by n v ramana group ceo, basix. present scenario india compares favourably with other developing...
TRANSCRIPT
By
N V Ramana
Group CEO, BASIX
PRESENT SCENARIO• India compares favourably with other
developing countries both in terms of the geographical area covered as well as average population served per bank branch.
• The vast majority of rural poor still does not have access to formal finance.
• Nearly 45% of the rural lending in India is by moneylenders and the trend is actually on the rise. – Inadequacy of formal credit– Efficiency and innovations of the
moneylenders
CONSTRAINTS IN BANKING – BANKER’s POINT OF VIEW
• Banks have always feared the uncertainty about the repayment capacity of poor, whose incomes are subject to numerous vulnerabilities.
• In the absence of reliable credit information and costly monitoring, banks fear a high default risk.
• Poor people’s lack of collateral • The transaction costs of rural lending in India are
high – small loan sizes, – the high frequency of transactions, – the large geographical spread, – the heterogeneity of borrowers, and – illiteracy.
CONSTRAINTS IN BANKING – CUSTOMER POINT OF VIEW
In many banks, there is Borrower-unfriendly products and procedures, Inflexibility High transaction costs
– numerous visits to bank – long wait of time – Time-consuming process
The requirement of a minimum balance and charges levied, although accompanied by a number of free facilities, deter a sizeable section of population from opening/maintaining bank accounts.
Challenges in providing financial services in low density and
remote economies
• Small volume of activity per customer• Geographically disaggregated• Low literacy and awareness of products and services• Needs aggregation of a large number of customers
for reducing transaction costs• Inadequacy of infrastructure influencing the credit
absorption capacity• Need for innovations in products and delivery
processes to make access convenient and affordable• Repeated pleas for loan waiver
How did BASIX address these issues
• By providing a package of livelihood services
• Including financial and technical assistance services
• Providing these in a sustainable basis and
• Thereby attracting a greater amount of mainstream capital and human resources into the neglected sector.
7
Savings
InsuranceCredit
Package of Financial Services
Savings• Functions
– Builds capital – Provides leverage for
borrowing – First line of insurance
• Challenges – Customers want to save
small amount in higher frequency
– Customers geographically scattered
• Solutions– Community based
institutions e.g. SHGs– Mobile Banks
Credit
• Needed for– Income generating
activities – Consumption smoothing
and– Contingencies. e.g health
risks
• To be provided – Collateral free (security
provided through social collateral)
– Cash flow based repayment
Credit Plus
• Credit is necessary but not sufficient
• Credit Plus services include– Productivity
Enhancement– Market linkage– Risk mitigation e.g.
preventive vet care services
– Risk management services
The Livelihood Triad
IDS
Organize producers into their collectives.
Establish functional linkages for inputs,output & know how.
Formalize : the legal status Help set up enabling systems:
operating,HR and information systems Revive defunct community
organizations
Ag/BDS Productivity enhancement Risk mitigation (non-insurance) Local value addition Alternate Market Linkages - Input
supply, output sales
LFS Savings, Credit, short-term as well as
long-term Insurance, for lives and livelihoods Fund transfers Commodity derivatives Financial orchestration ranging from
grants to equity for livelihoods
Collaborative polygonWe believe in collaborating with players having domain expertise to…………….
Financial Services
Training & Extension
People’s organization
Research & Technology
Output Market
Input Supply
Customer
Enhance competencies, Increase outreach, Reduce transaction costs and Reduce risk for BASIX and its customers
OPPORTUNITIES• Introduction of negotiable warehousing receipt
system
• Offering ATM-enabled credit cards convertible to smart card with a view to reduce transaction costs and improve customer service
• Business facilitator and business correspondent models for increasing the outreach
• Besides traditional banking services, people in the rural and semi-urban areas are expressing interest in liability and investment products
Inputs for facilitating penetration of financial
services• Active Banking infrastructure
• Intermediation by Community Based Organisations and Micro Finance Institutions
• Leveraging Information technology for – Improving efficiency– Reducing transaction costs and – Delivering multiple services
• E.g. e-Sagu, STEMS
• In the existing model we did business throughBranches (Units).
• Now, we propose to do it through STEMS – Single Terminal Enabling Multiple Services
• A wider network for livelihood promotion providing – with integration of micro-finance, business development and institutional development services, using the information and communication technology extensively
STEMS not Branches!
From Kiosks to STEMS• A number of IT kiosk projects have been set up in different states
by Governments, NGOs and Corporates: – AP e-Seva, Karnataka Bhoomi, MP Gyandoot, Rajasthan- e-Mitra, – Development Alternatives- TARA Haat, – Drishtee.com, NFCL iKisan.com, ITC e-Choupal, ICICI Bank
• These IT Kiosks provide services such as– Collection of electricity bills, house-tax, revenue, etc.– Land records, other documents– Agricultural information – clinic, weather, prices– Procurement of commodities– Remittance of money and sale of insurance policies
• Our proposal is to integrate these services at the rural retail level into Single Terminal Enabling Multiple Services (STEMS).
Physical delivery ofCommodities by
farmers and milk producers
RegistrationCash from ATM
Request Response
E-BASIX STEMS Computer with links to backend servers, ATM, Inputs Shop, Godown,
Commodity buying point, courier
BASIX Server Exchange
Backend ServersICICI Bank
Backend Servers E-Seva
Backend ServersAP Dairy Fed
How would it work?
Physical deliverycattle feed, vet medicines,
AI services
Backend ServersBAIF
Business Model• STEMS will be run by trained and authorised Operators, who will
eventually own the STEMS. S/he will be provided a loan for the STEMS infrastructure by BASIX. Various services will be provided by specialist agencies through the STEMS:
• Financial services: – Savings, money transfers– ICICI Bank– Life Insurance : AVIVA, ICICI Prudential– Livestock Insurance: Royal Sundaram, ICICI Lombard– Weather insurance: ICICI Lombard– Credit (up to Rs 10,000) by BASIX group of companies – Commodity trading - NCDEX
• Business Development Services– Input supply – Fertiliser and seed companies like NFCL– Commodity sales – ITC e-choupal– Retail consumer products - HLL E-Shakti– Consumer durables – bicycles, TVs on hire purchase by TI Cycles, Philips– Internet Kiosk services (e-mail, word-processing, rail/bus/Tirupati ticket
booking, computer training, matrimonial, photo) by the Operator. • Institutional Development Services
– Strengthening of Self-help group and Cooperatives with accounting, rating and registration packages
– E-ducation and training, such as by Azim Premjee Foundation, NIIT– E-governance applications – respective state and district administrations