Transcript Alternate Channels Group - Indian Banks` Association

Last Mile Teach to Rural Customers
Focus – Bottom of Pyramid Customers
February ‘07
Is Bottom of Pyramid only Rural?
Source : Wikipedia, Poverty in India
Scoping The Rural Economy
GDP
(Rs. 28.3 Tn)
Urban
(Rs. 13.9 Tn)
Rural
(Rs. 14.4 Tn)
Non-Agri
(Rs. 8.4 Tn)
Agri
(Rs. 6.0 Tn)
Share of non-agricultural output has exceeded
agricultural output in the rural economy
Source: CERG (Consumer & Economic Research Group – Based on research by Omkar
Goswami & Rama Bijapurkar)
How do you define Bottom of Pyramid
Share of Income or Consumption
Poorest 10%
3.9%
Share of income or consumption
Poorest 20%
8.9%
Share of income or consumption
Richest 20%
43.3%
Share of income or consumption
Richest 10%
28.5%
Inequality measures – Ratio of richest 10% to poorest 10%
7.3
Inequality measures – Ratio of richest 20% to poorest 20%
4.9
30% of households ~ 60 mn
M-CRIL puts the estimated demand at Rs. 480 billion ($10.7 billion).
That is calculated for 60-70 million households at an average
household credit demand of Rs. 8,000 (less than $200) plus there would
be demand for other financial services
Despite strong push penetration is low
BANKING PROFILE AT METRO/URBAN/SEMI-URBAN/RURAL (AS ON 31-03-2004)
NO OF BANK
BRANCHES
ALL INDIA
Deposits
(Rs. In Crores)
Credit
(Rs. In Crores)
CREDIT/DEPOSIT
RATIO
66,970
1,517,200
890,866
58.7%
METRO CENTRES
8,882 (13%)
723,932 (45%)
547,869 (62%)
75%
TOP 100 CENTRES
(INCLUSIVE OF
METRO CENTRES)
15,481 (23%)
964,388 (63%)
672,447 (75%)
70%
URBAN CENTRES
INCLUSIVE OF
METRO & OTHER
CENTRES
19,872 (29%)
1,054,711 (69.%)
704,268 (79%)
67%
SEMI-URBAN CENRES
15018 (22%)
267,378 (18%)
101,354 (12%)
38%
RURAL CENTRES
32,080 (48%)
195,111 (13%)
85,244 (9.%)
44%
Despite 48% of branches being in rural areas, business volumes low…
While formal sector is not penetrating,
others are meeting the demand…
PROFILE OF FARMERS’ RELIANCE ON THE
BANKING SYSTEM
YEAR
FARMERS
DEPOSITS(
Rs.Cr)
FARMERS’
BORROWING
S(Rs.Cr)
DEBT PROFILE OF RURAL HOUSEHOLDS
( in percentage)
NO. OF
FARMERS
ASSISTED
(In Lakhs)
1992
26,211
17,835
273
1993
29,825
19,493
257
1994
36,583
19,669
251
1995
43,341
21,334
198
1996
47,433
23,813
194
1997
53,611
27,448
188
1998
57,442
29,442
173
1999
78,881
33,094
169
2000
91,009
36,466
162
2001
99,812
43,420
195
2002
1,08,233
47,430
197
Source: Statistical Tables Relating to Banks in India(Various Issues), RBI
compiled by Shri. N.K. Thingalaya, former CMD, Syndicate Bank.
SOURCE OF DEBT
19931994
1999-2000
Government
8.30
5.40
Co-Operative Societies
7.90
13.10
11.40
6.90
Money lenders
27.6
31.70
Shop keepers
7.30
7.10
12.40
15.10
Others
6.20
3.50
Banks
18.90
17.20
Employees
Relatives & Friends
Source: Ministry of Labour Rural Labour Enquiry Report
One movement gaining ground seems to be SHGs
NABARD led Bank Linkage Model
MFI led Model
Mismatch in demand and supply
Customer Needs
Institutional Response
Financial Services for
household needs
Occupation specific credit
Structure around uneven
cash-flows
Structured Cash-flows :
Regulatory Compliance
No Documentation
Complete Paperwork as
per product / compliance
Timings as per
occupation; bank at home
Branch timings
Flexibility in interest rates
Regulated interest rates
making product unviable
In line with global expectations
Product design to vest with larger, experienced, capitalised institutions while the local
entities would be delivery arm
Source : Paradox of Banking 2015, IBM
Need to have a re-look at approach
Recent policy intervention of allowing Business Correspondent an attempt in this
direction…
Expanding Access to Financial Services : Nachiket Mor
Missing pieces
• Unique Identifier


Country has no National Id; existing options not relevant for
this market
As data grows difficult to uniquely identify customer on
demographics
• Credit Information


Credit Information Act a big step
Early credit bureau (CIBIL) already facing problems of
identification and quality of data imported
Not even Co-op banks part of bureau
• Systems / Tech infrastructure at smaller institutes
Concept of FINO
Inclusion
Systems for Local Financial Institutions
(MFIs, NBFCs, RRBs, Co-operative Banks,
etc.) and grass-root institutions serving the
unbanked
Shared platform for end-to-end delivery of
entire suite of financial services leading to
economies of scale
Open
Common
A sectoral venture based on non-brand
leaning, non-restrictive and open-to-all
technology philosophy
FINO : A mobility based solution…
Technology Enablers
Customer
Biometric Enabled
Instruction card
Business Correspondent
POT, PC, Menu based
Application
Bank / MFI
Middleware, Core Banking
System
FINO Identification (FID)
Serial number
Gender
Village Code
rrrrr yygss vvvvvv c
Year of Birth
State
Check Digit
Identity a common need…not actually a solution requirement…
14
Key Clients
• Micro finance Institutions


KAS Foundation, Spandana, MCFI & Janalakshmi
SEWA Bank
• Banks / NBFCs



ICICI – Rural Business
Union Bank of India, Indian Bank, Central Bank Of India and
Corporation Bank
Interest From Oriental Bank Of Commerce, HDFC Bank,
Punjab & Sind Bank & Punjab National Bank
First India Credit
15
In the end…
• Large demand of financial services at the bottom of pyramid


~ 60-70 mn households, ~ 300-500 mn people
Not just rural but urban as well
• Need to have a re-look at delivery model and regulation


Banking correspondent a right step
Validated in international markets as well
• Need to support Business correspondents



Regulation can focus on missing pieces
Technology can reduce operational risk and discretion, can also
incorporate product decisioning
Technology would have to be robust and overcome challenges of
literacy and connectivity
Thank You
Enrollment Photographs
FINO’s Philosophy
Scale
•
Unbanked poor is as equal as a
mainstream customer
•
•
Mainstream Innovation
•
Offer Indianized solutions to an
Indian problem with genuine
business intent; charity cannot help
scale and growth
Productise solutions on a right-fit
basis – Innovate on contemporary
technology having widespread
acceptance
•
Functionality-oriented solutioning
approach with an unbiased view of
the technology
Commitment to re-innovate by
continuous experimentation with the
state-of-the-art
•
Introduce technology on the
upswing of the adoption curve
Future Growth of FINO
Technology
WYA
WYH (mobile)
- WYK
WYH - WYA
WYH - WYK
Financial
5 mn
15 mn
25 mn
Insurance /
Health
PDS
Applications
WYH : What You Have
WYK : What You Know
WYA : What You Are
Transport
What does Rural Household do?
Contribution
to GDP
(Rs. bn) 2004
Contribution
to GDP
(Rs. bn) 2010
Contribution
to GDP
(%) 2010
Grains
1,621.68
1,804.68
22%
Horticulture
1,328.85
2,140.12
26%
Dairy
1,100.70
1,486.22
18%
Plantations
598.80
645.07
8%
Oilseeds
501.63
737.05
9%
Fisheries
342.36
503.03
6%
Poultry
318.19
458.55
5%
Sugar
235.20
326.65
4%
Others
179.21
218.03
3%
TOTAL
6,226.63
8,319.40
100%
Source: CMIE (Centre for Monitoring Indian Economy)
• Dairy one of
primary occupation
for bottom of
pyramid customers