Synopsis: Banks and NBFCs are heavily reliant on Direct Selling Agents (DSAs) for scaling their distribution network without breaking the bank, literally. Below, we spotlight the vital role played by DSAs and how their operations can be augmented further.

With India accounting for the world’s second-largest unbanked population with a projected 190 million adults still without a bank account, it isn’t hard to decipher the dismal state of lending operations. Indeed, according to a CIC report, there is an addressable market of 400 million people aged 18-33 years in rural and semi-urban areas, with credit penetration of only 8%.

While banks and NBFCs have traditionally relied on direct sales agents (DSAs) to extend loans to the deepest pockets of the country, things have radically changed ever since the smartphone revolution and the creation of neobanks. Furthermore, RBI’s decision to disallow the use of DSAs to carry out physical KYC verification for prospective clients has delivered another body blow to the lending segment.

DSAs, nevertheless, continue to be valuable. Below we understand what the role of DSAs is and how lenders make the most out of their DSAs operations.

The Who, Why, and What of DSAs

A Direct Sales Agent, or a DSA, is essentially a facilitator or a third-party agent who enables an individual to procure a loan from a bank of an NBFC. Such referral agents are also called business correspondents in the semi-rural and rural pockets of the country.

While the main role of a DSA is to scout for new clients and help lenders build their credit portfolio, there are two ways to go about this.

First, an online digital lending platform can partner with lending institutions and serve as their distributor, like a co-branded credit card seller.

Second, and the one we will be focusing on, are the individuals or companies that tie up with several lenders to grow their acquisition funnel. Such DSA agents earn a commission (up to 1%) on the total loan amount extended. These agents may further have their own network of sub-agents/correspondents who carry out the groundwork and directly interact with the borrowers.

Role of DSAs

The primary responsibility of a DSA is to connect borrowers to the lending institution best suited to meet the former’s requirements. However, in addition to creating potential leads, DSAs are tasked with carrying out numerous other activities, which we enumerate below.

• Gather all the necessary paperwork along with the application form from the client.
• Carry out a preliminary check to ensure the accuracy and authenticity of the documents collected.
• Submitting these documents to the lender under their allocated unique DSA code for easy tracing.

Thus, DSAs play a crucial role in conducting due diligence and optimizing the use of a lender’s resources by connecting them to clients in need of loans. Furthermore, they are instrumental in enhancing market awareness about the lender’s credit products and services. So, how can lenders leverage this relationship to further their DSA operations?

Elevating DSAs Operations- 3 Ways to Know

The incessant mushrooming of lending institutions has undoubtedly made it tricky to nurture the relationship with DSAs. And no, building an in-house distribution network is not the way out—it is expensive. Instead, the focus should be on providing tech-based solutions that convalesce borrower management.

1. Access to Digital Platforms

The best way to improve a DSA’s operations is by digitalizing the whole journey from looking for clients to finally getting the loan disbursed. This means affording DSAs a digital platform, which enables easy tracking of a customer’s profile and progress on documentation collecting and processing. 

This can be supplemented with methods to better evaluate a prospective client’s eligibility for availing of a loan and whether it fits within the lending institution’s ideal risk profile. Access to a digital platform, thus, beats two birds with one stone by improving DSAs’ productivity and by empowering lenders with holistic information for analyzing their DSAs performance. 

2. Ensuring Data Privacy and Security 

The growing incidents of data theft forced RBI to issue an order to prevent DSAs from processing the documents of the borrowers. Additionally, it was also believed that only the banks should verify the client’s original documents, thus limiting the role of DSAs. Not to forget, relentless telemarketer calls were every bank holder’s bane of existence. 

Lenders must ensure utmost care and caution by having a code of conduct in place, which requires its DSA agents to adhere to strict guidelines and regulations regarding data privacy. This way, borrowers will be assured of the safety of their information and will be more amenable to such DSAs.

3. Risk Management and Accountability 

Despite having strict data management protocols in place and being vigilant about the kind of DSAs a lender enters a relationship with, there can be instances of borrower’s data being stolen or misused. Similarly, there may be rare occurrences of DSAs misplacing data or lenders miscalculating the loan disbursals, thus permanently wrecking the loan application process.

A better way out is to maintain a shared dashboard that not only transparently tracks all the data but also generates meaningful, actionable insights, per which lenders can fine-tune their lending strategies and data collection methods. Data systems must be continuously updated to ensure no personally identifiable information is leaked from the systems. Hence, DSAs can glean valuable insights from the data and provide better after-sale services without compromising data security.

DSAs Are Invaluable for Lenders, Even Today!

With India continuing to be credit-underpenetrated in several deep pockets, DSAs are likely to remain monumental in linking the new-to-credit borrowers to lenders. Besides, no matter the ubiquity of digital lending platforms, there will always be a continuous stream of customers who prefer human interaction or require being hand-held through the loan application process. 

Hence, instead of looking for ways to transition out DSAs, lenders must focus on ways to further their operations. After all, not only do such DSAs represent their partner lenders’ interests, but they also advance loans to credit-hungry customers, thus fueling the growth of their business and, in turn, the economy.