By Arun Seethamraju, IFMR Rural Finance

With an objective to provide a long term savings option to its customers, KGFS has added NPS-Lite (New Pension Scheme) to its product portfolio. NPS-Lite is an initiative of Pension Fund Regulatory and Development authority (PFRDA) for the weaker and economically disadvantaged in the society to enable them to have a secured post-retirement living, so as to provide them with a regular stream of pension as annuities for old age. For KGFS customers, saving in NPS-Lite account now is one of the options to insure against longevity risk (outliving one’s productive age).

As a pilot, this product has been introduced across three branches (Kaikatti, Pulvankadu and Ilangarkudi) in Pudhuaaru KGFS and at Gokarnapur branch in Dhanei KGFS. On the first day 52 customers (24 females and 28 males) among different age groups have registered themselves for this scheme.

How does NPS-Lite work?

Any person between 18 – 60 years of age is eligible to avail the benefit of investing in NPS-Lite. The minimum contribution amount is Rs. 100 at the time of registration.  On registration the subscriber gets a 16 digit Permanent Retirement Account Number (PRAN) by a central record-keeping agency. Subscribers can then invest any amount in multiples of Rs. 1. The total amount accumulated depends on contributions and investment returns net of account maintenance and transaction charges. On attaining the age of 60 years, the subscriber is eligible for withdrawal as a combination of lump-sum (maximum 60%) and annuity/pensions (minimum 40%). The subscriber can choose to retire earlier than 60 years of age and withdraw as a combination of maximum 20% lump-sum and remaining as annuity.

For people working in the unorganised sector, the Central government, under its “Swavalmban scheme”, contributes Rs. 1,000 to every subscriber’s account whose annual contribution is between Rs. 1,000 and Rs.12,000. Central government’s contribution of Rs. 1,000 under this scheme is valid for 4 financial years beginning 2010-2011 to 2013-14.

In the event of death of the NPS-Lite customer, the customer’s nominee can either choose to receive 100% of the accumulated wealth as lump sum or transfer the accumulated amount to his/her own NPS-Lite account.

NPS Lite is an essential building block for KGFS’ wealth management strategy as it helps customers to Plan for their retirement, Protects them from longevity risk and Diversifies their surplus in global assets uncorrelated with their current holdings which are usually concentrated in local economies. The product will be rolled out across all KGFS branches starting December 2010.

The power of data is in being able to make sense of it. Sometimes however, under the enormity of data, the best of systems can throw a challenge in aiding the right decision. Hence there is a need for a comprehensive visual component to complement existing systems, which would allow the absorption of large amounts of data in a presentable format. Thus is an effort by IFMR Rural Finance team in collaboration with CDF to add a geospatial dimension to the existing MIS.

The new system aims to feed in the enormous amounts of data of KGFS customers and presents their details in a visual format laid across over an interactive Google map. With seamless integration with the existing databases of KGFS, the system would provide real time and most immediate information on the dot.

Some salient features of the Geographic Information System are:

• Ability to perform basic descriptive analysis (count, mean, variance, etc) on the map at the macro level
• Answering queries across various parameters. For eg. Transaction frequency of customers in a particular village, Loan Outstanding (<5K, 5-10K, 10-15, etc.) village-wise, insurance customers with 2 KM radius from branch location, non-customers in hilly regions over X feet above mean sea level, etc.
• Ability to drill down to the customer / transaction level

Being developed with the help of open source tools like Google Maps API, PostGIS and MapServer, the power of the system would be made available to every constituent of KGFS from the Wealth Manager to the CEO. Access to some features would also be made available on the public website of IFMR Rural Finance.

Early snapshot of the system showing the Karambayam Branch Service Area:

Zoomed-in map showing a smaller area

Ajay Karthik and Amit Shah who are involved in the development of the system say, “The visual representation of information on the map is expected to be more intuitive and hence at least one notch above the most powerful MIS. The system will help in providing insights into geographical gaps in the market / service area. It is also expected to help in taking decisions on branch locations, optimisation of distance from HQ / service area from a logistics point of view.”

Watch this space for more updates while the system is being developed.

Recently our Rural Finance Technology team migrated our legacy core banking system to a new core banking system.

Typically the migration involves three stages: Pre, Intermediate and Actual migration. At the pre-migration stage, a great level of attention went into understanding the data and the various parameters that hold it. At the intermediate stage, a mock-migration under a controlled testing environment was performed to iron out data inconsistencies and error incidents.  The actual migration, that happened over the weekend so that systems are in place when the week starts, happened after the issues encountered at the earlier stage were resolved.

The technology team provided a technical note that detailed the process involved in the migration. You can read the entire document by clicking here. The key takeaways being:

-    Understanding of data structure and account behaviour in legacy and new system is a key to successful migration.
-    It is advisable to always plan for mock drill before actual migration. This has to be accompanied by thorough testing and verification of data post migration.
-    Training should be given to users and they should be educated on account behaviour in the new system for accounts coming from the legacy system
-    Have patience.

Anil SG, CEO of IFMR Rural Finance, with an image of gold in its liquid form being molded into a solid state, as the initial slide, set the tempo for the topic being talked about at a recent Spark session – both visually and insightfully.

In the session titled “KGFS: The gold standard of origination”, Anil, talked about how KGFS, with its three operational areas in Pudhuaaru, Dhanei and Sahastradhara, is well on its way to becoming the gold standard of origination and the underlying layers that make it so.

Beginning his talk with the characteristics of a gold standard originator, he outlined that the transaction imperatives of such an originator should be continuity and flexibility, while their long-term imperatives should be reliability and convenience.

Getting Local

Financial services, for all its importance, can only be meaningful so long as they are relevant to the customer. In the Indian context, the challenge of staying relevant amplifies every few kilometers, thanks to the vast diversity and size of the terrain. Hence financial service providers have to get local and understand their customer intimately – customization, therefore is the key, stressed Anil. In line with this, he made a case for a branch-based model to address the primary manifestation of financial exclusion, which is lack of access. A brick and mortar structure located at a walking distance from the customer household would ensure access continuously and reliably and also provide flexibility to access such services at a time that is convenient to them.

Products

In the context of the rural household, most people equate financial services to credit, though important, there is an equal need for insurance, savings, investment facilities and payment systems as well. From the customers’ perspective, lack of access to these services forces creation of informal instruments/modes, which are sub-optimal and hence highly risky.

From the provider’s perspective, a full suite of product offering to the customer means that the provider is relevant to all households in the service area. Also with a deep understanding of the customer, the service provider has the job of finding the product for the customer rather than finding customers that ‘fit’ a product. Multiple products riding on the same channel create ‘economies of scope’ providing viability to the channel itself. Importantly, Anil emphasized, that focus should be on cash flows of the household and how these could be smoothened with various financial tools.

Wealth Management

Customization is only possible by understanding the needs of the household that vary from one to another, hence the role and importance of wealth management approach cannot be over emphasized. Wealth managers can play a role similar to doctors wherein a deep analysis of the household is done prior to “Prescribing” a suite of products that are relevant to that particular household.  To achieve this, the entire organization should be built to focus on the conversation between the customer and the wealth manager and a strong business analytics engine that enables these Wealth Managers to have “Assisted conversations” with the household.

Crucial ingredient in the wealth management process is the requirement of a robust analysis engine that gives timely inputs. Also for transactions to be relevant they should be delivered to the customer with speed, accuracy and transparency. Technology solutions, whether in the form of seamless connectivity, CMS, Biometric, Mobile etc are key to connecting the dots that make the whole picture work.

Anil summed up his talk by outlining that a customer centric approach, multiple products offering which provide economies of scope, low transaction costs and cutting edge technology are key to ensuring sustainability of operations for a high quality originator.

-By SG Anil Kumar, CEO, IFMR Rural Finance

On 31st August 2010, I spent a day at Annappanpettai Branch.  The branch was opened on 20th November 2009 and has enrolments of around 1750 when I visited.

As soon as I entered the branch, I was greeted by our Wealth Managers (WMs) neatly turned up in their uniforms and looked all set for yet another exciting day at the work.  The three WMs in the branch were Mr. Ramesh (Teller),  Mr.Prabhakaran (the senior-most WM) and Mr. Ayyappakumar (one of our newest WMs). The ARM was on sick leave as he was down with fever.  After the brief introductions I realised that I am in the company of talented guys who had their own reasons of why they are with Pudhuaaru, the details of which are in the later part of this post.

Having had the introductions, it was time to enquire about the enrolments, their daily routine and plan for the particular day, details of which were promptly given.  They seemed to have a well laid out plan for the day that I am spending with them (I must mention here though that the branch was randomly picked up just before leaving Thanjavur and they had no clue of my visit).

As we were talking, a group of women of a JLG hastily entered the branch and with a request (that started right at the entrance of the branch) that the transaction be done quickly so that they can catch the bus that is expected in next two minutes and if they miss the next bus is only after 60 minutes.  The request from their side did not sound unreasonable and they seemed to have experienced these “TAT’s” earlier too.  But my presence in the branch seemed to be interfering as our WM started insisting on their reading our “Reminder” (a process of building solidarity within the group).  Here was a situation where the customers want to do the transaction and leave in two minutes and our WM saying “But….you know today is not one of those days…one of our “Chennai” guys is sitting there”.  I couldn’t help but notice a big disappointment and frantic negotiation happening to finish the transactions early and some of them also looking at me with mixed feelings of angst and hope that I would do something.

I intervened and asked them as to the reason for being in such a great hurry and pat came the reply, one of the family members of one of our customers was sick and that she had to hurry back so as to attend the person.  I requested our WM to complete the transaction only to realise that he had almost concluded the transaction and that the group could leave to catch the bus!  I then checked with our WMs on what they would have done on the question of “Reminder” in such situations if they were the only officials in the branch and the answer was that they would not have insisted in such cases customer centricity in letter and spirit!

The branch then was deserted for a brief while and I was wondering why the customers weren’t coming as I knew that around 250 customers were expected.  I spent this period talking to our Wealth Managers about the service area, their knowledge of the households in the service area.  They seemed to know a great deal about the households in their service area.  As we were discussing Ayyappakumar took leave of us to go to the field so as to be on time for an appointment.

The rest of the session till lunch witnessed a thin stream of customers walking in with varied queries and needs.  One customer came with her mother-in-law to enquire if we have a loan against the hypothecation of her Light Commercial Vehicle.  While the vehicle was in her name, her husband ran the same for hire.  The customer was willing to provide land and building as collateral, provide credit history of how they have successfully honoured their repayment schedule for the same vehicle and closed the loan with a Private Finance Company and was carrying a “no-dues certificate” from them.  A classic case of Asset Back Loans based on cash flows.

The number of footfalls slowly started increasing as the lunch time approached and Ayyappakumar also returned from the field so that he could be available for the peak part of the day. That is the time when (Regional manager) RM Mr. Suresh also visited the branch as part of his routine.  When enquired, he mentioned that he took care of 19 branches and visited three branches a day as part of his routine.  Since there was a small crowd at the branch, RM and I decide to take a stroll in the village and visited a small hotel near the bus-stand, the owner of which also happens to be our Retailer Loan customer.  Suresh introduced me to this husband-wife team that was busy packing lunch for their regular “corporate” customer, a SME in the vicinity that purchases around 25 lunch packets a day.  Both of them seemed to be quite industrious and involved in the business.  While the lady mentioned that the loan from Pudhuaaru enabled them to move from snacks to lunch ( a big graduation in the segment), the husband was happy to inform that thanks to Pudhuaaru, footfalls to their hotel had increased since people from neighbouring villages who visit the branch also visit their hotel.  I got to have a great filter coffee from this shop for just Rs.5/- which, if lucky would be available in Chennai atleast five times the price!

Post lunch Suresh and I had a long walk when Suresh informed me of how he manages his day, the Wealth Managers meetings that he conducts at regular intervals, the feedback from the field and his men. Here we were met by another customer of ours who was enquiring about setting up of a mini dairy plant and how Pudhuaaru can structure a financial product for such projects.

Back in branch, the footfalls had increased and the number of people in the branch also increased as there was a JLG loan disbursement that had hit a “technical snag” in the form of one of the members of the group not being able to come for documentation.  The RM and the Wealth Managers explained them in great detail of the process of loan disbursement and that all the members had to be present for the disbursement to happen.  The best part of the whole conversation that I witnessed was the exposition of the need for process discipline by the branch staff and appreciation of the same by the customers.  Both the parties were trying their best to arrive at best possible solution to their current situation which ended with the fixing up of a convenient time the next day for disbursement.

I also witnessed a live family enrolment in the branch with not only the members of the family but also other visitors participating in the enrolment on questions like yield per acre of paddy etc.  When asked about the insurance cover the family, they had replied that they pay Rs. 3000/- p.a. for insurance cover, I asked them if they understood what kind of policy they have taken and the sum insured etc. Another customer who had come to repay her Jewel Loan explained me the entire process of availing of the insurance cover, payment of premium and how important it was to have a passbook and get an entry of the premium paid, made so that irrespective of people being there or not, the entry in passbook will ensure that their money was safe. It was baffling to notice that customers take comfort in various components of these age old processes like entries in the passbook.

Soon it was EOD (end of day) time and there were frantic activities.Prabhakaran the Senior Most Wealth Managers started the “countdown” for EOD when he started asking the details from the Teller if all the repayments are received, number of enrolments made etc., all across the counter with monosyllabic answers coming from Ramesh in the cash counter, who was busy segregating and preparing the cash to be kept in the vault.  And in exactly 15 minutes, Ramesh declared that the cash is tallied and ready to be checked by the other custodian, Ayyappankumar, who promptly started checking the cash, verified the entries in the vault register and both of them then moved cash into the safe and locked the same together. That was the end of the day for cash department.

Then were other steps in terms of switching on of burglar alarm, switching off of lights and the shutters were down for the day.

I thought this was a good time to get to know our stars of the branch a bit more and better.  I started with Ramesh and asked him as to how and why did he join Pudhuaaru. He quickly replied that being a Graduate in Commerce he wanted to be in banking or financial services but ended up working in FMCG and call centre for few months in Chennai and Hyderabad before getting to know about Pudhuaaru KGFS through one of his friends.  While he and his friend both appeared for recruitment, he made it and his friend didn’t.

Ayyappankumar was much more interesting. He was from Varagur village where we have opened one of our initial branches and his mother is our JLG customer, the proceeds of which were used to pay his first semester fee at his college where he was doing his MBA in one of the prestigious institutions in Thanjavur.  The burden of second semester became unmanageable and he was asked to look out for a job and the first thought that came to him was to apply for Pudhuaaru, earn sufficient money so that he can save and then continue his MBA. He proudly informed that he is well on his way of fulfilling this plan of his and has set aside 50% of his earnings so far for this.

Now it was the turn of the senior member of the Wealth Managers of the branch, Prabhakaran. He too was a graduate and pursuing MBA from Bharatidasan University as a Part-Time student. He explained in great detail on how he manages to attend the contact classes on Sundays and holidays, payment of fees out of his savings and how he considers acquiring of this MBA to be critical for his career advancement.

It was time to say goodbye to the branch and the Wealth Managers. What a day! On my way back, my head was swirling with all the observations. The process level improvisations that we can make, the number of products that we need to structure, realisation on how our branch has become first port of call for all the financial requirements of the households in the service area and their expectation that Pudhuaaru indeed is capable of providing these services to them. There were lots of ideas on how we as an entity can facilitate our field force acquiring higher education and plan their career advancement both internal as well as external so that the inquisitiveness to learn is kept alive in our Wealth Managers.

The best part was the comfort that the customers have with Pudhuaaru and its Wealth Managers and vice-versa. I came back to Thanjavur with pride and humility – pride because our Wealth Managers have understood the “spirit” of our Wealth Management and humility because there is so much to do in terms of products and services and how the households are coping up in the absence of these.

-By Jesselyn Friley, Lucinda Gibbs, Katherine Hoffmann, Robert Toews, Damilola Sobo and Zachary Hoberg, Stanford University

At the beginning of the summer, the six of us Stanford summer interns set out to determine, through field interviews and market research, if there was a viable gap in the higher education loan market in Thanjavur that KGFS might productively fill by offering its own education loan product, thereby allowing more low-income students to pursue higher education. With the help of colleagues from IFMR Ventures and Tamil-speaking researchers from the InnerWorlds team, we began a unique research project that would take us into rural villagers’ homes, bustling bank branches and college campuses across Thanjavur district. Now that our last day in Chennai has arrived, we take this opportunity to summarize our experience and some of our discoveries.

On our first research trip to Thanjavur district, we conducted interviews with secondary school administrators, college principals, students, and bank managers within the city of Thanjavur and nearby areas. As a result of these interviews, we found ourselves somewhat discouraged as to the need of a KGFS higher education product. This discouragement stemmed, above all, from our discovery that commercial banks were mandated by the Tamil Nadu government to extend higher education loans to all deserving students, without collateral, for amounts up to 4 lakh rupees. Moreover, the mandate had recently been expanded such that students did not have to pay interest on the loans while enrolled in college. Given this mandate, as well as the existence of many government scholarship programs, it seemed to us that the introduction of a KGFS product might be unnecessary. After all, students–including low-income ones who did not have collateral–could simply avail a relatively low-cost education loan at a commercial bank if they needed one, and would not even have to pay interest on it for a few years.

However, upon returning to Thanjavur for a second round of research interviews, this time focusing more on the small villages in the surrounding area, we began to uncover gaps in the loan disbursal process that increasingly indicated the value of developing a new loan product. To begin with, we found that even though banks were required by law to extend these education loans, they tended to “hesitate” on doing so. They frequently delayed approving loans to low-income individuals for as long as possible, through such methods as continually requesting more paperwork from applicants.

In our interviews with students we found that these delays frequently lasted several months, often forcing their families to resort to higher cost financing options. In our discussions with bank managers, they were very frank with us about the reason for the banks’ attitude: repayment rates for educational loans are very low in Thanjavur district and across India, often coming in at between 50% and 60%. Though banks are compelled to offer these education loans because of the government mandate, they are simply not good business for the banks. Another consideration that we encountered is that there are significant costs associated with pursuing a higher education on top of tuition, which is the only cost that many bank loans and government scholarships cover. These additional costs include, but are not limited to, housing, college “donation” fees, transportation, school supplies, and the opportunity cost of foregoing entry into the labor force.

We returned to IFMR headquarters in Chennai and, after a lot of research and many brainstorming sessions, we designed a menu of loan products that we believe address many of the constraints to financing higher education that we encountered through our field research in Thanjavur. These products include a bridge loan, to be disbursed to families waiting for an education loan from the bank to be disbursed; a supplemental loan, to cover a student’s costs other than tuition; and a savings program. We also explored various ways to increase repayment rates and ensure the financial sustainability of these products.

We believe that KGFS’s unique position within the social structure of villages gives it a marked advantage over commercial banks when it comes to encouraging repayment. Finally, we put forth a proposal for the establishment of an independent education office within villages, which would be charged with the duty of raising awareness about the requirements, financial and otherwise, of higher education planning. We believe such an education office would contribute enormously toward the goal of increasing the number of low-income villagers who decide to pursue a higher education, and address the principal challenge that we identified in our field research: an information gap regarding financial and educational opportunities. We hope that at least some of the suggestions in our final report will prove useful for KGFS and can be developed into financial instruments to be offered to students in Thanjavur, allowing more of them to pursue a higher education and ultimately secure employment.

As we return to Stanford to complete our own higher educations, we will bring with us fond memories from our field research–including playing cricket and eating fantastic home-cooked meals in villagers’ homes, and working with a truly inspiring and diverse team of IFMR colleagues. We are all grateful to have gained a greater understanding of rural India and of the role of finance in reducing poverty. We look forward to following the progress of KGFS’s higher education products and other IFMR projects in the future.

- By Anupama Joshi, CEO, Sahastradhara KGFS and Advait Behara, IFMR Rural Finance

In an earlier post on this blog, we mentioned that ‘Mobility’ was going to play an important role in enabling access to KGFS’ products and services in remote rural locations.

In the district of Tehri Garhwal in Uttarakhand where Sahastradhara KGFS operates, physical access to KGFS branches is made challenging by an inhospitable terrain. With much of the district located at and between the foothills of the Himalayas, access by road is limited. For many villages access is restricted to un-motorable roads which are often sealed by landslides caused by torrential downpours – a frequent occurrence during the monsoons. The monsoons are particularly fierce in these hills and continue from June until late September. Winter doesn’t make things easier. Snow in the more northern areas often brings life to a standstill – Villages are cutoff from power, communications and access to basic supplies.

It’s no doubt then that Sahastradhara makes an ideal case for mobility solutions that tackle many of these access restrictions.

Where would we start?

Enrolling a significant number of potential customers is a fundamental step in delivering services. Enrolments are necessary in building the critical mass of customers that is needed to effect change and create real access to the benefits that KGFS could bring to an area.

Most Sahastradhara branches cover a service area with a population of around 7000 inhabitants. Branches are typically centrally located near a market place making them accessible when people visit the market.

Since its start, at every place that Sahastradhara opened a branch, local store owners were quick to realize its benefits. Store owners were often the first customers of the branch. Thereafter frequent visitors to the market would approach KGFS to inquire about its services and would usually signup as well. This process would continue for a few months until a certain level of enrolment equilibrium had been reached at that branch.

After a few months activity would slow down. New customers would become scattered. New enrolments would no longer be proactive. New enrollees would visit KGFS to address a specific need – a sudden loan requirement – rather than as a planned financial initiative. Also many of these had family members that were already KGFS customers – and had already experienced the benefits that Sahastrasdhara KGFS had to offer. Unfortunately new (financially excluded) families were still keeping away. Sahastradhara recognized this. There was a need to “reach-out” to more people. Enrolling more people into the Sahastradhara network was one way of spreading the message and creating awareness.

The Challenge of Enrolment

The enrolment process at the branch was straight forward. Unlike signing up for common utility or government services, it was easy (customers only needed proof of their identification and home address) and it was free.

KGFS had incorporated a comprehensive customer registration system. This was done to create a unique customer profile that would allow easy access to all services that KGFS had to offer. In addition to basic demographic information, the system was capable of capturing details about the family, its lifestyle, its assets and liabilities and importantly digital copies of the customer’s photo, fingerprints, and even scanned images of identification documents. A high degree of branch automation using computers, technology peripherals and internet connectivity made all this possible.

And therein lay the challenge.

How was branch automation going to be made portable enough to allow Sahastradhara to ‘reach out’ further?

Early trials with laptops that replicated the branch setup were encouraging. The premise was that field staff would be able to take the branch setup (in a portable form using laptops) to the customer’s doorstep.

While theoretically feasible, in practice this setup did create an interesting set of challenges:

1. Portability/Weight: A Laptop computer + a flat bed scanner + an optical fingerprint reader + camera + necessary charging and connectivity cables suddenly meant that field staff needed to carry a few kilos in a backpack while climbing up and down steep inclines to get to villages in their territories. Reports from the field suggested this was difficult particularly during harsher weather.
2. Power: Even with extended capability batteries – peripherals that drew current from the laptop ensured a typical battery life of only 3-4 hours. With access to power still a challenge in some villages frequent trips back to the branch were necessary.
3. Cost: The multiple peripherals required meant more fixed costs per branch – sometimes in excess of 10% of existing fixed branch costs.
4. Human Angle: While technology in the form of television, satellite tv, and telephone was common place in these areas – computers and the peripherals necessary for enrolment were still alien. Field staff would often face puzzled looks and hesitation as they went about setting up the equipment before starting an enrolment. Customers were uncomfortable with the elaborate technology layout for what they felt should have been no more strenuous than a paper based survey – the type other agencies in the area often used. Allaying people’s reservations and fears was necessary.

All these challenges pointed toward a need for mobility that was ultraportable, efficient, and easy to use.

Enter the Mobile Phone

Mobile phones seemed like a reasonable alternative. They were ultraportable, easy to use, easily available, affordable, rugged and a familiar technology in rural India. But were they a possible replacement for the laptop system?

To replicate the laptop system (and the branch) the mobile phone would need to be an all-in-one data entry/capture device; it would need to be the camera it replaced; also the flat-bed scanner, and the biometric authentication device.

Could this be done?

To make the system viable, hardware costs needed to be kept to a minimum. But fingerprint biometrics built-in to phones were rare and did not always meet regulatory requirements. Thus the fingerprint scanner had to be an external device capable of interfacing with the phone. This was an added cost. The cost of the phone therefore needed to be minimal – necessitating a very simple phone with a basic feature set.

The Beginning of the End Result

Sahastradhara KGFS has recently successfully run a proof-of-concept field pilot for mobile phone powered enrolments that addresses a number of these feasibility questions.

Using a basic camera enabled mobile phone with special software, field staff were able to capture photographs of new customers. The images were clear and distinguishable with a resolution comparable with the branch based system. Know your customer (KYC) document images were also captured using the same camera.

A wireless and portable finger print scanner was used to capture customer finger prints and automatically transfer them to the phone’s memory. Customer demographic and other details were (for the time being) captured using a standard paper based customer registration form – in the future this too could be entirely phone based making the paper form obsolete.

At the branch new customer data was entered into the system manually, and the corresponding images and finger prints were uploaded to a remote server through the local computer and internet connection.

Going forward

Still at an early stage in its development cycle the system has already been well received by field staff. At the pilot branch where the system was tested, month on month enrolments nearly doubled. If these numbers are indicative, the system shows great promise going forward.

This is a first, yet important, step as we make mobility an important element in our mission to provide financial access in even the remotest of places.

- By Anupama Joshi, CEO, Sahastradhara KGFS and Advait Behara, IFMR Rural Finance

Well regarded academicians have highlighted the importance of financial services in bringing about a transformation in the lives of those that haven’t traditionally had access to those services. The IFMR Trust was an early leader in understanding this need.

In a relatively short span of time, in the three geographies where the Kshetriya Gramin Financial Services (KGFS) initiative has been active, we have already seen a significant difference in the overall well-being of those families that have actively sought to leverage the services of KGFS and those that have not. KGFS was able to provide these families with a sense of financial stability through a portfolio of specially designed products and services and thereby improve their prospects of a brighter and more comfortable future. KGFS excelled in providing its customers products that were competitive and culturally significant to the local territory.

The next important step for KGFS, in affirming its competence in this role, needed to be customer appreciation of its services. Key to making this happen was going to be:

Accessibility, convenience, and usability

To achieve these, there was a need for KGFS to be closer to its customer, and similarly to bring the customer closer to KGFS. This need for flexibility in delivering services is what made the element of MOBILITY as a new entrant into the operating model so imperative.  Mobility was thus a combination of accessibility, convenience and usability delivered using a combination of mobile technologies.

Customer Challenges

Early feedback from the field had indicated two clear challenges facing customers on the ground.

1) In-person Payments
2) Branch Access Restrictions

Several KGFS loan products like the Joint Liability Group (JLG) loan required customers to repay their installments weekly, and in the case of the JLG, the payment had to be in person, with all group members present at repayment. This was a challenge for many customers, some of whom had to forgo daily wages to be present at the branch, often spend on transport to reach the branch and coordinate to ensure that all group members were present at the same time.

The other issue was that, while KGFS branches opened early and shut late – even working all-day on Saturdays; certain customers had expressed their inability to be present within branch timings and had started requesting longer branch hours.

Clearly, distances and immobile infrastructure were hurdles in accessibility, convenience and usability.

Thinner branch front-ends using technology

As KGFS expanded through a growing network of branches, it was reaching ever closer to its customers – typically no more than a 5 kilometer radius away. The distances between customer and branch were being shortened. With a high degree of branch automation using computers and internet access, branches had been optimized to cater to large numbers of customers with minimal operational overheads. Yet, some important questions had to be answered –

Could the branch front-ends be made even thinner and even more nimble?

An important need was that the branch not just be in proximity of, but feel local to every customer it served. This was an interesting challenge. KGFS realized that a network of appointed agents could provide exactly that flexibility.

Could KGFS take its services to the customer’s doorstep?

Roving agents would:
a) Complement the activities of the primary area branch – and often even free up branches from routine activities.
b) Allow the branch to focus on more skilled services such as financial advice in the form of customized wealth management discussions.

For the customer, interactions with the branch needed to be direct when required – such as when discussing wealth management strategies and indirect (through an agent) in less private dealings.

How was this going to be possible?

Technology was no doubt the answer. A combination of devices and access points was going to be necessary. For example:

- Automated cash deposit machines – possibly located at a main market or in a prominent store could do away with agent intervention while handling cash.
- An agent equipped with a portable access device would be free to transact from a fixed location or at the customer’s doorstep.
- Customers with access to a connected device would have the convenience of performing certain operations in the privacy of their home at a time convenient to them.

KGFS had already tested Point of Sale (POS) machines as transaction points at branches. While these had worked fine at the branch:

- Costs were relatively high
- Technology was dated
- Functionality and the ability to add new features were complex and limited.

So what else could be used?

The ubiquitous mobile phone

Mobile phones on the other hand are an impressive alternative. With over 500 million mobile phone connections across India today, even in rural markets most extended families have access to a mobile phone. Importantly people are comfortable using them. The social challenge of people having to accept a new technology does not exist. The technology has been around for a while. It is stable, easily available and connectivity across the country has been getting better and less expensive.

Through special applications the mobile phone can replicate almost all branch functions. KGFS appointed agents that already own mobile phones could be up and running access points within days with minimal additional hardware costs. Using biometric authentication, and encrypted data sessions, applications can be made secure and robust. Newly available security solutions even allow remote erasing of data in the event the phone is misplaced or compromised.

Mobile phones do hold a tremendous opportunity for KGFS to expand its reach. In areas like the remote hills of Tehri Garhwal, where Sahastradhara KGFS operates, the challenges of physical access make the case for mobility very strong. No doubt in areas like Sahastradhara mobility will be the key to accessibility!

With a vast majority of the Indian population living in the rural hinterland, its economy and growth are linked to developmental efforts. Crucial to this is in ensuring that the fruits of financial inclusion reaches their doorstep. An article in today’s Economic Times, showcases the work of IFMR Trust and KGFS towards this endeavor.

Click here to read the article.

Last month the Wealth-Management Cross-Functional team had visited 15 households in Thanjavur to pilot the Wealth Management process. A week ago we revisited some of these households with a draft of the Financial Wellbeing Report to see how we could engage in a constructive dialogue with the household on various aspects of their financial lives. One such family was that of Jaya (name changed), a customer enrolled at Andipatti branch of Pudhuaaru KGFS.

The Family – Jaya (40) and her husband Rajan (42) live in a thatched house in Karukkadipatti village. The couple has three children Neetha (16), Vinodini (18) and Pramod (20). While the daughters Neetha (1st Year BSc) and Vinodini (10th Std) are still studying, the eldest son Pramod has just started working in Qatar as a driver. The daughters stay at Jaya’s sister’s house in a nearby village.

Their Activities – Till about 5 years back, Rajan worked in a hotel in Singapore. When he returned, he decided to manage the tea shop business that his father used to run. Rajan manages to make about Rs.1,20,000 a year from the shop. Apart from this the family owns about 1.3 acres of agricultural land and manages a net income of about Rs.35,000 by growing paddy for two seasons and black gram for one. The two cows they have fetch them a net income of Rs.4,000 a year. The family spends about Rs.39,000 a year on routine household expenses. Picture: Rajan (right) interacting with the team.

Goals – Among the list of goals that the household wishes to fulfil, Neetha and Vinodini’s education over the next five years alone will cost the family Rs. 3.6 lakhs (1 lakh =  1,00,000). Other priorities include their marriage (Rs. 5 lakhs each) and expansion of the shop (Rs 20,000).

With this and other information about the household, we set about preparing a Financial Wellbeing Report for them. The report talks about four pathways (Plan-Grow-Protect-Diversify) towards financial wellbeing – all of which try to answer the central question for the customer “How can Wealth Management help improve my financial wellbeing?”

The Advice – The specific advice around protection includes Life Insurance for Jaya (Rs.50,000), Pramod (Rs.5,00,000), Vinodini (Rs.4,20,000) and Neetha (Rs.3,80,000); Accident Insurance for Jaya (Rs.2,00,000), Rajan (Rs.1,75,000), Pramod, Vinodini & Neetha (Rs.5,50,000 each). Insurance for the cow and shop is also suggested upto their current market values. Life Insurance decisions are linked to human capital (Present Value of Lifetime Income net of Own Expenses) of each member.

As regards the surplus generated by the household, the advice was to allocate it in the following proportion:  Index Fund – 20%, Gold – 18% and MMMF – 62%. This advice is consistent with the desired features of high returns, diversification from local assets and diversification in assets uncorrelated with human capital. Jaya should also maintain a separate balance of about Rs. 10,000 in the MMMF account to take care of liquidity needs.

The shop being a high TIP (Total Income Potential) asset, the advice is to borrow for its renovation. For all other medium to long-term goals that are 3 to 8 years away, a combination of savings and borrowing is advised.

For a full explanation of Jaya’s Financial wellbeing report please click here.

We would urge all those reading this to share their comments and suggestions on the process and the recommendations in the comments section below. What are we missing?

—
Shilpa Sathe of InnerWorlds and Amit Shah of Rural Finance contributed to this post.