Consultative Group to Assist the Poor (CGAP) has published a new paper titled “The Pursuit of Complete Financial Inclusion: The KGFS Model in India” which talks about the KGFS model and its three core operating principles which differentiate it: (1) complete coverage of the population in a focused geographic area, (2) customized client wealth management services, and (3) a broad range of products.

Bindu Ananth, one of the authors of the report along with Gregory Chen & Stephen Rasmussen of CGAP, was interviewed by CGAP on the KGFS Model. In this below video she discusses the overall model and its core philosophy.

Lok Capital, a venture capital firm, and one of its limited partners, Proparco, the private sector investment arm of the French development agency AFD, have together invested $5 million in IFMR Rural Channels.

Lok Capital’s series A investment in IFMR Rural Channels, which will be paid out in a single tranche, will be used for building Kshetriya Gramin Financial Services (KGFS) which offers financial services in remote rural locations.

KGFS as an entity aims at delivering a complete suite of products and services to ensure financial wellbeing of households and enterprises in remote rural locations under its unique wealth management approach. At present the KGFS network has 110 branches that serve about 200,000 households in Tamil Nadu, Orissa and Uttarakhand.

Commenting on the investment, S.G. Anilkumar, CEO of IFMR Rural Channels and Services said, “Lok and Proparco’s investment in IFMR Rural Channels and Services (IRCS) indicates their alignment with our mission of delivering high quality financial services in a way that has a profound impact on rural households. This investment also validates the sustainability of the KGFS Model that believes in the core philosophy of adding value to the customer and thereby becoming valuable as a business. With this infusion, we envisage further expansion of the KGFS Model to other remote rural locations across the country in a phased manner.“

Click here for: Press Release || News Article

This post first appeared as part of CGAP‘s series on “Financial Capability and Bridging the Gap”.

Excerpt:

Low-income households are faced with complex financial decisions almost on a daily basis. Incomes are uncertain and variable, and using meagre resources in the most efficient manner is difficult. At a functional level, households need only two things – liquidity, to meet their short term and long term requirements, as well as a mechanism for managing risk. However, the financial markets they face are incomplete and segmented, further complicating their choices. Thus, the problem is two-fold – that of access and capability.

Much of the innovation in the financial services industry today is focused on access. The growth of microfinance and other delivery channels such as mobile banking and agent networks in India has been unambiguously important for millions of poor households. However, the present channels of financial services delivery place the onus of choosing the best financial strategy on the consumer. The constant innovation in the financial services space makes it almost impossible even for the financially savvy to keep up. As a result, the consumer places high levels of trust in their financial service provider, who has little or no incentive to act in a manner that maximises the client’s welfare and few regulatory disincentives to refrain from selling products that are unsuitable.

To read the full post click here.

Close on the heels of launching its fourth KGFS, IFMR Rural Channels launched its fifth KGFS yesterday – Thenaaru Kshetriya Gramin Financial Services (KGFS) which would be serving the districts of Pudukkotai, Karur and Namakkal in Tamil Nadu. The first branch has been opened at Nagarapatti in Pudukkottai District.

As an entity KGFS aims at delivering a complete suite of products and services to ensure financial wellbeing of households and enterprises in remote rural locations under its unique wealth management approach.

Apart from the recently launched Thennaru KGFS & Vellaru KGFS, the other operational KGFSs include Pudhuaaru KGFS (Thanjavur, Tamil Nadu), Dhanei KGFS (Ganjam, Orissa) and Sahastradhaara KGFS (Uttarakhand).

Images from the Nagarapatti branch launch:

By Kenny Roger, Center for Microfinance, IFMR Research

A recent report titled “Latest findings from Randomized Evaluations of microfinance” by Jonathan Bauchet, Cristoball Marshall, Laura Starita, Jeanette Thomas and Anna Yalouris, throws a lot of interesting insights into the realm of randomized evaluations and how they are being increasingly used by researchers across the globe to better understand financial services for the poor and the impacts achieved when an appropriate financial intervention is introduced.

Some of the recent interventions include the following:

• Researchers evaluated the impact of access to credit by randomizing the placement of MFI branches across a particular region in India. Though its early days to say there has been a considerable impact, it is notable that some households increased non-durable consumption, others reduced expenditure on temptation goods and instead invested in their business or bought more durable goods.
• Fingerprinting intervention in Malawi saw borrowers take smaller loans for instance, when they knew they could be identified, and were more likely to repay as well because of the fingerprinting.
• Changing term structure of debt actually witnessed borrowers investing a greater portion of their loans in businesses and thus registering higher average profits.
• One study in Kenya showed that access to formal savings accounts for market stallholders led to increased business investment and personal income growth.
• There are also instances wherein farmers who had access to rainfall insurance began to shift more towards risky and rain-sensitive crops owing to its capability of generating high profits.

These studies have however studied only one financial product or aspect at a time. The needs of the poor are varied like any other income group and the scope of availability of a wide range of financial services to the same as we all know may not be good enough.

To put things into perspective, consider, Mr A, a farmer by profession who has a bank account, has taken an MFI loan, borrowed money from moneylenders, has remittances from a direct relation and has a life insurance policy. We need to realise that Mr. A, like anyone, is involved in a wide range of financial products or services regardless of whether the provider is formal or informal. A study looking at such a wide set of financial services and how access to the same impacts a person has not been done yet.

To address this, the Center for Microfinance (CMF), IFMR Research, along with Harvard University is studying the impact of access to a broad range of financial services provided by Kshetriya Gramin Financial Services (KGFS) in two districts of Tamil Nadu. KGFS uses a thin customer-facing front-end with robust back-end technology to bring a full range of financial services, along with wealth management advice, to entire communities under its coverage area.

Using a randomized control trial methodology the study aims to understand the specific pathways in which access to a range of financial services can impact not only individual households but also the entire village economy. The outcomes of this study will help in designing products and delivery channels for low income households, as well as inform policy on financial inclusion both for India and the rest of the world.

Highlights of this study will be shared as a series in subsequent blog posts.