Catalyzing Financial Inclusion

Through the CSCs

An Implementation Handbook

Contents
Introduction Salient Features of Indias Financial Inclusion Strategy Understanding the Business Correspondent Model Technology Enables the Business Correspondents Workow Common Services Centres Scheme Leveraging CSCs as Business Correspondents The BC- CSC Technology Model: Enabling Kiosk Banking SUCCESS STORY: AISECT-SBI Leverage CSCs in Madhya Pradesh and Chhattisgarh for Financial Inclusion Direct Cash Transfers Ensure BC Sustainability Roles of the Key Stakeholders Implementation Process: CSC SPV as Banks BC VLEs Check List to Launch Financial Inclusion Services Steps to start Kiosk Banking Solution 2 3 5 7 8 9 10 11 12 13 14 15 16

Catalyzing Financial Inclusion Through the CSCs 1

Introduction
Equal access to nancial services including banking, insurance and pension are the driving forces of economic growth and social development for any country. Over 60% of Indias population lacks bank accounts, due to limited penetration of bank branches and stringent policy requirements. Financial Inclusion is important as it provides an avenue for the poor to bring their savings into the formal nancial system, an avenue to remit money to their families in villages and weaning them away from the clutches of the usurious money lenders. The Government of India has taken a number of proactive steps to ensure equitable access to nancial services, including: On January 25 2006, the Reserve Bank of India (RBI), decided to enable banks to use intermediaries as Business Facilitator and Correspondent for providing nancial and banking services. Banks were mandated to cover all unbanked villages in the country, in a phased manner. On February 15th 2011, the Swabhiman Scheme was launched with the objective of making banking facilities available to all citizens. The initial target of the scheme was opening 5 crore accounts and also ensuring access to loans and other credit facilities for farmers and villagers at subsidized rates. On 26th November, 2012, the Prime Minister announced that direct benets like pensions, scholarships, health-care benets and subsidies must reach the intended beneciaries without delays and leakages, directly into the bank account of the beneficiary. It is expected that starting January 1st 2013, 51 districts are to rollout direct cash transfers; 18 States from April 2013, while rest of the country later in 2013-14 One lakh Common Services Centers (CSCs) are being established across the country under the National e-Governance Plan to deliver online services, primarily in rural areas. As one of the worlds largest, government approved ICT enabled networks, the CSC network is ideally positioned to strengthen Indias banking network, by extending the business correspondent network. This document explores how the CSC Network can be leveraged to help India achieve its nancial inclusion objectives.

Banking
Online real-time Banking Credit/ KCC/ Loans NPAs

Insurance
Policy Sale Premium Collection Policy Delivery Grievance Redressal

Government Remittances
MGNREGs Pension Scholarship Payroll Subsidy

Financial Literacy
Training VLEs Financial Literacy Courses Partnership with NABARD

2 Catalyzing Financial Inclusion Through the CSCs

Salient Features of Indias Financial Inclusion Strategy

Decision Opening of No-frills Accounts Description With a view to achieving greater financial inclusion, in its Annual Policy State (2005), RBI advised banks to make basic banking no frills account available, with NIL or very minimum balances as well as charges, that would make such accounts accessible to vast sections of the population. The nature and number of transactions in such accounts would be restricted and made known to customers in advance in a transparent manner. All banks are urged to give wide publicity to the facility of such no frills account, so as to ensure greater nancial inclusion. Relaxation of KYC Norms In 2005, the Know Your Customer (KYC) requirements for opening bank accounts were simplied to enable those belonging to low income groups to open no-frill accounts without documents of identity and proof of residence. In such cases banks can take introduction from an account holder on whom full KYC procedure has been completed and has had satisfactory transactions with the bank for at least six months. Photograph of the customer who proposes to open the account and his address also need to be certied by the introducer. Further, banks have also been permitted to take any evidence as to the identity and address of the customer to their satisfaction, including the letter issued by the Unique Identification Authority of India (UIDAI) containing details of name, address and Aadhaar number as well as the job card issued by NREGA as officially valid documents for opening small accounts. Bank Service Area Approach Through the State Level Banker Committees Banks have formulated a road maps for achieving Financial Inclusion. Commercial Banks, Regional Rural Banks and Cooperatives Banks, have each been allocated unbanked villages with a population of over 2000 (Financial Inclusion Plan villages), within their service area, with a mandate to provide banking services within agreed timelines. Engaging Business Correspondent & Facilitators On January 25 2006, the Reserve Bank of India (RBI) decided to enable banks to use the services of Non-Government Organisations/ Self Help Groups (NGOs/ SHGs), Micro Finance Institutions (MFIs) and other Civil Society Organisations (CSOs) as intermediaries in providing nancial and banking services through the use of Business Facilitator and Correspondent models. Since then RBI has issued a number of notifications to further empower the business correspondent network, including on September 28, 2010, when it permitted banks to engage companies registered under the Indian Companies Act, 1956, excluding Non Banking Financial Companies (NBFCs), as Business Correspondents (BCs) in addition to the individuals/ entities permitted earlier, subject to compliance with its existing guidelines for engaging BCs. Catalyzing Financial Inclusion Through the CSCs 3

 Further, RBI has allowed banks to engage with the CSC Operators/VLEs as BCs. The BC model allows banks to do cash in - cash out transactions through a BC Agent, at a location much closer to the rural population, thus addressing the last mile problem. With a view to ensuring the viability of the BC model, banks have been permitted to collect reasonable service charges from the customer, in a transparent manner under a Boardapproved policy. Banks pay the appointed business correspondents and business facilitators a commission for the services rendered by them. Finally, compliance with KYC norms continues to be the responsibility of banks. Information technology plays a key role in delivering financial inclusion services in an affordable and sustainable manner, especially in remote and hard to reach areas. Some of the popular technology models being deployed for banking include the deployment of GPRS enabled micro-ATM devices and Internet based kiosk banking solutions. Customers are authenticated using smart cards and/or biometric fingerprints. NABARDs Financial Inclusion Funds Based on the recommendations of the Committee on Financial Inclusion set up by the Government of India (GoI) under Dr. C. Rangarajan. The funds have been set up at NABARD with an overall corpus of Rs. 500 crore each. The corpus is shared by GOI, RBI and NABARD in the ratio 40:40:20. The Financial Inclusion Fund (FIF) has been setup for meeting the cost of developmental and promotional interventions for ensuring nancial inclusion. The Financial Inclusion Technology Fund (FITF) has been setup to meet the cost of technology adoption.

4 Catalyzing Financial Inclusion Through the CSCs

Understanding the Business Correspondent Model

The implementation guidelines issued by the Reserve Bank of India (RBI), for using Business Correspondents to provide nancial and banking services, highlight the following: A bank may appoint business correspondents by signing the relevant agreement. While drawing up agreements, banks should strictly adhere to instructions contained in the guidelines on managing risks and code of conduct in outsourcing of nancial services by banks, issued by Reserve Bank of India on November 3, 2006. The banks will be fully responsible for the actions of the BCs and their retail outlets / sub agents. Each BC can then appoint Customer Service Points (CSPs) after approval from the bank. The CSP will be associated with a link branch and must be within 30 km of the link branch. While an organization can be a BC for more than one bank, at the point of customer interface, a retail outlet or a sub-agent of a BC or Customer Service Point (CSP) shall represent and provide banking services of only one bank. Interoperability at the customer service point has been permitted, thus enabling a CSP to provide cash-in and cash-out services for any bank, subject to the following conditions: The transactions and authentications at such retail outlets or sub-agents of BCs are carried out on-line; The transactions are carried out on Core Banking Solution (CBS) platform; and The banks follow the standard operating procedures to be advised by the Indian Banks Association (IBA). However, the BC or its retail outlet or sub-agent at the point of customer interface would continue to represent the bank, which has appointed the BC. The banks will pay a reasonable commission to the BC for the services rendered

ENTITIES ELIGIBLE TO BECOME A BC:

NGOs/MFIs set up under Societies/ Trust Act Cooperative Societies registered under Mutually Aided Cooperative, Societies Acts or the Cooperative Acts of States/ Multi State Cooperative Societies Act. Section 25 companies Post Offices Retired Bank employees Ex-Service men Retired Govt Employees Individual owners of kirana/ medical/fair price shop owners Individual Public Call Office (PCO) operators Agents of small savings schemes of Government of India/ Insurance Companies Individual who own petrol pumps Retired teachers Authorized functionaries of well-run Self Help Groups (SHGs) linked to banks Individual members of Farmers Clubs Individual operators of Rural Multipurpose kiosks/ Village Knowledge Centers Individuals/ proprietors/ owners who manage Agri Clinics/ Agri Business Centers. Retired Post Masters Individuals such as auto dealers, tractor dealers and FMCG stockists Insurance agents including of private insurance companies (IRDAcertified) and postal agents Individuals operating Common Services Centers (CSCs) established by Service Centre Agencies (SCAs) under the National e-Governance Plan (NeGP) Companies registered under the Indian Companies Act 1956 excluding Non-Banking Financial Companies (NBFCs).

Catalyzing Financial Inclusion Through the CSCs 5

BCs activities would be within the normal course of the banks banking business

The banks fully responsible for the actions of the BCs and their retail outlets / Customer Service Points (CSP)

NGOs/ MFIs, Post Ofces, Cooperative Societies, Section 25 Companies, select Individuals and CSC Operators/VLEs can be appointed as BCs

Organization can be a BC for multiple banks, but CSP shall represent and provide banking services of only one bank.

CSP must be within 30 kms (in rural areas) from local bank branch

The banks can reasonable commission/ fee to the BC, however, customers cant be charged

Banks to use technology to manage risk and increase outreach

ICT solution to be integrated seamlessly with CBS

Transactions to be accounted for in real-time & customer to receive immediate conrmation

Salient Features of the Business Correspondent Model A Business Correspondent/ Customer Service Point is empowered to provide the following services: Customer enrolment, including collection of biometric and other details Provide card (ID Card, Debit Card, Credit Card), PIN Deposit of money in an account Withdrawal of money from an account Remittances from an account with a bank to an account with the same or any other bank Balance Enquiry and issue Receipts/ Statement of Accounts. Disbursal of credit facilities to borrowers involving small amounts strictly as per the instructions of the Bank. Identification of borrowers and classification of activities as per their requirements Collection and prima facie scrutiny of loan applications including verication of primary data Creating awareness about savings and other products offered by the Bank and education and advice on managing money & debt counselling Preliminary scrutiny of data and submission of applications to the Bank for its review Promoting, nurturing, monitoring and handholding Self Help Groups and/or Joint Liability Groups and/or Credit Groups and others. Facilitating the repayment of dues owed to the Bank by its customers/guarantors. Sale of third party financial products

The above services are offered in respect of the following products: No Frills Savings Bank accounts Recurring Deposit Accounts Remittances Fixed Deposit Overdraft/Retail loans Loans against TDR/NSC/ KVP etc. 6 Catalyzing Financial Inclusion Through the CSCs Gold Loans General purpose Credit card (GCC) Kisan Credit Card (KCC) Current Account Savings Bank account Term Deposits

Technology Enables the Business Correspondents Workow

One of the key factors for successfully implementing the BC Model is the banks ability to leverage technology to deliver nancial services in an affordable and sustainable manner, especially in remote and hard to reach areas. A business correspondent/ customer service point is primarily responsible for Customer acquisition and service delivery Customer authentication Cash handling by the BC/ CSP The typical workow of a BC using kiosk banking and biometric based authentication is as follows: Technology plays a critical role in enabling a business correspondent to perform its tasks efciently. Some of the popular technology models being deployed for banking include: GPRS enabled micro-ATM devices Internet based kiosk banking solutions. Customer authentication using smart cards and/or biometric fingerprints and/or by UIDAI

Citizen approaches a BC/CSCP to withdraw money from a/c

BC/CSP logs into Banks Kiosk Banking Portal (VLE biometric authentication)

BC/CSP accesses citizen a/c, (citizen biometric authentication required)

BC/CSP enters amount to be withdrawn. BC/ CSP settlement account is checked for adequate balance.

If the settlement account has adquate balance then Citizen account is debited, Citizen issued receipt.

BC/CSP pays citizen withdrawal amount in cash

Settlement with BC/CSPs settlement account in realtime

It is important to note that in the case of a biometric based kiosk banking solution, all transactions occur online, in real-time through a Banks core banking solution (CBS). Since even the financial inclusion (no-frill) accounts are hosted on the CBS, this customer is able to access his account from any BC and at any branch, just like any other customer. This is generally not possible in a smart card based micro-ATM model, since customer authentication happens ofine and in most cases these accounts are not hosted on the Banks CBS. Thus, the citizen is dependent on the BC/ CSP that has opened his/ her bank account. In order to ensure uniformity across banks, the following standards for technology implementation in nancial inclusion have now been issued:

UIDAI standards for micro-ATMs and biometric capture The Indian Banks Association (IBA) and Institute for Development and Research in Banking Technology (IDRBT) Open Standards for Smart Card Based Solutions for Financial Inclusion. NPCI and IBA standards to support inter-bank biometric based transactions, for interoperable transactions between the Banks based on Bank level authentication other than UIDAI. This inter-operable switch is called Inter-operable Financial Inclusion System (IFIS) and is maintained by NPCI. UIDAIs Aadhaar based inter-operability transaction guidelines for the Aadhaar Enabled Payment System (AEPS). Catalyzing Financial Inclusion Through the CSCs 7

Common Services Centres Scheme

Implemented under the National e-Governance Plan (NeGP) formulated by the Department of Electronics and Information Technology (DeitY), Government of India, the Common Services Centers (CSCs) are ICT enabled front end service delivery points at the village level for delivery of Government, Financial, Social and Private Sector services in the areas of agriculture, health, education, entertainment, FMCG products, banking, insurance, pension, utility payments, etc. The Scheme is being implemented in a public private partnership framework with a focus on rural entrepreneurship & market mechanisms. The CSCs have been set up by implementation partners called as Service Centre Agencies (SCA), who are appointed by State Designated Agencies (SDAs) through a transparent bid process. The CSCs are operated and managed by Village Level Entrepreneurs (VLEs) who are appointed by the SCAs. A typical CSC is enabled with a PC(s), printer(s), scanner(s), UPS, digital/web camera and broadband connectivity. Additional equipment in the form of projection systems, biometric devices, etc., may be included, where relevant and sustainable.

The location of each of the one lakh CSCs is decided in consultation with the State Designated Agency (SDA) to serve a cluster of 6-7 villages, thereby covering close to 6.50 lakh villages across India. This is the worlds largest government approved ICT enabled network and is ideally positioned to strengthen Indias banking network, by extending the business correspondent network. To facilitate the successful implementation of the CSC Scheme, a Special Purpose Vehicle (SPV) named CSC e-Governance Services India Ltd has been incorporated under the Companies Act 1956. The SPV aims to: Ensure systemic viability & sustainability of the CSC Scheme Monitor achievements of the outcomes by the CSCs Enable delivery of G2C and B2C services through CSCs Provide a standardized framework for collaborative decision making Build stakeholder capacity and replicate best practices

8 Catalyzing Financial Inclusion Through the CSCs

Leveraging CSCs as Business Correspondents

On April 26, 2010, the Reserve Bank of India (RBI) has allowed Banks to engage with CSC Operators/ VLEs as Business Correspondents, for Financial Inclusion by Business Correspondents. There are a number of advantages for a bank to appoint CSCs as business correspondents/ customer service points, either directly, through the SCAs or the CSC SPV. These include:

Equitable Reach Located in every 6-7 villages / panchayats Infrastructure Computer, printer, webcam, power back up, connectivity Manpower Manned by local citizens as VLEs Reliability Supervised by State Govt and Govt of India Services Offer G2C and B2C services in villages

Further, on October 21, 2011 the Department of Financial Services (DFS) letter to Banks regarding Financial Inclusion Strategy and Guidelines, urged banks to engage with CSCs Nearly 1 lakh Common Service Centre (CSCs) have been established by the Department of Electronics & Information Technology.

On February 21, 2012 DFS issued a mandate to engage CSCs as BCs in North Eastern States, J&K, Himachal Pradesh, Jharkhand and Chhattisgarh for kiosk banking facilities (DFS) As a result, 20 SCAs and the CSC SPV have now been appointed as BCs by various banks and implementation has started in 18 States.

Catalyzing Financial Inclusion Through the CSCs 9

The BC- CSC Technology Model: Enabling Kiosk Banking

Since CSCs already possess the required ICT infrastructure to enable online services, implementation of the kiosk banking solution is emerging as the most viable and cost-effective technology solution. A summary of the requirements to implement this model is as follows: Description Kiosk banking solution enables real time banking through a Banks CBS through an online Portal. Customers are authenticated through their biometric (fingerprint). The solution is completely online and eliminates the need for smart cards and POS. Technology Provider: Bank Business Correspondent (BC)): SCA/ CSC SPV Customer Service Point (CSP): CSC Computer with minimum 20 GB hard drive Printer Web Camera Biometric Fingerprint Scanner (as approved by Bank) Internet connectivity (minimum 512 kbps speed)

Bank-BC Relationship Equipment Requirement

Services Offered

No Frill Accounts & Saving Account opening General purpose Credit Card (GCC)/Kisan Credit Card (KCC) Term Deposit/Recurring Deposit Loans against Term Deposit Receipt (TDR) etc Cash-in and cash-out services Note: While the CSP will continue to represent only the bank by which it was appointed, the CSP will be able to do basic ATM type services across banks. Thus servicing accounts of all citizens irrespective of which bank they have an account with SCA/ VLE must maintain a prepaid settlement account with Bank, for daily transaction settlement. The amount to be maintained in the settlement account is decided by the BC and is determined based the number and value of transactions that the BC can execute. CSC invests in a low cost biometric fingerprint scanner, approximately Rs. 2600. SCA/ CSC SPV to invest in manpower for CSC training, community awareness building and monitoring activities. Opening of new account- One-time fee which generally ranges between Rs. 20- Rs.25 per account Transaction commission: % per transaction for deposits and withdrawals, which is generally about 0.5% Additional commissions are paid for business facilitator activities such as loan and kisan credit card processing Monthly incentive of about Rs. 2000 per month for CSCs in Financial Inclusion Plan Villages. However this is payable based on minimum targets of account opened during the month

Investment Required

Commission Paid by Bank

Expected Revenue

Based on initial implementations, BCs on an average are earning the following: Rs. 8,000- Rs. 10,000 per month per CSP from basic banking activities, with a minimum of Rs. 3000 per month per CSP Up to Rs. 50,000 per month per CSP from business facilitator activities (eg. loans and kisan credit card processing)

10 Catalyzing Financial Inclusion Through the CSCs

SUCCESS STORY AISECT-SBI Leverage CSCs in Madhya Pradesh and Chhattisgarh for Financial Inclusion
CSCs operationalised by Aisect have opened over 300,000 bank accounts for SBI, enabling transactions worth over Rs. 200 crores in one year. AISECT, an SCA in Madhya Pradesh has signed Business Facilitator (BF) and Business Correspondent (BC) agreements with the State Bank of India (SBI) to offer financial services in the State. As a Business Facilitator the CSCs generate business for the bank from the communities living in and around their CSCs and book the business to nearest linked SBI branch. As a Business Correspondent, the CSCs with adequate ICT infrastructure act as a Banks Branch and offers the selected banking facilities online. Services offered through the CSCs include: Account Opening Deposit / Withdrawal in Account NREGS Wages Distribution & Govt. Pension Distribution Loan Distribution (Application & Information) Kisan credit card Micro Finance, Loan for Agriculture and Animal Loan for Tractor, Vehicle and House Recurring Deposit & Fixed Deposits in Bank Loan Recovery

Implementation process:
CSCs use SBIs Kiosk banking solution which enables biometric based online user authentication in real-time via SBIs Portal As per the agreement, the BC has to pay the bank a minimum bank guarantee and has to maintain a prepaid settlement account with SBI, against which all transaction settlement is done on a daily basis. The CSCs are activated as a customer service point by AISECT, after approval from the Bank. The customer is recognized through a biometric authentication process. The equipment requirement to enable kiosk banking includes a computer, printer, internet connectivity and a low cost biometric scanner (approximately Rs.2600). To ensure success, VLEs are required to undergo training on an ongoing basis. Further, the SCAs have to take proactive steps to motivate the VLEs to go out into the community and build awareness around the benets of kiosk banking at their CSC. SCAs have also taken proactive steps to ensure that various Government Scheme disbursals including NREGS wages, old age pension and scholarship payment, happen through the CSCs.

Challenges:
Approvals for appointment of CSCs ad CSPs by bank Ensuring accounts are not dormant, and regular transactions take place Creating awareness at the field level regarding the importance of banking Creating demand for banking, by ensuring linkages for direct cash transfer of Government Scheme Beneficiaries

Catalyzing Financial Inclusion Through the CSCs 11

Direct Cash Transfers Ensure BC Sustainability

On 26th November, 2012, the Prime Ministers announced that direct benefits like pensions, scholarships and healthcare benets must reach the intended beneciaries without delays and leakages, directly into the bank account of the beneciary. Apart from these direct benets, the Government will also provide an amount of over Rs 3 lakh crore in subsidies which too must reach the intended beneficiaries. It is expected that from January 1st 2013, 51 districts will roll out direct cash transfers; 18 States from April 2013, while rest of the country will be brought into the ambit of the program later in 2013-14. It is expected that these transfers will be enabled by UIDAI. The success of this programme will be dependent on the following: UIDAI based beneficiary enrolment into the Government Programme /Scheme, by the respective department, as per the Schemes requirements and Aadhaar seeding of existing databases for de-duplication and elimination of bogus beneciaries Timely direct transfer of the benefits and/or subsidy into the beneficiarys bank account, no cash transaction Beneficiary to be able to access his bank account, in his village, through a business correspondent While UIDAI will enable accurate authentication of beneciaries of government benets and subsidiaries, the business correspondent network of banks will play a critical role in ensuring that people have no trouble in opening bank accounts and withdrawing and depositing cash. The real benet of the cash transfer scheme will reach the citizens only if the ability to withdraw and transfer the cash is available to them at their doorstep rather than a distant bank branch. Thus, steps must be taken to increase the reach of the business correspondent network. These include: A bank should have a business correspondent in any village within his service area, irrespective of it being a financial inclusion plan village. A Business Correspondent should preferably be present at all Scheme enrolment centers, to ensure that bank accounts can be opened at time of enrolment of into a Scheme Implementation of interoperability allowed by RBI for Business Correspondents must be expedited. This will allow a business correspondent to act as a human ATM in a village, servicing all beneciaries, irrespective of the bank in which they hold an account. With over 95,000 CSCs operational across the Country, covering almost 6.5 lakh villages, the Common Services Centers are best positioned to undertake both tasks of enrolment and financial inclusion. In many States like Jharkhand, UP, AP, Maharashtra, etc, CSCs are already involved in enrolment of beneciaries into various Schemes and Programs. By activating the CSCs as Business Correspondents, Banks will be able to strengthen their network in a short period, thereby being able to meet the targets set by National Committee on Direct Cash transfers, efficiently and with marginal incremental costs to the banks. Further, channelling direct cash transfer through the BC network, will strengthen the nancial sustainability of a BC considerably, ensuring ongoing business for them.

12 Catalyzing Financial Inclusion Through the CSCs

Roles of the Key Stakeholders

n

State Government/SDA: Integrating CSC project with the banking mandates for the State, by collaborating with the State Level Bankers Committee (SLBC) Linking current government schemes wages and benefit disbursements with bank accounts, to ensure regular cash ow in rural areas Ensuring connectivity in rural areas Mobilizing and sensitizing Government functionaries

Banks: Appointing SCAs/ CSC SPV as BCs, to enable CSCs to deliver financial services in rural areas Provide the technical solutions necessary for online kiosk banking delivery, user authentication and monitoring Offering a wide variety of banking services in rural areas via the BCs Synchronizing with Government machinery Training SCAs and VLEs for delivery of financial services Pay required commissions to Business Correspondent to ensure sustainable service delivery via customer service points Provide technical support for successful delivery of services

CSC SPV/SCAs:

Sign BC and BF agreements with banks Ensuring CSCs have the adequate infrastructure (including biometric devices) to become customer service points Ensuring adherence to banking norms as per BC guidelines Ensuring power and connectivity at its customer service points Ensuring timely service delivery Providing an online mechanism enabling VLEs to deliver financial services via the Banks online solution. Supporting awareness building and training activities Sharing the Commission paid by Bank with CSP in a timely manner Common Services Centre/ Village Level Entrepreneurs (VLE): Getting trained to deliver financial services Signing the relevant agreement with the BC to become CSP Ensuring required infrastructure is available at the CSC to deliver online services Educating the citizens and local government officials on the benefits of availing financial services at CSCs Ensuring timely service delivery and adherence to the banking norms

Catalyzing Financial Inclusion Through the CSCs 13

Implementation Process: CSC SPV as Banks BC

Topic BC Agreement Bank Approve CSC SPV/ SCA as the BC of the Bank CSC SPV (BC) Sign BC agreement with Bank and Open Commission Account with Bank Create an online mechanism for VLEs to register as CSP. All registrants through this process will be vetted by the SCA. Setup BC Manager & KO account details (using the ID codes generated by local branch) Issue instructions to SCA regarding KO account setup Open Commission Account with Bank Provide Bank with the relevant bank account details of the BC Manager and KO (settlement and commission account) SCA (BC Manager) Enable CSCs to be appointed as CSP VLE (CSP) Agree to become a Customer Service Point

KO Identication & Registration

Map CSP requests, through Regional Ofces, linking to local branch and authorizing appointment of CSP

To identify and register all eligible VLEs who are interested in becoming a KO. Provide BC with the cumulative KO list, as per prescribed formats Provide the KOs with clear instructions on setting-up and operating Kiosk Banking Account Capture KO nger prints

VLE to register with SCA/ SPV to become KO VLE to ensure that information provided at time of registration is authentic Coordinate with the SCA to setup the KO account online

Kiosk Banking Setup

Bank to provide BC with access to the Kiosk Banking solution Provide detailed Instruction Manual for BC/KO operations Conrm KO in the system, after creation by BC Maintain CSP settlement & commission account including sweep in/out from CSP account to complete transactions on behalf of the citizen. Maintain BCs & BC Manager commission accounts Allow CSPV to monitor account activity, including commissions earned and account balance Provide Admin accounts to BC and & BC Manager to monitor KO transaction details and commission earned

Payment Mechanism & Cash Handling

Open a settlement account at the local link branch and provide BC with account details

Awareness

Provide the banners to be displayed at the CSP and marketing material to CSP

CSC SPV to put up advertisement after signing agreement with Bank as BC

SCA to arrange for local-level awareness amongst the masses

Display Banks Board at CSC with full details on types of banking services to be offered Create awareness in locality regarding service offerings

14 Catalyzing Financial Inclusion Through the CSCs

Topic Training& Support

Bank To provide technical training to all CSPs at the district level To provide detailed Instruction Manual for BC/CSP operations online

CSC SPV (BC) Make instruction manual available to all BC Managers and CSP

SCA (BC Manager) To circulate Instruction Manual to CSP Coordinate CSP training with local Linked Branches

VLE (CSP) VLE to attend training

Procurement of Required Infrastructure

Introduce BC to the supplier of the biometric device.

Negotiate fixed price for the biometric device, with the supplier, for CSCs

Make arrangements for CSP to procure required infrastructure, including connectivity and biometric device Monitor transaction activity of all VLEs created under their account

Procure the required bio-metric device at the pre-xed rates.

Transaction Settlement

Bank will reect the cash movement in citizen and CSP settlement a/c in real time Allow transaction monitoring by BC, BC Manager and CSP.

Monitor transaction activity of all SCAs and VLEs on the system

CSP to undertake transaction on the Kiosk Banking Portal, as per instructions.

Commission Settlement

Make direct automated monthly commission payments to the BC.

Share commission with BC Manager and CSP which are subject to monthly reconciliations.

VLEs Check List to Launch Financial Inclusion Services

Approval for CSP Appoinment Ensure SCA is onboard to deliver bsuiness correspondent services Identify local link branch closest to the CSC Submit required details as per Banks format through SCA/ CSC SPV Await formal approval from bank Infrastructure Readiness Ensure CSC is equiped with Computer, Printer, Webcam, power backup Minimum Connectivity of 512 kbps Procure biometric device Activation Assess quantum of settlement account based on availability of local business Open settlement account at local link branch and maintain an adequate balance Undergo the required training provided by the bank Configue the kiosk solution and biometric device to render services Rendering Services Login to system by invoking URL Provide biometric authentication and select service to be rendered. Adhere to the KYC norms of the Bank Ensure biometric authentication of the customer Issue receipt on successful completion of service Commission Settlement Maintain register of all transactions Reconcile transactions with generated MIS BC to pay commission on a monthly basis for all completed transactions

Catalyzing Financial Inclusion Through the CSCs 15

Steps to start Kiosk Banking Solution :

1. SCA to enter into agreement with CSC SPV and the draft copy of agreement can be downloaded. VLE to provide undertaking accepting terms and conditions for doing Kiosk Banking work as per proforma mentioned in the agreement. (Download: Agreement with SCA) 2. SCA intending to start FI services in his state of operation, is required to provide details of eligible VLEs as per standard format of SBI which may be downloaded (File name :statename_VLE. xls). It is to be ensured that CSC is mapped to the nearest branch of SBI which is called link branch. (Download: SBI Standard Format, SBI Branch Master) 3. It is obligatory to ensure that connectivity of required CSC is there and must be on live run on OMT tool. 4. CSC SPV to apply to SBI, LHO of the state as well as to Central Team Mumbai for approval of CSP for these VLEs. 5. SCA to follow up the matter with SBI, LHO to get the VLEs approved. 6. CSC SPV shall share the CSP codes approved by SBI with SCA. 7. On having obtained approval and CSP codes, open zero balance settlement account in the nature of current account for these VLEs and see that all ags for levying charges be remained off in the software. SCA to co-ordinate with SBI ofcials and obtain letter from them advising their branches to extend co-operation to VLEs in opening the account. 8. As per arrangement, each VLE shall have separate settlement account wherein all Dr & Cr transactions would take place while there will be only single commission account in the name of CSC SPV. 9. SCA to procure Finger Print device for each VLE. Document for procurement for device may be downloaded (Download : Finger Print Device). 10. SCA to make arrangement for training to VLE on its operational part from SBI. 11. In the meantime, CSC SPV will congure SCA as Sub BC in Kiosk Banking Software and SCA to submit following details to CSC SPV : Name of SCA Address of the company with PIN code To designate authorised official to configure Ko Code Give Passport no. of authorised official Mention his mobile no. Expiry date of MSA agreement 12. CSC SPV shall provide login and password for SCA to authorised ofcial for conguring approved VLEs. 13. CSC SPV to create new User Group in the system. 14. SCA to congure KO code in the system after getting above login. And capture his gure prints and generate his login and transaction password. SCA may down load SBI manuals for this work(Download : SBI BC Manual, SBI KO User Manual). 15. SCA to enter Settlement account number for each VLE and mac-id of machine to us in the above excel le shared by CSC SPV after having allotted KO codes. CSC SPV to send this le for onward submission to SBI for conguration. 16. After obtaining conrmation from SBI for having congured settlement account and mac-id, CSC SPV shall share this with SCA. KO operator can now operate the system. 17. KO operator to login to system by invoking URL. He shall verify his nger prints. And get screen for Customer Creation, Existing Customer, Options, Reports & Identity Card. In nut shall he can create new customers, and work on existing customers. 18. For customer creation, he shall get the form lled by customer with 2 Photos, address proof and Identity proof of customer. He shall enter required details in system and get customer reference number generated by system. He shall deposit physical form with link branch. 19. Next day, he shall get account number by invoking customer reference number in the screen. 20. He can now initiate transactions on deposit, withdrawal, transfer and open RD account for the customer. 21. VLE has to maintain sufcient balance in his settlement account. If customer wants to deposit a sum to his account, he shall tender cash to VLE and VLE shall transfer this amount by debit to his settlement account and crediting to customer account after having his nger prints veried by VLEs. If customers withdraws amount from his account, VLE to pay cash and do entry in the system by debiting customer account and crediting his settlement account. 22. The system shall ask for collecting commission while opening the account of the customer. This may be retained with VLE after recording it in a proper register. Format already provided to SCA. 23. On doing transaction, the system deducts commission and the total commission so earned is divided between CSC SPV, SCA and VLE in the present ratio of 10:15:75 and this ratio is subject to change keeping in view of the work involved and the decision of CSC SPV shall be nal and binding on all parties. 24. At the end of month. VLE to raise invoice in respect of share to total commission to SCA after deducting the amount of cash collected by him and this invoice to be duly supported with a copy of details of transactions done by him in the month. SCA to forward this invoice to CSC SPV. 25. SCA also to raise invoice in respect of his share to total commission to CSC SPV. 26. CSC SPV also to raise invoice to SBI in respect of shares of CSC SPV, SCA &VLE and get credit to his commission account. 27. CSC SPV after reconciling the share of commission amounts, credit to accounts of SCA & VLE respectively. 28. SCA to provide weekly report on transactions and monthly report on commission to CSC SPV. Format of transaction report provided to SCA.

16 Catalyzing Financial Inclusion Through the CSCs

Conclusion
Due to their location and availability of ICT infrastructure and extensive reach in rural India, CSCs are best poised to deliver nancial services in rural India, helping various banks meet their nancial inclusion mandates. The current policy and regulatory environment favours the appointment of CSCs as business correspondent, and the activation process is underway. Online kiosk banking requiring biometric authentication for the customer, is the preferred technology solution adopted by CSCs. Aadhar based authentication is now being tested through CSCs in Jharkhand. The success of nancial inclusion depends on the availability of internet connectivity, VLE training and motivation, linkages with Government Schemes disbursement, community awareness and sensitization. The Governments mandate to ensure direct cash transfer for benets and subsidy payments will strengthen the sustainability of BCs across the country. However, with the aggressive target set by the Prime Minister, CSCs will play a critical role in strengthening the BC network

Additional Resources
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Department of Financial Services: http://nancialservices.gov.in/ Reserve Bank of India: www.rbi.org.in/ National Payments Corporation of India (NPCI): www.npci.org.in/ NABARD: www.nabard.org Various Notifications issued by RBI: Mar 02, 2012 : Financial Inclusion by Extension of Banking Services - Use of Business Correspondents (BCs) [Inter-operability] Dec 10, 2010 : Financial Inclusion by Extension of Banking Services Use of Business Correspondents / Business Facilitators by Urban Co-operative Banks Sep 28, 2010 : Financial Inclusion by Extension of Banking Services Use of Business Correspondents (BCs) [Guidelines] Apr 26, 2010 : Financial Inclusion by Extension of Banking Services Use of Business Correspondents (BCs) [CSCs as BCs] Nov 30, 2009 : Financial Inclusion by Extension of Banking Services Use of Business Correspondents (BCs) [Working Group] Apr 24, 2009 : Financial Inclusion by Extension of Banking Services Use of Business Facilitators (BFs) and Business Correspondents (BCs) [Distance from Branch] Aug 27, 2008 : Financial Inclusion by Extension of Banking Services Use of Business Correspondents (BCs) [Individuals & Sub-agents] Aug 27, 2008 : Financial Inclusion by Extension of Banking Services Use of Business Correspondents (BCs) Section 25 companies Apr 24, 2008 : Financial Inclusion Use of Business Facilitators/Business Correspondents [Link Branch] Mar 22, 2006 : Financial Inclusion by Extension of Banking Services - Use of Business Facilitators and Correspondents [Prohibiting use of NBFCs] Jan 25, 2006 : Financial Inclusion by Extension of Banking Services - Use of Business Facilitators and Correspondents [BC & BF Model]

January 2008: Rangarajan Committee Report on Financial Inclusion: www.nabard.org/pdf/report_nancial/full%20 Report.pdf Common Services Centre Scheme: apna.csc.gov.in

CSC E-Governance Services India Limited

3rd Floor, Electronics NIketan, CGO Complex, Lodhi Road, New Delhi - 110003 Email: infocscspv@cscegovindia.com Tele: 011-32215528/ 011-24301349 Facebook: https://www.facebook.com/cscspv or https://www.facebook.com/cscscheme Twitter: https://www.twitter.com/CSC_India Blog: https://www.commonservicescenters.blogspot.in Website: csc.gov.in 18 Catalyzing Financial Inclusion Through the CSCs