The Innovative Finance Revolution

Foreign Affairs magazine in association with The Rockefeller Foundation has published a special issue titled “The Innovative Finance Revolution”. The issue focuses on how innovative finance, characterised by financial tools such as pooled insurance and securitised debt among others, can put the power of private capital markets to work for the public good and can unlock new resources and lead to cost-effective interventions.

Img_FAThe report features essays that lay out the context of innovative finance, and focuses on innovative finance solutions, technological innovation and policy frameworks. As part of this publication, Sucharita Mukherjee, Deepti George & Nikhil John have authored a chapter titled “Investing in the Transformation of Financial Access in India”. In the chapter the authors lay out the financial access scenario in India and provide a perspective on the innumerable challenges that a well-functioning financial system can effectively mitigate for India’s individuals, households, enterprises and local governments and IFMR Holdings role in addressing it. Through the chapter they highlight the underlying core philosophy that drives all our efforts and the work of each of our entities towards our mission of ensuring that every individual and every enterprise has complete access to financial services.

You can read the full publication here and the particular chapter here.


IFMR Holdings Annual Update 2016 – Sowing Seeds for Transformation

In this Annual IFMR Holdings update for FY2016, Sucharita Mukherjee, CEO, IFMR Holdings, in conversation with a Wealth Manager in the video below, narrates the journey so far and the road ahead. IFMR Holdings invests in, and operates financial services companies in India with the mission of ensuring that every individual and every enterprise has complete access to financial services. As of March 2016, IFMR Holdings and its group companies have reached over 18.5 million people across India, working through its own network and that of its partner originators.

Watch the video below:


Curating Innovative Ideas through I-Innovate

By Nikhil John, IFMR Holdings

In our endeavor to achieve our mission of ensuring that every individual and every enterprise has complete access to financial services, we realize the crucial role that innovative ideas can play in this journey. These innovations, either the big-impact ones or the incremental steps forward, play a critical role in aligning our efforts to serve our customer better and are a constant source of inspiration that nudges us to reflect and adapt to future challenges.

To systematically channelize these ideas from our colleagues across the board, right from our KGFS branches to our corporate offices, we had launched “I-innovate”, an organization wide-effort aimed at inspiring and expediting the spirit of constant innovation by facilitating the generation of the next wave of innovative ideas. Each idea received through the platform is funneled through a screening process and the selected ones are allocated resources, incubated and taken to scale.

To qualify the idea must achieve two outcomes:

  • Solve a fundamental client problem – where the client can be a household, financial service provider, regulator, or internal clients like IFMR employees.
  • Accelerate the mission of IFMR Trust.

Since opening the call for proposals in the first cycle the submissions from KGFSes covered a wide spectrum of areas, pertaining to customer engagement, product design, infrastructure and system design, human resources management and administrative processes.  The ideas ranged from and included loan management system improvements, installing Everywhere Teller Machines (ETMs), combining equipment like biometric embedded thermal printers to save costs, a rewards and recognition program for employees, inter-branch idea exchange for best practices, business intelligence improvements, and product improvements in credit and non-credit products.

The submissions from Chennai office ranged from a rewards program for KGFS customers, incentivizing savings up behaviour, digitizing payments to gain insights on migration from cash to cashless solutions, creating a repository of the occurrence of natural disasters and its effects at originators, a customer self-service IVR system, and a social game designed to immerse the user to decisions faced by the Indian low-income household.

After careful deliberations we have shortlisted the below ideas from the first cycle that have made it to the final stage. These ideas and the innovators behind them are developing the ideas further and are in the process of structuring relevant pilots where necessary. With successful pilots and further development appetite the following ideas will be implemented in the current cycle:

Informing customer consent at KGFSes – Rachit Khaitan

Objective: A more responsible financial services provision at KGFS – through a point of sale engagement with the client– facilitating better customer outcomes & documenting the challenges and lessons for advocacy towards a stronger customer protection regime in India.

Description: There are often instances when customers of retail financial products are inadequately informed and caught by surprise about the financial contracts they enter into, leading to unplanned and adverse financial outcomes such as over-indebtedness and delinquency. While there is an important role for norms on transparency and product disclosure in bridging the information gap between the provider and the customer, it is not clear whether the point of sale processes of Indian retail financial services providers today take into account a customer’s truly informed consent. This innovation seeks to design and pilot a small but key process at KGFS to better ensure the informed nature of customer consent at the point of sale of a particular financial product (which could be determined based on mutual stakeholder agreement), based on a customer’s demonstrated understanding of its key aspects. The process entails administering a short verbal quiz to customers, at the point of sale, on the key aspects of a financial services product such as specific features, customer obligations, and potential risks and benefits in a manner that is understandable to the customer, to form the basis of more meaningful informed consent.

FAQ and answer database platform for originators and investors – Arjun Subramanian

Objective: Web-platform/Mobile App that serves as an answer database for the key questions asked by originators, investors, partners and management to serve as a best practices sharing tool for IFMR Capital.

Description: The idea is to have an interactive web platform that would answer the top questions/best practices from originators, investors, senior management and get answers from stakeholders in the context of specific clients. As an organization that has multiple access points with clients and teams that constantly change in terms of managing relationships this innovation will make the organization’s journey more inclusive.

KGFS rewards card – Deepa Anand

Objective: Rewards card to enhance customer experience and enable higher customer retention, stronger customer referrals, incentivize uptake of particular products, encourage timely repayment and other good financial behavior. 

Description: The KGFS reward program is intended to be offered to all KGFS customers. Every time a customer avails a KGFS product or repays on time for the life of a loan, or exhibits any other financial behavior that is to be encouraged, the customer earns reward points that accumulate on her rewards card.  The points can then be redeemed at the end of the year or at product closure date/renewal date (for example at loan closure date or insurance renewal date) in exchange for discounts on the next product availed (for example discounts on the EMI or processing fees of the next loan availed, or discounts on remittance charges etc.), or free mobile recharges.

Inculcating saving-up behavior – Aditi Kumar

Objective: To deploy a program at the KGFSes designed to inculcate saving-up behaviour.

Description: Saving up requires discipline and gives slow gratification.  The idea is to incentivize saving-up behavior through a program at the KGFSes that could be designed in either of the following ways:

  • Mobility of services – Local Agent model for savings transactions, which could include:
    • Door step collection of savings amounts
    • Transactions through smart cards and point of transaction machines with local agents (present in the village)
  • Piggy bank method – Give the customer a KGFS piggy bank in which she deposits what she can and get it at the end of the month to the branch to unlock and get her savings – probably do an activity around this in a group and reward the customer who has the highest savings balance – this is purely to inculcate savings behavior. Gradually instead of the piggy bank, one can move the customer to a savings bank account under a mobility model.
  • Using a JLG group structure to encourage savings in different ways (individually or as a group) – Could involve savings as a group and one of the people in the group gets access periodically and cyclically. More like a reverse SHG bank linkage model. This would also involve looking at whether we currently tap into the SHG network for lending and if we can mobilize their savings.
  • Via a micro-saving platform delivered through an investment/savings planning tool that determines how much each customer is to save periodically and then synchronize it with their repayment schedules.

 Development Impact Bond (DIB) to ensure suitability of MFI products – Nikhil John

Objective: A product that affords MFIs a source of cheaper debt to incentivize them to ensure their employees are offering suitable financial products to customers – an outcome social impact investors and grant funders are willing to fund.

Description: Through this idea the intent is to launch a Development Impact Bond in which IFMR Capital invests in the equity tranche with DFIs/ financial institutions, interested in suitability, investing in the mezzanine tranche. The objective is to fund the outcome where MFI employees are tested to ensure products they offer are suitable, with financial investors participating in senior tranches, getting an additional return if the outcome of suitability is achieved.

 Through I-innovate we aspire to engender new grassroots thinking and believe that over a period of time it will pave the way for systematic innovation that propels us further in our path towards our mission.


Building Natural Catastrophe Protection for Low-income Households – Notes from the Joint Workshop hosted by Asian Development Bank and IFMR Holdings


By Vipul Sekhsaria & Nikhil John, IFMR Holdings

Natural catastrophes, whether in the form of the severe drought that regions like Bundelkhand are currently witnessing or floods, like the one which deluged Chennai in 2015, leave behind them a tale of destruction that is both unparalleled and deeply disturbing. Natural disasters cost India $3.3 billion in 2015[1], the figure not accounting a crucial factor – “loss of livelihood”.

Amongst the ones who are hit during a natural catastrophe, the impact is most severe on low-income households and ones living below-the-poverty line. Natural disasters such as floods, droughts, cyclones and earthquakes keep pushing a majority of these households back, curtailing their attempts to move to a higher financial path every time such a catastrophe strikes.

According to a report, “An annual global investment of $6 billion in disaster risk management strategies would generate total benefits in terms of risk reduction of $360 billion[2] (suggesting a 1:60 ratio of cost to benefit) but sadly it adds that this is equivalent to just a 20% reduction of new and additional annual economic losses due to natural disasters. In the Indian context, as a nation we will be spending close to $9 billion over the next 5 years towards disaster risk management, but the question remains, is that enough?

While government expense on disaster management will surely mitigate the effects of disasters in terms of preparedness, but how does one go beyond the insured assets and insured lives, particularly given that insurance penetration is very poor, especially in low income groups?[3]   Solutions for the low-income household and business should not only insure hitherto uninsurable assets, uninsured lives, but also protect livelihoods and income streams.

With an endeavour to think through the challenges & opportunities that catastrophic risk entails and take the first steps in finding a solution to protect low-income households in India from the aftermath of natural catastrophes, Asian Development Bank & IFMR Holdings organised a joint workshop on June 2-3, 2016 towards this. The workshop brought together high quality originators, data scientists, climatologists, insurers, reinsurers, social impact investors and the regulator under one roof.


Finding a solution to protect customer households and businesses as well as the originators that have a relationship with such households and businesses was the imminent theme of this workshop.What we can think of, we can do”, as Sucharita Mukherjee, CEO of IFMR Holdings put it, was the underlying spirit that drove the particiapnts. Delivering the keynote address P.J. Joseph, Member, Non-Life, Insurance Regulatory and Development Authority of India (IRDAI), very clearly suggested how insurance penetration continues to be extremely low – only 0.9% of GDP is protected by non-life insurance. He added how only 8% of economic losses were insured and thus there was a need for out of the box solutions for catastrophe risks. The premium collected by the non-life industry for natural catastrophes amounted to about INR 4,500 crore annually whereas the loss from the Chennai floods alone stood at about INR 14,000 crore said R. Chandrasekaran, Secretary General, General Insurance Council, in his opening address. He added, although tax rebates initially helped give impetus to product take-up, today tax rebates are not the foremost reason why people buy health insurance, a similar approach might be worth considering for catastrophe protection covers.

Udaya Kumar, MD and CEO of Grameen Koota, in his talk highlighted the difference an ideal natural catastrophe protection solution can bring to the lives of low-income customers served by his organisation. He expounded on how natural catastrophes initiate vicious cycles of poorer life to the already poor and how a safety net provided by catastrophe insurance can make clients more resilient and aid the organisation’s efforts on financial inclusion.

Bama Balakrishnan, CRO of IFMR Capital later shared analysis of how some of the originators had medium to very high risk exposure to their net worth owing to catastrophe risk and how this continues to be a barrier to financial inclusion, keeping originators away from high risk prone geographies.

In addition to having specialists present their insights on key issues and participants engaging themselves in group discussion on key themes, the workshop also provided for a couple of panel discsussions.


The first panel discussion was on the different types of catastrophe risk protection products that exist globally and in India. In addition the panel deliberated on what are the data, risk models and loss curves available and how can these be improved? The panel consisted of Dr. Murthy Bachu, Principal Hydrologist at AON Benfield Analytics, Alex Chen, CEO of Asia Risk Transfer Solutions (ARTS), Ulrich Heiss, Senior Advisor, Sector Project Insurance at GIZ, Pushpendra Johri, VP of Risk and Insurance at RMSI, Vineet Kumar, Head Cat Perils Asia at SwissRe, in a discussion moderated by Arup Chatterjee, Principle Financial Sector Specialist, Sustainable Development and Climate Change Department at the Asian Development Bank (ADB). Key learnings from the panel:

  • Natural catastrophe risk has been a subject under discussion in India for more than two decades; lack of robust data, event curves and loss models have prevented the development of holistic solutions, said Arup Chatterjee. The wait for perfect data might never be over, but there already exists a large understanding by data scientists and climatologists that is more than sufficient for natural catastrophe-specific products in India.
  • Pushpendra Johri suggested availability of flood model based on 50 years of river flow data and 109 years of rainfall data with RMSI. He added that there is enough data to begin, but data reporting in the future will be a key game changer to make products more affordable in the long-run.
  • Affordability is crucial; but one should also examine incentive-alignment of various stakeholders within a value chain to arrive at innovative ways of structuring the product premium payment. In one such example, while the cotton farmer is the end recipient within the value chain, it is the cotton buyer who pays for the premium. The increase in cotton produce directly affects the buyers business and a more resilient farmer means higher profit for the buyer entities.
  • Role of technology in e-delivery needs to be explored against best practices around the world and new innovations waiting to emerge.
  • A good starting point appeared to be in the form of a parametric insurance product that transcends the exposure only to assets and looks at items like loss of income and livelihood as the important factors in deciding the amount of insurance cover.
  • With a deep understanding of their customer needs, geographically specialised originators like microfinance institutions, small business lenders, affordable housing finance institutions and similar institutions in financial inclusion are aware of the impact of natural disasters on the lives and livelihood of their customers’ in absence of any financial protection.
  • Catastrophe risk affects credit markets including interest rates, losses on loan causes capital erosion for financial institutions. Re-capitalising and de-leveraging are two options in the aftermath of a disaster, though both with their negatives. Recapitalisation is not so forthcoming and deleveraging affects the financial institution’s capability to lend. Residual risk management can be supplemented by catastrophe risk insurance products. Insurance and re-insurance play an important role in the underlying catastrophe risk – linking credit, risk and savings can result in appropriate risk financing strategies said Christine Engstrom, Director, Private Sector Financial Institutions, Private Sector Operations Department of ADB.
  • Originators acknowledged the geographical risk they carry at an organisational level for operating in such markets and lending to customers highly exposed to natural disasters.


Another star panel moderated by Sucharita Mukherjee, which had Brahmanand Hegde, MD and CEO of Vistaar, Udaya Kumar, Vaibhav Anand, Head Risk Analytics and Modelling of IFMR Capital, Easwar Narayanan, COO of Future Generali, K. Venkatesh, CEO of IFMR Rural Channels, and Ulrich Hess deliberated on informal ways of managing risk by low-income households like income diversification, investing in gold (especially in South India), and investing in other assets like land. Key learnings from the panel:

  • The poor are much more risk resilient than what one can imagine and their ability to bounce back is very high if supported by the right tools, said Udaya Kumar. A catastrophe insurance product could just be that tool.
  • Greater concentration on a quick loss assessment and claim settlement is important.
  • Simplicity of the product cannot be over-emphasized, element of instant relief to the affected households will make it more receptive.
  • Customer contact post disaster is very important as the customer’s trust in the entity that serves them is critical.
  • One of the insurer panellists asked, “Why do people insure motor and health?” the group unanimously agreed that a large reason is that people feel the immediacy of the loss.
  • Idiosyncratic risks are much easier to perceive and customers avoid planning for more systemic risks like disasters world over.
  • Awareness programs can make a difference. Examples cited suggest that campaigns that continued for multiple years saw much higher uptake in other insurance schemes, as signs of losses emerged and more customers realised its value.
  • The use of technology for loss estimation – innovation at delivery and claim settlement can also be a game changer in faster and more accurate claim settlement. For example, if parameterised products are more cost effective than indemnity products, how can technology magnify the intelligence of the indices that parametric products are dependent on? Technology can have a role to categorise the income classes and the duration of the loss of income by studying these models and adding that to the index can be one such way as pointed by one of the panellists. Left to the customer for what cover to choose, they will always choose the cheapest product and hence intelligent indexing can be of good use.
  • Can the government and CSR activities of institutions contribute to a risk fund? Participating Development Finance Institutions (DFIs) committed their support in running pilots, building better risk and loss models and further in normalising prices in the short run with a goal to make the product affordable.
  • One of the points that came to the fore is that financial institutions are reluctant to sell these kinds of products – but the panel agreed that the profitability cannot be measured for each product line and as long as the product enhances customer resilience – the indirect beneficiary is the institution the customer borrows from.

Armed with all the inputs from the speakers and the panellist the entire group spent the first half of the second day working in multiple small groups to come up with product pilot ideas. It was as if all the participants had taken upon themselves to forge a definite way forward and so it was.

The group agreed upon critical design parameters for the pilot:

  • Simple to buy (could cover multiple perils, with simple options, structure could be parametric / indexed).
  • Affordable – capturing the pricing benefit of risk-pooling between different entities and different household profiles.
  • The magnitude of the cover should provide for the loss of assets, loss of livelihood, and a buffer at an organisational level to meet unplanned exigencies or provide for households who were affected but couldn’t get compensation since parametric solutions will carry basis risk (may not cover all actual damages).
  • The loan amount can be used as a proxy to determine the magnitude of cover.
  • To design the vulnerability index that can be used to determine the value of cover (one may need a pre-survey to arrive at such a vulnerability index), pre-defined hazard and loss triggers.

The group, including originators unanimously agreed to build protection for catastrophe risk and were ready to be a part of joint initiatives to bring some of the solutions to light.

[1] http://www.firstpost.com/india/natural-disasters-cost-india-3-30bn-in-2015-heres-why-we-should-be-very-worried-2622940.html
[2] http://timesofindia.indiatimes.com/india/Disasters-cost-India-10bn-per-year-UN-report/articleshow/46522526.cms
[3] http://timesofindia.indiatimes.com/business/india-business/Insurance-penetration-in-India-at-3-9-percent-below-world-average/articleshow/46518607.cms


Video: A Robust Architecture for Financial Inclusion in India – Ms. Arundhati Bhattacharya

In the previous post we had covered the keynote address delivered by Mr. Nandan Nilekani at the IFMR Holdings Event, 2015. In this post we share the keynote address that was delivered at the event by Ms. Arundhati Bhattacharya, Chairperson, State Bank of India, on the topic of “A Robust Architecture for Financial Inclusion in India”.

Tracing the roots of growth to a period when India liberalised its economy in the early 90’s, she talked about how financial inclusion is both enormously challenging and at the same time presents itself as a huge opportunity. She described a robust architecture of financial inclusion as one that directly implies a robust banking system, which in addition to having banks at the centre of the wheel also will have differentiated banks, Business Correspondents among others. In addition she stressed that this architecture of financial inclusion comprises of inter-disciplinary trends that shape the economy and also one in which technology and literacy will play a critical role.

In her talk she also mentioned how the e-commerce boom that the country is witnessing would play a crucial role when it comes to SME inclusion. The prime reason being that such platforms give financial institutions better understanding of the SME business that they are financing.

Watch her keynote address in the Video below: