Business Correspondent (BC) Model and Financial Inclusion

A Business Correspondent (BC) is a person or an organisation that a bank appoints as its agent to give basic banking services in places where the bank has no branch. The BC can open accounts, take deposits, let people withdraw cash, send money and help with small loans, all on behalf of the bank. You may have seen such a person in a village shop with a small handheld machine and a fingerprint scanner. This is often called branchless banking, and it is one of India's main tools for financial inclusion.

Why does it exist?

Opening a full bank branch is costly. It needs a building, a strong room for cash, security guards and several staff. In a small village with a few hundred families, a branch will usually lose money. So for decades, many villagers had to travel long distances to reach a bank, losing a day's wages each time.

Many simply did not go. They kept cash at home or borrowed from moneylenders at very high interest. The BC model solves this by bringing a "mini bank counter" to the village at a very low cost. The bank pays the agent only a commission for the work done.

Where did it come from?

• In 2005, the Reserve Bank of India (RBI) set up an Internal Group on Rural Credit and Microfinance, headed by H.R. Khan (popularly called the Khan Committee). It recommended that banks should be allowed to use outside agents, supported by technology, to reach rural people.
• In January 2006, the RBI issued a circular that allowed banks to use two kinds of agents: Business Facilitators (BFs) and Business Correspondents (BCs).
• At first, only certain bodies could become BCs: NGOs and microfinance institutions registered as societies or trusts, cooperative societies, Section 25 companies (not-for-profit companies), Post Offices, and NBFCs that do not take public deposits. (The RBI soon paused the use of NBFCs while it examined the rules.)
• The Committee on Financial Inclusion, headed by Dr. C. Rangarajan, was set up by the Government of India in June 2006. Its report, released in 2008, also supported the BF/BC models and suggested a national plan for rural financial inclusion.
• Over time, the RBI widened the list of who can be a BC. Individuals such as retired bank employees, retired teachers, retired government employees, ex-servicemen, owners of kirana (grocery) shops, medical shops and fair price (ration) shops, PCO operators, small-savings and insurance agents, and petrol pump owners were allowed.
• In September 2010, the RBI allowed banks to appoint for-profit companies (registered under the Companies Act, 1956, but not NBFCs) as BCs as well.
• In 2009, the RBI raised the normal distance limit between a BC's place of business and its "base branch" (the branch that supervises it) from 15 km to 30 km in rural, semi-urban and urban areas. Later rules gave banks more freedom to decide this distance, as long as they could supervise the agent properly [Unverified].
• In August 2014, the Pradhan Mantri Jan Dhan Yojana (PMJDY) made BCs the backbone of its plan. Under PMJDY, banks were given areas of 1,000 to 1,500 households each, and each area had to have at least one fixed-point banking outlet, either a branch or a BC. This BC is called a Bank Mitra ("friend of the bank").

How does it work, step by step?

Think of a BC like a small franchise outlet of a big bank.

1. A bank signs an agreement with a BC. Often a large company called a Corporate BC manages hundreds of individual village agents, called Customer Service Points (CSPs) or BC agents.
2. The agent gets a handheld device or a laptop with a fingerprint scanner, linked to the bank's computer system (the Core Banking System).
3. A villager comes to the agent. Her identity is checked using her Aadhaar number and fingerprint. This is called the Aadhaar Enabled Payment System (AePS).
4. She can deposit or withdraw cash. The money moves instantly in her bank account, and the agent pays out or keeps the cash at the counter.
5. The agent keeps cash on hand and settles it with the bank regularly. The bank pays the agent a commission for each transaction or account.

What can a BC do, and what is a Business Facilitator?

Students often mix these two up.

• A Business Facilitator (BF) only helps. It spreads awareness, identifies customers, collects and checks loan applications and follows up on loan recovery. It cannot handle cash or do transactions for the bank.
• A Business Correspondent (BC) does actual banking work for the bank. It can open accounts, take small deposits, pay out small withdrawals, give out small loans, collect loan repayments, send remittances and sell simple insurance and pension products.

Who is responsible if something goes wrong?

The bank is fully responsible for everything its BC does. The RBI's rules say that banks must set limits on how much cash an agent can hold and how big a single transaction can be. Banks must also run a grievance redressal system, so that a customer who is cheated or badly served by an agent can complain to the bank.

The bank may pay the agent a "reasonable commission or fee", and the RBI has told bank boards to review how BCs are paid and supervised.

India's position and Indian examples

• As of 2025-26, the government reports that about 99.9% of India's inhabited villages have a banking touch point (a bank branch, a BC or an India Post Payments Bank outlet) within 5 km. Most of this reach comes from roughly 17 lakh BC outlets, far more than the about 1.8 lakh bank branches.
• As of March 2025, about 55.8% of Jan Dhan accounts (about 31.24 crore accounts) belonged to women.
• BC Sakhi: Under the Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM), women members of Self-Help Groups are trained and placed as BC agents in their own villages. They are called BC Sakhis ("sakhi" means female friend). Over 1.35 lakh SHG women had been placed as BC agents by late 2024, with Uttar Pradesh running one of the largest programmes. A separate role, Bank Sakhi, is an SHG woman who sits inside a bank branch to help SHGs get loans.
• Women agents matter because many rural women feel more comfortable dealing with another woman from their own village. She can visit homes, explain products in the local language and keep a woman's savings private.

Commonly confused concepts

• Business Correspondent vs Business Facilitator: BC handles cash and transactions for the bank; BF only gives support services and never handles cash.
• Business Correspondent vs bank branch: A branch is the bank's own office with its own staff. A BC is an outside agent working for the bank on commission, with limits on cash and transaction size.
• BC vs Payments Bank: A Payments Bank (such as India Post Payments Bank, which started in 2018) is itself a licensed bank that can take small deposits but cannot give loans. A BC is not a bank at all; it is only an agent of a bank.
• BC Sakhi vs Bank Sakhi: BC Sakhi does banking transactions in the village as a BC agent. Bank Sakhi works inside the branch to help SHGs with credit linkage.
• Bank Mitra vs BC: Bank Mitra is simply the name used under PMJDY for a fixed-point BC agent.

Issues, criticism and the way forward

• Low and late pay: BC agents earn by commission, and the value of each rural transaction is small. Industry bodies report that average monthly earnings of agents fell to about ₹7,000 to ₹8,000 in recent years, with many earning less than ₹5,000. Field studies found commissions sometimes arrived 4 to 6 months late. This makes many agents quit.
• Dormant accounts: Many accounts opened through BCs are rarely used. Since agents are paid per transaction, an idle account means no income for the agent ("no work, no pay"). Some agents disappeared after earning only the one-time fee for opening accounts.
• Cash and safety risk: Agents carry cash, often without proper insurance. The RBI has flagged that passing the cost of insuring cash onto agents is a problem.
• Fraud and overcharging: Some agents have charged customers illegal fees or misused fingerprints. Poor, less literate customers may not know they are being cheated.
• Network problems: Weak internet and failed fingerprint scans in remote areas can stop transactions.
• Mostly cash in, cash out: BCs today mainly handle deposits and withdrawals. Very few give real credit, insurance or advice, which women farmers need most.
• Way forward: The National Strategy for Financial Inclusion has called for reworking the payment structure of BCs. Ideas include fixed minimum pay, higher commission in hard-to-reach areas, insurance for agents, more women agents, better training and certification, and letting BCs sell more products such as crop loans, insurance and pensions so that they earn more and serve better.

Concepts to Know

• Financial inclusion: Making sure every person, especially the poor, can use basic financial services (a bank account, safe savings, affordable loans, insurance and pension) at a fair cost.
• Base branch: The bank branch that is in charge of a BC agent. It supervises the agent and settles the agent's cash.
• Core Banking System: A central computer system that connects all branches and agents of a bank, so that an account can be used from anywhere and updates instantly.
• Aadhaar Enabled Payment System (AePS): A system that lets a person withdraw cash, deposit money or check her balance at a BC point using only her Aadhaar number and fingerprint, without a card or PIN.
• Section 25 company: A not-for-profit company under the old Companies Act, 1956 (now Section 8 of the Companies Act, 2013). Its profits must be used for its social aims, not paid to owners.
• NBFC (Non-Banking Financial Company): A company that gives loans or makes investments like a bank but does not have a banking licence.
• Commission: A small fee paid to an agent for each piece of work done, such as one transaction or one account opened.
• Dormant account: A bank account in which no transaction has happened for a long time (usually two years in Indian banking).