These risks need to be carefully managed by banks, in particular, through a system of checks and balances which could, inter alia, involve well defined contractual arrangements, standards for due diligence, exposure monitoring, cash and other limits, rating of the agents/Business Correspondents (BCs), periodic audit/inspection, etc. and the use of information, communication and technology (ICT), for managing operational and financial risks.
Further, the design of appropriate compensation structures, including performance based features, can ensure a reasonable fee to the agents while ensuring adequate incentives for preventing misuse of the system by the agents. Sixth, risks would also arise out of the business model of specialised non-bank institutions {e.g. Micro Finance Institutions (MFIs)} which cater exclusively to the needs of the low income group.