10
Aug

From Looking to Seeing

By Kshama Fernandes, CEO, IFMR Capital

I met today with the promoter and CEO of one of our newer Small Business Loan Originators and visited some of their end borrowers in Bombay. I heard an interesting story of their very first client not too long ago. This was a sandwich vendor who runs a makeshift stall outside the Bombay Stock Exchange (BSE) and has been supplying sandwiches to the entire BSE crowd for years. Imagine a business with a captive clientele in one of the oldest and the largest exchange in India. One would think the vendor must be an attractive credit opportunity for any sensible lender. Well, it so happened that the gentleman had no access to formal credit for decades despite being located on Dalal Street – traditionally considered the nerve center of India’s capital. Till the day a credit officer from our Originator discovered him. As expected he had little to prove his credit worthiness. So the credit officer spent two days standing next to his little stall and counting the number of sandwiches he delivered to the BSE building from morning to evening. This was followed by a personal assessment through a Q&A session, a visit to his home and a few conversations with neighbours. Using the sandwich-movement-activity based cashflow and other observations, the credit officer built the sandwich vendor’s P&L and B/S. The vendor was given a one-year loan of INR 9 lakh. He repaid the loan in 6 months and reapplied for a larger loan, tapping into a formal source of finance for the second time in his life.

The CEO told me that when he left behind a promising career in a mainstream commercial bank and decided to get into a more interesting and possibly a higher margin business, he thought he would have to go to far flung areas of the country in search of those who had no access to credit. He was wrong. He found many such down the street from his office. I visited some of them today.

India is indeed a promising land. We simply need to look a little closer and go a little deeper into the lives of people around us – people whom we always ignored because we never thought they had potential. We need to stop looking and start seeing!

17
Aug

From the hills of Uttarakhand

By Kshama Fernandes, CEO, IFMR Capital

I am writing from Thatyur village in Theri district, Jaunour block – about 3.5 hours north of Dehradun in Uttarakhand, India.

I met Akhilesh Badhani today, an entrepreneur in a beautiful riverside village in a valley surrounded by hills. He started the hardware and provisions shop 4-5 years ago and caters to around 25 to 30 villages in the surrounding hills having a total population of around 10,000. He is a client of Sahastradhara KGFS, has availed a Micro Enterprise Loan of Rs. 1.5 lakh from them and is one of their most disciplined borrowers. He has almost repaid his first loan and wants to now apply for a larger one.

Thatyur village
View of the Thatyur village

At some stage Akhilesh decided to pursue his studies at Benaras Hindu University and so his younger brother runs the shop for him now. Akhilesh did a one-year course in Sanskrit from an institute in Rishikesh. Then did his Masters in Indian philosophy from BHU and is currently pursuing a Ph.D in Bhagwat at BHU (there are two streams of Indian philosophy –  Bhagwat and Vedanta). He aspires to be a professor of Indian philosophy post completion of his research.  Said he wants to work on dispelling the superstition associated around Indian scriptures.

Here is what he explained to us from a scripture: Imagine a devotee who makes an offering of ghee, kheer and all festive delicacies to the Lord in a temple. And standing right next to him is a poor starving man who hasn’t eaten for days. Does the offering of ghee made to the Lord make any sense? Such offering is akin to bhasma (ashes) left behind by a fire – worthless. Feed the hungry man instead and it will be worth its weight in gold.

Akhikesh concluded by saying “Nar seva hi Narayan seva hai” which inadequately translates into “Service to man is service to God”.

To-be-Dr Akhilesh
To be Dr. Akhilesh

I was fortunate to meet Akhilesh because he was visiting his village for a week during University vacations. He returns back to the city in pursuit of his research on the 23rd.

Everytime I visit the field I am struck by how many fascinating stories exist out there. A few we have the opportunity to touch – we provide them with a financial product and they provide us with the inspiration to go on and touch many others.

1
Jun

Pudhuaaru KGFS Turns 7 – The journey so far

(In case you are unable to view the infograph please click here.)

22
Apr

Insights from a Deep dive exercise in Sahastradhara KGFS, Uttarakhand

By Arjun Sood & Gayathri V, IFMR Rural Finance

Sahastradhara KGFS started its operations in the year 2008 with a mission “to maximise the financial wellbeing of every individual and every enterprise by providing complete financial services in remote rural Garhwal”. Currently, we have thirty one branches serving the districts of Uttrakashi, Chamoli, Rudraprayag, Tehri, Dehradun.

While Sahastradhara KGFS has gone where no private financial institution has gone before and proven its commercial case, we continue to think there is enormous untapped potential and room for improvement in the customer experience. This can be seen in terms of low activation rates, time delays between customer enrolment and activation and relatively low wealth manager productivity. Against this context, Sahastradhara KGFS commissioned an exercise which was internally dubbed as “Mission Deep Dive Sahastradhara” to uncover the root causes for this and suggest strategies for improvement.

Sahastradhara KGFS BranchLocation1
Sahastradhara KGFS Branch locations

In the extensive field engagement that followed, a cross functional team involving members from diverse roles dwelt deeper into the operations of the entity. Out of this extensive study three themes emerged as the ones that needed most attention immediately:

  1. Data Integrity – How well do we know our customers and how is this being leveraged for business decision making?
  2. Process improvements – How efficiently are we able to provide service to our customers?
  3. Organisation development and training – How well trained and empowered is the field staff to carry on branch operations smoothly?

The team came up with following suggestions and tools to address these gaps:

i) Beat plan for the Wealth Managers – The service area of a branch can go up to 25 kilometres from the branch location. Owing to the hilly terrain, the hamlets and habitations are not always accessible by road; they have to be accessed on foot. For a Wealth Manager to reach up to these villages a mix of options have to be chosen i.e. public or private transport and foot. Field visit to such villages[1] not only demand a significant investment of daily time but also physical effort. To plan the daily schedule of Wealth Managers and to maintain regular interface with the customers, a beat plan for each branch was proposed. As per the beat, Wealth Managers are expected to visit a particular village or set of villages on a pre-defined date.

ii) Prioritisation matrix – As part of the beat, once the Wealth Manager has reached a village, the prioritisation matrix[2] would suggest which customers have to be met and for what activity? The rules that govern the prioritisation matrix tool are flexible and can be defined/ altered on the basis of changing business priorities. As a starting point, we added the following rules:

  • customers whose data needs to be updated (re-enrolment),
  • high priority insurance customers (human capital, shop and livestock),
  • customers who have goals coming up in this year (lead for credit products) and
  • customers who have high surpluses and long term goals (lead for investment products)

iii) Focus on Tier 1 areas – Tier 1 areas, are the areas that are located within a range of 10 kms from the branch by road and where the Wealth Manager does not have to cover more than 3 kms on foot. In order to increase the business numbers, Tier 1 areas or the areas that are easily accessible by road or foot from the branch were shortlisted. The target was set at achieving a minimum of 50% household level activation for asset, insurance and investment products.

iv) Re-enrolment and data update of households – We defined metrics that measure the quality of enrolment data based on completeness, validations and vintage. Households that did not satisfy this data quality metric were to be re-enrolled/ data was to be updated for them in the systems. Priority was accorded to households based on their engagement with us – re-enrol active and overdue households first, then dropout households and then never active households. Having quality information about the financial lives of these households would enable the Wealth Manager to offer high quality wealth management advice and hence, the right financial products suited to the household profile.

v) Credit process improvement strategies –

  • Introduction of Cash flow appraisal template – The existing loan appraisal template used to capture data about a business at a point in time i.e. on the day of appraisal. Due to this, we had limited understanding on the seasonality of cash flows of the customers. Appraisal sheet that will capture the month on month cash flows of the business was introduced with an objective to understand the seasonality of cash flows of the customers, eventually leading to us designing customized products.
  • De-centralisation of loan approvals – Loan sanction up to a certain amount was decentralised to the branch staff. This would lead to an increase in ownership of loan underwriting at the branch level and reduce the loan processing time.

The deep dive exercise at Sahastradhara KGFS gave us valuable insights into the running of a KGFS. It allowed us to reassess some of the contours of the KGFS model and align it to our larger mission. Some of the key insights are:

  1. Importance of having recent, triangulated and complete enrolment-appraisal data about our customers: In order to offer suitable financial products to the households it is important to understand their financial profile fully – income, expense, goals, assets and liabilities. We are working to make the KGFS enrolment process a work-flow based data collection system which will ask a limited set of key questions to the customer to understand their financial lives completely. To make the best use of finite customer interaction time, the data declared by the customer will be validated and triangulated at the backend using external data sources and our own historical data.
  1. Importance of understanding month on month cash flows of the households before product sale: Any credit product being given to a household is based on a thorough appraisal of the loan purpose and the asset being created from the loan. This deep dive exercise taught us that while it is important to do that, it is equally important to assess the current cash flows of the household which will support regular repayments. Given the rural markets we operate in, it is also important to be cognizant of the seasonality associated with these incomes. We are working to build this knowledge about income generating assets and the cash flows from that asset into the enrolment-appraisal process.
  1. Better use of the Wealth Manager time and improved customer experience: We are also building predictive models that would assign a score to a customer at every stage of his/ her interaction with us. This would provide better targeting strategies and specific engagement paths based on customer type, thereby improving activation rates, predicting delinquencies and customer attrition over time.
  1. Assessing the quality of enrolment data in other KGFSs: Data quality as a topic has garnered a lot of interest and we are working to come up with a standard set of data quality metrics which will then be published thereby incentivising the branch to collect good data. The branch staffs are also being trained on the importance of having quality data and some methods by which they can prompt the same from the customers at the time of enrolment.
  1. Significance of a process audit: The audit process is a key tool in identifying two things: if the process that has been prescribed is being followed on the ground (voice of process) and if there are any gaps in the process that hinder the customer experience (voice of customer). After the Sahastradhara exercise, we are trying out a couple of methods by which any prescribed process can be audited. This is being tried out in multiple KGFSs and a refined audit process is expected to be launched pan India.
  1. Learning about the roles of the frontend staff: The Sahastradhara deep dive reiterated the role that our field staffs play in the customer experience. It is absolutely crucial that the frontend of the organisation be empowered and owns the success of each of their branches. Decentralising certain amount of decision making will go a long way in bringing about that cultural shift.
  1. Leveraging existing technology: The backbone of the KGFS model is the initial investment we make in technology and how we leverage it to provide quality service to the customers. In this regard, we pushed the branches to use the mobile platform to make on-the-spot product sales and other transactions at the customers’ homes. This coupled with real time biometric authentication, thermal receipts and IVR messages provide a secure way to move product sales closer to the customers.

[1] Village Sangrola under the service area of Lambgaon branch is 25 kms from the branch. It takes 2 hours to cover 23 kms by road and an additional 30 minutes to walk 2 kms uphill, to reach the village. A to and fro journey to the village will consume 5 hours. Customer interaction and transaction time will take additional time. The time and distance were mapped during a field visit in May 2014.

[2] A prioritisation matrix is a demand chart equivalent in an MFI. But unlike MFIs, our Wealth Managers perform a multitude of tasks ranging from enrolment to product sale to appraisal. The prioritisation matrix helps the Wealth Manager keep track of the tasks to be completed while the tasks themselves and the priorities can be dictated from a central level.