regions need more cash than e-float to meet the demand of their customers, while in urban areas cash-in and cash-out transactions balance themselves out. The 2013 Agent Network Accelerator (ANA) Uganda Country Report revealed that more than half of agents in Northern Uganda (57%) require more e-float than cash.  As Northern Uganda is predominantly rural, this finding is extremely intriguing.

High demand for e-float implies that customers are conducting more deposits than withdrawals at agent outlets. In Northern Uganda, 43% of households live below the poverty line—two times the national average—therefore one would expect this region to be a net recipient of domestic remittances. What makes Northern Uganda unique in the unconventional demand for e-float from other rural regions?

Source: The Helix Institute of Digital Finance, Agent Network Accelerator Uganda 2014

The Agriculture Factor in Northern Uganda

Research conducted in Northern Uganda revealed that investments in and proceeds from agriculture activities has increased the amount of money in circulation within the ecosystem which has, in turn, created opportunities for mobile money transactions—such as smallholder farmers engaged by large, commercial farms.  In fact, mobile money agents in Northern Uganda report that they experience high demand for e-float during the months of the two harvest seasons (July to August and November to December) when traders and farmers earn high revenues.

Traders and farmers in Northern Uganda seem to be moving closer to digitizing the agricultural value chain.  Unlike other agricultural regions in the country, Northern Uganda has dedicated value chain players (such as the Sorghum Value Chain supported by Nile Breweries).  Traders, who play a key role in this value chain, make most of their purchases to their suppliers in the region and even across the border in Congo and South Sudan using mobile money.

Traders choose to digitise their payments because digital payments are a faster, convenient and cheaper means of purchasing supplies than physically travelling to Kampala or outside the Northern Region. They also choose to employ digital payments to increase safety against theft, robbery or fake currencies. It seems that for traders mobile money is a trusted medium for bulk merchandise payments which has resulted in the high level of deposits into their mobile money accounts, and thus agents’ need for more e-float than cash.

Further, paying suppliers is not the only reason agents experience a high demand for e-float. As a result of the income earned from the harvest, traders and farmers deposit money to their mobile wallet accounts. With an estimated 0.2 formal bank branches per 10,000 persons, most of which are located within urban centres (Lira, Gulu, Arua), Northern Uganda has the lowest bank penetration rate in the country. Mobile money agents are accessible and mostly at their doorstep.  As a consequence, people store money on their e-wallets as the best option available.  Agents note that customers make payments for school fees and send pocket money to their children, as well as remittances to relatives and friends outside the Northern Region.

How Do Agents Cope?

An illiquid agent impacts his/her ability to meet customers’ demands and can hurt an agent’s business.  In discussion with agents in Northern Uganda, while they understand the cyclical swings in e-float demand associated with the agricultural/harvest seasons, maintaining a sufficient amount of e-float remains a challenge to rural agents. This is because they lack the appropriate capital, resources, management techniques and at times willingness to invest in their mobile money operations during the planting season.

We interviewed agents who frequently borrow e-float from other agents; an innovative coping mechanism which we also witness in Tanzania. Whilst this is encouraging, these informal management systems can put pressure on the lender, and would benefit from making this arrangement more formalized.

We found that agents carry a small amount of capital for their mobile money operations and thus run out of e-float more often, resulting in the need to rebalance before the next transaction. In fact, in some cases non-dedicated agents often have to choose between their mobile money and parallel businesses when it comes to cash management, mostly during the planting season (when farmers tend to their land). During this time period, agents choose to keep more cash than e-float as they would rather speculate in their parallel business.  An illiquid agent can lead to poor customer service such as denying a customer’s transaction or forcing a customer to split their transaction—which increases both their transaction fee and the time a customer spends to transact.

What Can Providers Do To Help?

The need for e-float in Northern Uganda highlights the importance of digital financial service providers to understand both the needs of their rural customers as well as the liquidity management challenges and coping mechanisms of rural agents. While we understand that liquidity management in rural areas is complex, based on our research with agents, we recommend offering the following services to help agents overcome e-float shortages.

Provide float on credit: Some master agents in Northern Uganda provide e-float on credit. One master agent interviewed provides a 30-minute e-float credit to his agents by sending a float runner to collect the cash.  If within 30 minutes the cash isn’t received, the line for the agent is blocked. This indicates an opportunity for structuring an e-float loan product. Access to a sustained flow of e-float through credit financing will enable agents to serve their customers better and build their loyalty.

Develop a reward structure for agents who are inclined to save money than having  at disposal: Agents in Northern Uganda use their till as a safe way of banking their business earnings and during the low agricultural season they invest in their parallel business as they weigh between the mobile money commissions and this other business. Providers can reward agents who increase their e-float held during the harvest period, so as to ensure that they can serve customers and thus grow their business.

In Northern Uganda, agents’ and customers’ float requirements indicate that P2B and B2B payments are growing and are linked to their agricultural livelihoods. The mobile money use case in rural Uganda seems to be slowly evolving from domestic remittances to payments and deposits. This implies that practitioners will need to understand triggers for such payments, such as economic seasonality and design practices that suit customers’ and agents’ liquidity needs.

Burgeoning ‘Typhoons’ in Digital Financial Services

Posted on by Parul Tandon

Typhoons are great engines of destruction. When a typhoon makes landfall it often produces a devastating storm surge that destroys everything in its path without mercy. The best defence against a typhoon is an accurate forecast that gives people time and means to get out of its way. It is therefore prudent to watch, watch again, and then watch out if you happen to be in a typhoon-prone area.

Since its inception, the digital financial services (DFS) industry has been subject to a wide range of frauds, across different markets and players of the ecosystems. The diverse nature and scale of these fraud cases has been evolving across markets. As a result, most digital financial services operators are now deploying in-house, dedicated fraud teams. Supply-side research by The Helix Institute of Digital Finance in Bangladesh and Kenya identified fraud as the biggest concern amongst agents, in 2013 and 2014. Our recent surveys in both Tanzania and Uganda highlighted how prevalent it has now become—42% of agents and a little more than half of agents, respectively, indicate that either they personally, or one of their employees, have experienced fraud in the last year. In other markets, such as Zambia and India, it has been cited as one of the top challenges to an agent’s business in 2014.  In response, The Helix Institute collaborated with leading specialists to build a Risk and Fraud Management in DFS course. The course highlights key risks as well as mitigation/management strategies.

Source: Compiled from Agent Network Accelerator (ANA) Surveys. ANA surveys were conducted in 2013 in Uganda, Kenya, and Tanzania; in 2014 in Bangladesh, Kenya, Pakistan, and India; and in 2015 in Zambia, Tanzania and Uganda. Country comparison graphs contain most recent data available.

Emerging trends involve both internal employee fraud and fraud by external parties. DFS provider employees can use their position to gain access to confidential customer information, especially in cases where there are no tight checks, and then use this to target customers, gain account access, or otherwise obtain client funds. In one mobile network operator (MNO), employees colluded and stole about US$ 3.4 million through accessing the company’s suspense account which temporarily holds unclassified or disputed transactions. The staff members were then able to generate e-value and redirected the funds for withdrawal through some colluding agents. This was due to lack of appropriate reconciliation procedures and mismanagement of the user access rights for the mobile money system, where staff members were using multiple active system user log-in credentials. In Rwanda, an MNO found one of its staff members orchestrating fraud by redirecting funds amounting to US$ 673,943 for withdrawal through conniving agents over a 12-month period. In South Africa, the collusion between a few employees of a major MNO and a bank resulted in a major SIM swap fraud. This resulted in the loss of thousands of Rand.

Third parties, such as employees of institutions providing outsourced services or unaffiliated fraudsters, generally contact agents or customers indirectly through social engineering (typically spoofing/phishing) scams to fraudulently obtain account information and rob them. Others have been able to hack into accounts or wallets, to ultimately obtain funds illegally. Recently, in India, 5 engineering students robbed a private sector bank of tens of millions of Rupees using fake mobile wallet transactions over a period of four months, since December 2015. The students managed to hack into the bank’s newly-introduced wallet so that if a customer tried to send funds to another wallet holder, and the recipient was offline, the initiator of the transaction did not end up losing any funds. Instead, funds were pulled from the bank and directed to the fraudster’s wallet. This fraud case was uncovered when about US$ 1.2 million had been siphoned off. In Kenya, fraudsters who are typically prison inmates, with illegal access to mobile phones through syndicates, continue to perpetrate fraud through social engineering. The latest methods used are through calling or sending text messages to random numbers, either in pretence of being relatives requesting for funds or as representatives of different companies: for example, banks or supermarkets, communicating about winners of special promotions. In the latter cases, they request that the subscriber sends funds to a specific mobile wallet to ‘activate’ their winnings, in order to receive their large cash prizes.

The latest random messages being pushed around Kenya target anyone who is about to send funds. These text messages are as “Please nitumie ile pesa kwa hii number, simu yangu imezima”, which translates to “My phone has gone off, so kindly send those funds to this number instead”. Since sending money is a common activity, when some people receive this text message, they are duped into believing it has been sent by the intended recipient. They are misled into thinking that the intended recipient is having trouble accessing their normal wallet/phone, and so are providing an alternative number so that funds can be transferred. The sender then send funds to the new number. Many innocent customers have lost money by responding to these calls or text messages, with those living in the rural areas most commonly hit.

These are just a few examples of a multitude of alarmingly creative approaches to defrauding agents and end-users. Among customers, there are also perceptions of fraud vulnerability as identified by Consumer Protection and Emerging Risks in Digital Financial Services report by CGAP, MicroSave and BFA, which also reaffirms the prevalence of these occurrences. The general trend is that frauds that circumvent back-office systems result in large-scale losses to the providers, while smaller frauds from third parties often target lower amounts from agents or customers.

But how should providers heed evolving fraud?

Typhoon-prone countries have increasingly sophisticated early-warning systems. Similarly, DFS providers need sophisticated risk/fraud management systems. Providers need to understand fraud and track its evolution over time in order to manage it effectively.  This understanding is derived from robust monitoring of the ecosystem and fundamental monitoring questions are asked on an on-going basis: What new fraudulent activities are happening? Is there a trend? Are all controls adequately designed and executed? Are employees aware and do they understand their roles and responsibilities?

Fraud Management Systems

DFS providers need sophisticated risk/fraud management systems (FMS). The FMS help service providers to understand the nature of frauds. A lot of data is generated from different systems in any DFS provider. FMSs enable fraud managers to use this data and design rules and algorithms to track the pattern of frauds. They enable them to set fraud rules which help in identifying collusion checks, velocity checks, threshold checks, black-list checks, new subscriber checks, profile checks, SIM swap checks, etc. These systems help providers to understand fraud and track its evolution over time ― thereby helping to manage them effectively and reducing revenue losses. Velocity and pattern detection tools, which are real-time, dynamic, efficient, and effective in finding patterns that point to fraud, add powerful capabilities for next generation fraud management.

Reliable and relevant data and dashboards

Data is critical for monitoring and managing DFS fraud. Reliable data is generated through working with technology providers to build robust systems or tools that determine and track normal and abnormal behaviour. Providers need to ensure robust prevention measures on the first line of defence – registration or account opening processes. Combining this with data-driven alerts can provide real-time, multi-channel defences to address a wide spectrum of fraud threats. At the same time, more traditional “maker-checker” approaches to ensure segregation of duties, together with back-office monitoring and reconciliation teams, are key to maintaining the integrity of digital finance systems.

Internal control

Providers need to ensure robust internal controls. They can be of two types: preventive controls and detective controls. Some examples of preventive controls can be measures like limiting number of transactions per day (value or volume), authentication of transactions, having passwords at different levels, providing limited access to employees, etc. These are generally low-cost solutions to the providers. Detective controls, on the other hand, are post facto. Typical detective controls are: understanding the patterns of transaction activity, reviewing high-value /high-volume transactions, monitoring log-in activity of employees, etc. These tend to be expensive, since DFS providers need to build systems for this. When any fraud happens, preventive measures offer the first line of defence.

Clear reporting and communicating channels between stakeholders, including customers

Different providers have different organisational structures, which determine the number of stakeholders involved. Internally, managers, back-office support, customer service, and finance and revenue assurance teams must all be aware of fraud risk and encouraged to communicate any anomalies or suspicious activity to relevant internal parties. External communication to agents and customers is equally important for effective preventive control. Awareness creation among customers on how to avoid the risk of fraud is a critical preventive measure to reduce customer spoofing/phishing scams. Lastly, in the event of the detection of suspicious activity, clear internal procedures defining both how to escalate awareness and ensure immediate action, need to be in place. Whistle-blowing within institutions should also be encouraged.

DFS ecosystems continue to evolve; however, with this the scope for fraud is also growing. For DFS to realise its full potential, all stakeholders inclusive of regulators, donors, providers and their partners, as well as customers, have a role to play in combating fraud – and minimising the risks of DFS being swept away by burgeoning typhoons of fraud. The first Helix Risk and Fraud Management in DFS, is ongoing – click here to check it out!

Agent Dormancy: Reasons and Remedial Measures

Posted on by MSC

Agent dormancy is a cause of concern for financial inclusion. MicroSave recently conducted research to understand rural customers’ perception of dormancy, the challenges faced by them after an agent goes dormant, the reasons for agent dormancy and the remedial measures to cope with this challenge. The research was carried out in 12 districts across four states of India. This Note highlights that some of the prominent reasons for agent dormancy include: payment of commission to agents, support to agents, communication issues, poor grievance redressal mechanisms, besides technology and infrastructure-related issues. The Note further highlights the role to be played by the Regulator in arresting agent dormancy.

Financial Capability and Indian Digital Financial Services

Posted on by Parul Tandon

The World Bank Institute highlights that behavioural change with regard to financial capability is a non-linear process and requires more than receiving compelling information. For an evolving channel like DFS, which has several models of service delivery, this brings its own set of challenges. For DFS to be used to its full potential, it is important that both customers and agents have functional knowledge of the channel.

Therefore, under MicroSave’s study for the Omidyar Network on customer protection, risk and financial capability in India, financial capability of the customers was assessed on the basis of:

  •  Functional knowledge to transact on their own
  • Awareness about terms and conditions and product features
  • Ability to protect personal account information
  • Awareness and ability to access recourse

Financial capability of the agents was assessed on the basis of:

  • Functional knowledge about terms and conditions and product features for proper facilitation
  • Functional knowledge  about recourse mechanisms to help the customers as well as to resolve problems they face
  • Monitoring and training support so that agent is able to serve the clients well

As indicated in a previous blog “Customer Protection in Indian Digital Financial Services (Part 2: Transparency and Privacy)”, almost 2/3rd of customers do not fully understand the product terms and conditions and pricing. Furthermore, knowledge about other products among agents is also low, and so they offer only a few products. The graph indicates the top three products offered by agents by volume.

Furthermore, field observations show that there is a growing trend amongst customers to carry out over the counter (OTC) transactions. These people are not covered in the study, but form a significant proportion of transaction volume. Since they conduct OTC transactions, it is fair to assume that they too have very limited knowledge of the terms and conditions of service.

Functional awareness among agents to facilitate transactions appears high. However, this does not represent the complete picture as they only have knowledge about a few products. MicroSave’s ANA India Survey highlights that only 59% of agents received training. Of those trained, 61% agents have undergone a refresher training. 36% of these have received refresher training only once.

In the MicroSave study for the Omidyar Network 96% of agents said that they knew about the product features of top three products on offer through their agency; 77% of agents said that they do not have any difficulty in handling the devices/technology; and only 68% of all active agents reported having received documents describing terms and conditions of service.

79% of the agents know about recourse options. However, of the agents who faced issues, only 24% actually used any kind of recourse option. Though agents were aware of multiple recourse options, the method actually used to resolve issues was much more traditional in nature ― agents preferred to sort out issues face to face at the branch.

This indicates that even though there is awareness about recourse options among agents, they are not used much. Moreover, the dependence on agents on going to the bank branch or provider for recourse suggests that call centres are either absent or not functioning adequately. This also raises a question on the ability of agents to resolve customer level issues if they do not have functional knowledge of recourse.

However, when asked what is discussed during monitoring visits, the answer was ambiguous both in terms of agenda and problem resolution.

A separate baseline assessment study conducted by MicroSave, for Bank Mitrs (agents) under the PMJDY scheme also highlights the fact that monitoring visits lack an agenda in terms of what needs to be checked, and often does not resolve any problems/issues that the agent/customer may be facing. At best, during monitoring visits, the bank staff checks the notebook of agents in which transaction records are maintained. There are almost no checks/interactions with customers during monitoring visits. This is primarily to avoid questions on unresolved issues like – When will they get their passbook? When will the ATM card be issued? Will they be able to access credit? etc.

Financial capability in terms of product knowledge and recourse is limited amongst agents and very limited amongst DFS customers in India. Furthermore, there is little sign that the sporadic agent monitoring visits are being used to address this problem. Providers and banks should view this as a big opportunity to both improve levels of trust in DFS and the range/uptake of products and services by the mass market. But, to achieve this, concerted efforts will be required to enhance the financial capability of both the agents and the customers they serve.

Customer Vulnerability, Trust and Risk in Indian Digital Financial Services

Posted on by MSC

Qualitative research done as a part of MicroSave’s study for the Omidyar Network on customer production, risk and financial capability in India shows that customers’ perceptions of banking or financial transactions are still focused on brick and mortar based services. DFS providers have not done enough to change the customer’s perception and gain trust. The customer’s perception of risk of digital systems and technology can be further broken down into three broad issues.

1. Lack of trust in digital financial services arises from three key drivers:

a. Frequent server downtime: Many issues are clubbed here – including: bank server downtime; provider’s network downtime; failure or overload of the middleware linking the bank system to the provider’s system; and internet or GSMA outage. In addition, on occasions, the agent’s unwillingness (or inability due to lack of liquidity) to service the customer is covered by the agent with an assertion that “the system is down”.

b. Interrupted transactions: Often, while transacting, agents/customers face the problem of interrupted transactions. This can happen due to various technology challenges and often results in incomplete transactions.

c. Lack of confirmation messages: Lack of a confirmation message, or receipt, or any form of physical evidence of the transaction, causes anxiety amongst many customers.

2. The low-income customer segment is still not comfortable in texting for two reasons: 

a. Unable to enter details: In the case of mobile delivery channel, many old and middle-aged customers are unable to type details on the phone.

b. Fear of entering wrong details: Customers do not want to conduct transactions (themselves) because they are afraid that they might enter wrong details, and thus lose money.

Customers’ low level of comfort with technology is exacerbated by often clunky user interfaces (see below) and often leads to agent-assisted transactions. Assisted transactions significantly increase the level of risk for the customer as they have to share their account details with the agent. Further, it also harms the service provider in the following ways:

• Increased risk of fraud and hence reputational risk

• Agents start behaving like middlemen, limiting the providers’ communication with clients; exposing the provider to the risk of customer poaching (if the agent is not satisfied with the service/commission given by a provider, he shifts to a different provider and also shifts the customers along with him), and limiting opportunities to cross-sell.

3. Confusing/non-intuitive user interfaces compound the issues

a. User interfaces are often confusing to the customer. The USSD interface is often too deeply layered or embedded for the customers to get to the right option. This forces the customer into risky behaviours like:

• Sharing PIN with the agent

• Leaving cash with the agent (especially when the system is down or alleged to be down)

• Leaving phones with agents to complete a transaction

b. Transaction data security relates to the privacy of customers’ account/PIN details while conducting transactions at agent locations. Poor transaction data security increases customers’ vulnerability to external frauds. Confusing interfaces and low comfort level with technology add further to poor transaction data security, as the customer is forced to share personal account details.

Two other issues further erode customers’ trust in digital finance in India:

1. Lack of liquidity at the agent is a multi-fold issue. For the customer, it means that their funds are inaccessible and service is denied. A customer who has been refused service by an agent is less likely to transact again at that agent location. Furthermore, loss of business reduces profitability and demotivates the agent, so he starts maintaining minimum (or less) liquidity – thus setting in motion a downward spiral.

2. The perception that funds held digitally are not safe. This stems from rumours which spread in the market from time to time. For example, in 2014, in response to government policy, agents were given a target of 100% withdrawal of government payments to receive their commission from the agent network managers. So, (unsurprisingly) agents communicated that customers must withdraw all their direct benefits immediately or the government would take back the amount left in the account.

These issues are very similar to the ones we found in Bangladesh, Uganda and (to a lesser extent) the Philippines (see graph below).

There are, however, important consequences of these issues and risks for DFS uptake and usage. Fears and perceptions suppress uptake and tarnish the reputation of DFS and its providers. Non users are often very aware of these issues. In the words of one customer, “We keep hearing mobile money users complain about unstable network, delayed service, missing money and many other negative comments about mobile money. Why then should we register for these services?”​ 

There is strong evidence that poor customer service/protection is reducing not just uptake but also usage of DFS services. Many registered customers lapse into inactivity when they find it impossible (due to system downtime or absent/illiquid agents) or too scary (due to the risks of sending money to the wrong number or losing/compromising their PIN) to make transactions. Others choose to self-protect by using OTC services in preference to registering or keeping money in their m-wallets. These all limit the use of digital financial services. This was a repeated theme across the studies and reflects the findings of InterMedia’s work in eight leading markets across the globe. MicroSave’s recent work for UNCDF’s MM4P on the customer journey highlighted that, “Moving people from knowledge to trial, and from trial to regular usage, will require providers to address issues that erode trust: system instability, poor customer service; and improve access which is limited by current KYC requirements”.

System downtime and sending money to the wrong number, in particular, seem to damage the reputation of DFS service providers. Ironically, these technological issues can be addressed by providers themselves. Similarly, agent liquidity and overcharging can and should be addressed through effective monitoring by providers and their agent network managers. The future of DFS in India is in the hands the very people that provide these services.

PMJDY Bank Mitr Assessment: The Supply-Side Story

Posted on by MSC

Pradhan Mantri Jan Dhan Yojana (PMJDY) is now the world’s most successful financial inclusion scheme.  This blog highlights the supply-side findings (specifically focused on Bank Mitrs (BMs) or bank agents) of the final round of MicroSave’s PMJDY assessment (Wave III) conducted in December 2015.

The BM network is the backbone of PMJDY scheme. The network of agents act as the arteries and veins of the Indian financial system that delivers technology-enabled financial services, at affordable cost, to otherwise inaccessible corners of India. The success or failure of the PMJDY scheme depends on the vibrancy of a network of more than 125,000 BMs spread across India. A typical BM is considered functional if he is available at the designated sub-service area location, equipped to serve transaction requests/queries of customers, earning a (sustainable) profit from operations, and has robust back-end support from link bank branches. This blog discusses these critical functional parameters of the BM network.

Are BMs available/accessible/transaction-ready?

Yes! PMJDY Wave III highlighted significant availability of BMs, i.e., BMs who are present at the stated location or could be traced to a nearby location. While 97% of the BMs were available, only 3% could not be traced, as they were neither present at their kiosk, nor could be contacted over the phone. Even the local residents could not identify/provide information about the latter. The survey highlights that 79% of the BMs are “transaction-ready”, i.e. BMs equipped to handle customers’ account opening/ withdrawal/deposit requests. BMs’ availability and their transaction-readiness has positively impacted customers’ trust of the PMJDY scheme. BMs were of the opinion that PMJDY scheme has led to greater women’s participation in financial inclusion. One BM from Jind district of Haryana says, “Many women save INR 50–500 (US$ 0.75–7.5) without their husbands knowing about it.” Our findings indicate that out of every three PMJDY customers opening a bank account for the first time, one is a woman. A BM from Bhadrak district of Odisha said “900 accounts out of 1,540 are of females. If it is convenient, we collect deposits from their houses.”

Does income from business match BM’s expectation?

No! There is a huge expectation mismatch between what a BM expects to earn (INR 13,000 (US$ 197) monthly) and what he actually earns (average monthly revenue/income is INR 4,692 (US$ 71)). At current income level, BMs are earning an average income of INR 188/day[1] (US$ 2.8), which is less than the income of an average MGNREGA worker, who earns INR 206 per dayday[2] (US$ 3). A BM from Ghazipur district of U.P. noted, “Our income is lesser than MGNREGA wages. I have received INR 3,500 (US$ 53) in the last 18 months. Can I sustain my family on this income?” BM profitability ranges between a monthly loss of INR 350 (US$ 5.3) to a monthly profit of INR 2,500 (US$ 37.7) depending on the type of commission model and investment made in the infrastructure.

BMs claim that the amount received as commission is not sufficient to cover operational costs, such as travel to link branches, stationery, rent, and connectivity. The fact is corroborated by MicroSave analysis, which reveals that an average BM incurs a monthly operational cost in the range of INR 2,600-3,300 (US$ 39-50). Additionally, BMs have no clarity on the commission structure. BMs receive a lump sum amount in their account, without any break-up to explain the commission paid to the agent. This leaves them unsure of the relationship between monthly transactions performed to the commission earned, and unable to keep track of their monthly earnings from the business. A few BMs also report not having received any commission for the last three to six months. The irregularity and low commission payment has direct impact on service to PMJDY customers due to increased BM dormancy/churn, and low level of investment (liquidity).

BMs’ dormancy (i.e., BMs who have abandoned their role as a BM and have stopped offering financial services) stands at 10%.  At 10% dormancy level, it is estimated that a total of 12,595 BMs[4] across India. Further, an additional 2% BMs have stated that they plan to exit the business in the next two months, owing to inadequate commission, poor support from the bank or agent network manager, and lack of business potential. This may add another 2,519 BMs to the total dormant BM numbers in India and cut off approximately 2.4 million PMJDY customers from mainstream banking. In addition to this, PMJDY survey reveals that around 6% of the active BMs are not conducting any transactions and it is highly probable that they may become dormant if immediate steps are not taken to improve their business profitability.

If it’s a no-profit business, why BMs are still continuing the operations?

Surprisingly, despite challenges, most BMs continue with the business and hope that the situation will improve in future. A BM from Ferozpur, Punjab, noted: “The bank may recruit us as staff, if we continue to perform better.” The perception that work as a BC will lead to full-time job opportunity with the bank led many to join as agents. At times, we also observed banks taking undue advantage of this false expectation of BMs, by asking them to assist in their day-to-day activities.

BMs also cite reasons such as better standing in society as a result of their BM status; and also feeling accountable to the customers for whom they opened accounts/from whom they have taken savings, as reasons for continuing in the role. A BM in Bhadrak district of Odisha stated, “I get a lot of respect wherever I go”.

However, only 37% of the BMs surveyed have additional businesses/occupations (such as photocopy machines, general stores, and/or insurance agent, etc.), indicating that they are not solely dependent on the uncertain income from BM operations. This gives them an important cushion. Worldwide, the agent network surveys performed by MicroSave’s The Helix Institute are showing an increasing trend of agents to be “non-dedicated” – i.e. running the agency business alongside another core business. Even in Kenya, in 2014 64% of agents were non-dedicated – up from 54% a year earlier.

Is BM’s sustainability the only concern?

No! There are other issues as well!! A BM from Jind district in Haryana pointed out: “I have enrolled for the Rs 330 (US$ 5) insurance, but no amount has been deducted from my account. I am not aware where to approach if an accident were to happen?” The survey highlights that many BMs are unaware and untrained about the full benefits and process details, such as insurance premium deposit and claim settlement. BMs reported that they did not receive product details from link branches but, instead, gather information through advertorials in television and newspapers. They mentioned feeling helplessness in the face of customer queries, such as status of activation of an insurance policy, premium deduction, process and documentation of claim submission, etc. BMs noted that a major challenge that they face is the absence of proper documentation which should be received by a customer taking out an insurance policy. BMs reported providing the stub of the insurance form as ‘acknowledgement slip’ only if customers asked for it; otherwise, no proof/documentation was given to customers.

And, finally, what about link branch support?

A BM from Ferozpur district of Punjab noted: “We are called Bank Mitrs, but link branches don’t accept us as one”. BM business and performance improves with better quality support from link bank branch staff. On a day-to-day basis, a BM needs regular support from bank branch staff for a variety of aspects of the business, such as account approval at the back-end, resolving technical challenges, connectivity-related issues pertaining to point of sale (POS), and liquidity management.  BMs with better branch support showed higher customer footfall. As one BM from Dadra & Nagar Haveli said, “If the branch manager is good, then everything is good”. Interestingly, only 63% of active BMs were satisfied with the support they got from staff at the link branch, while 18% BMs were dissatisfied.

MicroSave’s qualitative analysis reveals that, on an average, a bank branch managed 2 BMs and approximately 2,000 PMJDY customers. Assuming 10% of PMJDY customers approach the bank branch for their day-to-day non-financial /financial transaction – bank branches need an additional 34 man-hours to successfully address these additional customers. The lack of support that BMs received from branch staff can thus also be attributed to the bandwidth limitations prevalent in rural branches.

The Surveys: Background, Samples and a Technical Caveat

MicroSave conducted three rounds of PMJDY assessments (Waves I, II and III) from October 2014 to December 2015, to analyse the impact of and challenges associated with PMJDY, both for beneficiaries and channel partners. MicroSaveconducted the study with funding support from the Bill & Melinda Gates Foundation (BMGF) and presented the findings to the Department of Financial Services, Ministry of Finance, Government of India.

It is important to note here that Wave III incorporated a nationally representative survey conducted with 1,627 BMs and 4,859 PMJDY account holders, in a total of 42 districts across 17 states and one Union Territory. The survey results of PMJDY Wave III are not strictly statistically comparable with PMJDY Wave I and II surveys, due to difference in sample frames. The comparisons presented in the blog are for the purpose of convenience and are indicative in nature.

For more information visit here

[1] Assuming BM works for 25 days in a month

[2] MGNREGA website: http://nrega.nic.in/netnrega/homestciti.aspx?state_code=26

[3] There are 125,956 BMs present across India: http://www.pmjdy.gov.in/infrastructure

[4]  On an average, a BM handles 949 PMJDY customers: PMJDY Wave III findings. Therefore 12,595 dormant BMs multiplied by 949 gives us a total of approximately 12 million PMJDY customers who are not being served