Our mission is to ensure that every individual and every enterprise has complete access to financial services.
Our mission is based on the three-pillar vision of the financial system:
High Quality Origination
Establishing a large number of high quality originators, who are equipped with the highest level of capability to fully understand each and every household they serve, and with the ability to take full responsibility for the quality of financial services they offer each household.
Click here for the principles of risk origination.
Delivery of financial services at the front-end by high quality local institutions (Origination)
IFMR Trusts firmly believes that continuity, flexibility, reliability and convenience of the services provided, as well as the provision of high quality advice to local household and enterprise are central to the notion of quality in the context of financial services delivery at the front-end.
Reliable financial services are rule-bound in which transactions are made on the promised date for the promised sum at the promised cost. Reliability is the main indicator of the institution’s credibility and transparency of processes.
Convenient financial services that relates to the location and processes of the provider, entail providing clients the opportunity to make frequently, quickly, privately and unobtrusively any of the varied transactions – including loans and repayments; deposits and withdrawals; and sending and receiving money transfer – close to their homes or businesses.
Continuous financial services are those that cater to the continuing and long term needs such as a sequence of loans, or storing lifetime savings.
Flexible financial services allow people to quickly and conveniently make pay-ins (savings deposits and loan repayments) for any sum at any time, and to take out money (loans and savings withdrawals) in a wide range of values. The potential effect of flexibility on the uptake of services is crucial because, otherwise, the service provided would fail to match the unpredictable cash-flows and spending needs that are particularly important for low-income households.
The existing channels of financial services delivery in remote rural areas, though contributing to access in their own way, fall short on one or the other of the above mentioned criterion. Thus, IFF has partnered with a number of leading institutions to research, develop and replicate high quality models of origination.
Orderly Risk Transmission
Transferring risk from high-quality originators at the front-end to well-capitalised risk aggregators at the back-end with the aim of establishing an adequate number of moderately capitalised national financial institutions with the ability to closely monitor the behaviour of local financial institutions and the willingness to absorb residual risk, while requiring that local financial institutions hold most of the risks particular to the households they serve.
Click here for the principles of risk transmission.
Orderly transfer of risk from financial service providers to risk aggregators through mechanisms such as securitisation and reinsurance (Risk Transmission)
To ensure that front-end financial services providers are sustainable, the financial system must provide mechanisms for orderly transmission of risk from the local service providers to well-capitalised risk aggregators with sound financial management. Given their small size and local orientation, a local financial services provider, like an NGO-MFI for instance, is not in a good position to hold certain kinds of risks, especially systematic risks such as flood or drought, which can lead to a large share of the originator’s portfolio to turn non-performing. Thus, these kinds of risks need to be transferred to well capitalised and well diversified institutions such as large national banks or mutual funds that can manage them more efficiently.
The vision here is for local financial institutions to transfer their systematic risk to aggregators who, by virtue of their diversified portfolio and higher capital levels, are better placed to hold this risk. This is happening to a small extent already; some MFIs, particularly larger ones, are selling their portfolios to banks which are required to meet the RBI’s priority sector lending guidelines. These guidelines have catalysed this market to some extent; creating a significant demand for MFI assets by large banks. Yet, much more needs to be done to develop and scale models of risk transmission that work well for both the originating institution and risk aggregators.
Robust Risk Aggregation
Advocating changes in the financial system such that the well-capitalised and well-diversified entities at the back-end are able to hold and diversify all area-specific risks of local financial institutions.
Click here for the principles of risk aggregation.
Aggregation of risk by well-capitalised, well-diversified and prudentially regulated entities (Risk Aggregation)
A well-functioning financial system should have robust risk aggregation capacity through a range of institutions, such as commercial banks, insurance companies and mutual funds, with the appetite and ability to hold and manage the risk. This complements the success of local community-based financial institutions whose footprint is narrow and local. In insurance, for example, it is critical that the risk pool is large enough so that any one systemic shock does not wipe out the entire insurance corpus of a community – herein lies the need for better risk pooling/aggregation across a variety of local originators.
The important issues here are around appropriate regulation and management of aggregators. There is significant ongoing work on this aspect especially following the financial crisis. IFF is working with some leading global think tanks to track this research and distil relevant learning for the Trust.