Microfinance India Summit 2013 - Financial Inclusion Vision 2020

Overview: This session wil attempt to build a vision for financial inclusion in India, identify policy bottlenecks, strategies for convergence and incubation of innovations for sustained and durable outcomes towards mainstreaming the poor into formal financial systems.

Moderator - N Srinivasan, Sector Expert

Panelists

- Anurag Jain, Joint Secretary, Department of Financial Services, Ministry of Finance, Govt. of India

- Aruna Sharma, Additional Chief Secretary and Development Commissioner, Panchayati Raj and     
  Rural Development Department, Govt. of Madhya Pradesh

- Elizabeth Rhyne, Managing Director, Centre for Financial Inclusion, ACCION (Replaced by 
  a representative from ACCION)
- Nilanjan Majumdar, Vice President and Head, Financial Inclusion, Axis Bank

- M K Krishnaraj Prabhu, Regional Business Head, HDFC Bank

N. Srinivasan: 

• Basic banking accounts – NFAs have increased 150% over the last one year.  RBI’s financial inclusion banks have really ramped up network presence – but does this mean we are achieving financial inclusion (FI)? Cooperative sector has really contributed but they feel they that are not included in the FI agenda. Why have MFIs and SHGs been excluded? And what do we mean by FI? These are a few questions we would like to speak about today.

Anurag Jain

•  I know that the last time I spoke about the MFI bill, it generated a lot of debate. Today, I’m going to speak about inclusion from a banking perspective. First we need to insure infrastructure is there for people to access finance. Eg. a BC must visit every village every 2 weeks. Districts are very diverse, for example there are some with a 1000 Sq. m population of a hundred versus densely populated estates. Thus, this diversity makes it difficult to service every district equally. Direct benefit transfer (DBT) problems reported to us – even if you give it to the beneficiary then how will they withdraw the money? Thus, we had to make sure there was an outlet you could serve. The 2016 RBI target for full FI will be met. Next, we have to look at quality – how many HHs are using the accounts? Once we reach 85%, the marginal costs of including the last 15% of the population will be even greater. We also have to look at superimposing other services such as credit. There are different types of models which provide different services– one is credit, one is providing insurance and third is to provide the ability to provide deposit services.

N. Srinivasan 

• Could we speak about how banks believe that FI is not profitable?   

     
      Nilanjan Majumdar

• How do banks who have a thin branch network, go about achieving financial inclusion? So in any case, setting up only the branch network to cater to the financially excluded population will never be viable for any bank. The cost of setting up the branch etc. will be more than the profit. So we have to look at agent banking models. Lets talk about agent banking – you have a bank, an agent outlet, an agent network aggregator and then you have the technology provider. Sometimes one player will don multiple hats but these are the key roles to be fulfilled. What are the types of agents? You need to choose your agent network in such a fashion that you pick people with a strong connection with the people they have to serve. 

• My opinion is that we have given undue attention to technology, more than it deserves, The agent has to understand the cash flow cycle of each client. Where does the money come from and where does it get expended? This information can help give banks information for product design. It is very important that the agent network which is set up under stands this. When I started, the private sector banks tried to outsource it. Banks perspective is that you just give me the bank account numbers so I can fill the RBI quota.

• Now the time has come to introspect as to if we need technology service providers or do you internalize it such that you can gain the power balance from the tech providers? Such that banks can change service providers overnight based on performance. Person at the front end who is actually providing the service is not paid adequately. Even with an aggregator in place, agent viability has to be maintained. It is very critical that as a bank you follow that agent outlet closely and treat it as a bank branch.  So agent banking is critical to FI but there are some caveats. – Eg. some customers don’t even know they have a bank account with Axis bank. They think the account is with the services provider. This brings the trust down two notches immediately. So banks must make an effort to reach out to BC model customers as well. This can give clients the confidence that they are dealing with a bank and not a network aggregator. Agents must be chosen carefully and we should ensure that viability starts with agent regulation.

N. Srinivasan

• Madhya Pradesh seems to have done a lot for FI which is unusual for a state. Do you think the state government has a role to play here with banks on one and NGOs on the other side

Aruna Sharma

• The platform we took was the state-level bankers community. I would like to take up one paradigm shift after the other and move on to addressing and achieving the result of FI.

• The strategy we followed included – Using the lead bank officer to map the services available. MP is a low density state and we can evolve the model to include the government more. We provided a 100Sq feet area and said that this area belongs to any bank coming to open an ultra-small branch (USB). So we address the idea of FI – Identity of the bank with a board and marketing was key for community integration. What we did was that in a 5KM radius, we made everyone to sign up.

• What is left? Insurance and financial literacy and internet networking are challenging. First thing we need is insurance for the unorganized sector. We’re looking to use UID for all devolution of funds to the people in the near future.

• The ultimate objective of FI should be to alleviate poverty by creating impact in a holistic way. Two important things – willingness of targeted people to participate and creating an environment for FI and engagement. We should not follow an unsustainable model. Can banks do FI without an agent model? YES.  They can offer savings, insurance, financial literacy, and most banks have a wider network in remote and rural places and direct access to BoP customers.  Objective on livelihood finance should be to generate employment. When income levels go up after the intervention, people can independently take care of other life aspects such as sanitiation, health etc.

• Existing players (govt, banks,moneylenders) are not adequate. And how do we deepen banking services even during expansion? I believe the approach should be complete (provide all financial products) even when reaching to a small remote area, which just gets ride of the question above. All players should create their own solution which is affordable, geographically specific and people specific.

Representative from ACCION 

• Where are we as a country? What is the big picture here? The way I see the world evolving over the next 7 years is a banking landscape which is able to reach out and deliver at a reasonable cost and is able to connect well with the client segment. Here is where MFIs come in  - call them small banks or whatever, the fundamental challenge we have, the banking and financial services architecture delivers by 2020. MFIs are integral to this because the way I see things evolving is to a positive outcome. What we need is a policy framework to regulate, and a diverse set of institutions to help with delivery of financial services to the BoP sector.

N. Srinivasan 

• The govt has spent 2M$ to reform the financial sector and make it inclusive. But MFIs don’t seem to figure as a part of the RBIs plans.

Anurag Jain

• Micro planning is done at district level and not by village. If a village is covered by a coop bank, we don’t go there. Planning has to be coordinated by the lead bank (RBI). With a Coop. bank the challenge is to put everything on a network. The concept of USB came from an experiment in Madhya Pradesh. Basic trust comes from the fact that the person SITS there. I think its amore efficient delivery system if there is competition between the MFIs and USBs.

N. Srinivasan

• How can the agent model be fixed by 2020?

Nilanjan Majumdar: 

• To make agent model viable, you need to make sure account usage is taking place. If we go about opening accounts for clients who are actually using these resources, if you have regular transactions happening, the agent viability issue is sorted. Once you have financial literacy, and once you start offering more products, that is when the people will see the value of the bank account. Starting point is to open accounts to capture these income flows and where account have been opened, there need to be more services provided.

Aruna Sharma 

• Service area approach was followed in MP where the areas which were given credit had to be defined. We are also trying to define unbanked, rural areas. We say the rural branch should have the same shadow areas as a real bank. Remote shadow areas have a LOT OF MONEY. Sadly, we hear about small obscure banks providing services only when someone absconds. There is a need for the Ministry of finance to issue clear guidelines which otherwise create confusion in the sector.

N. Srinivasan

• What does FI 2020 mean to you? Everyone agrees that it should be holistic and not just one service.

Microfinance India Summit 2013 - Release of the State of the Sector Report

Greetings dear readers! In the next series of blogs, we’re going to blog on ACCESS’ Microfinance India Summit 2013 and summarize the discussions through a number of panel sessions.

We start with the opening session of the conference yesterday, where Tara Nair released the Microfinance India State of the Sector Report 2013.

Tara Nair: We thought the financial inclusion program which seems to have gathered momentum over the past few years has appeared more frequently in the report than previous years.

The first phase of financial inclusion seems to have worked in terms of households getting access to banking services – went up by 7.7 crore and was more in rural areas – 24% vs urban (17%). So we can see that the branch expansion strategy works- branch expansion has always led to increased financial inclusion. This strategy has changed in the sense of increasing branches as well as fostering a relationship with the community.

Microfinance is facing a crucial time when it hopes to become part of the financial delivery system in India and be part of the financial inclusion agenda. Given this background – Here are the highlights of the report:

1)   Status of Microfinance in 2013

• Major trend is RBI being able to put forward a very significant set of regulatory guidelines which seem to have given hope to the sector that orderly growth is possible.
• Big NBFC MFIs have regained market confidence and picked momentum in client outreach and loans outstanding. Bank credit eased for MFIs and SHGs as well.
• Emergence of new forms of partnerships (SHGs – MFIs-government banks-tech companies – BCs) has been encouraging.
• Compound annual growth rate – Suffered after 2010 for both SBLP and MFIs

2)   Major trends in the Report

• AP based MFIs continue to experience negative or negligible business growth. Lopsided growth – regional as well as size bias in growth due to high penetration of microfinance in South India.
• Rising NPA levels of the SHG portfolio of banks. (7% in 2012-13) ,which is a serious concern as far as the SHG portfolio is concerned. Credit linkage has been reported by 60% of SHGs.

3)   Some Challenges 

• No serious attempt was made to leverage the SHG-Bank linkage program to achieve the financial inclusion goals.
• We have also realized that there has been too much of a focus on cost effective delivery channels like the BC model, and as a result there is a feeling that perhaps the SHG model as a financial intermediary is losing its place. Do they have a new role to play? NABARD has given the impression that there is an increased cost of maintaining SHG federations.
• MFIs are facing the challenge of coping with the regulatory environment- continuous client data monitoring, reporting, technology adoption/up-gradation and building staff capacities as there are no investments in capacity building by MFIs themselves or the sector due to less availability of funds.

4)   The Current Discourse

• ‘Specialized Banking Institutions for Small Credit’ – occasional paper by RBI on small-finance banks, which promotes a stratified banking structure and addressed specialized needs.
• Promotion of savings, which are going up because of the cleaning up done by banks with respect to non-performing SHG accounts. Unless we focus on promoting savings, we will end up focusing on loans and credit which wont be healthy. But, we don’t have evidence on what is viable and what will sustain over the long term. 

5)   Moving Forward

• There were some initiatives to bring women back into the discourse by setting up a women’s banks and perhaps gendering finance is a serious agenda people are interested in. The Mahila Bank is already functioning in certain cities – how will this educate and enlighten the financial agenda?  This seems to be an interesting theme to follow on.
• Responsible lending by NBFC MFIs- coordination and convergence in terms of instruments, methodologies and metrics. Increased focus on capturing individual data.
•  Is group approach a necessary evil? Enhancing the capacity of microfinance entities. Who invests? Nobody
• More drive towards formalizing, standardizing and regulating the sector.
• Marginalization of different models and diversity we were proud of in early MF is facing a certain death.

6)   The Big Agenda

• Convergence of the debates on financial inclusion and microfinance.
• MF legislation bill still not seen the light of day, which is a huge concern. MFIs want a more structured guideline to follow and hope for this being successfully achieved is becoming dimmer and dimmer.

The Milaap Summit

We wanted to reach out to our readers to inform them about an upcoming conference in Delhi, organized by Milaap, which is a mission driven company changing the way people fund and impact communities in need. 

They work to connect borrowers looking to start a small business, pay for education, install better facilities in their households, and more – with people around the world willing to lend and rally their friends and family with as little as Rs. 500 ($25)

Here's their event note:

We're a social fund which provides low-cost debt financing for education, enterprise development and building essential household assets. We work with credible community partners and in less than two years, have deployed over INR 6 Crores in Karnataka, West Bengal, Odisha, Maharashtra, Tamil Nadu, Uttar Pradesh, Rajasthan, Bihar and Mizoram. We bring visibility to our partners among global investor communities, individuals and interest groups across the world through our curated personalized stories of borrowers, case studies and impact videos. We also provide our partners with a state-of-the-art Enterprise Information Management (EIM*) system to manage their borrower's social data. We're inviting NGO-MFIs and livelihood organizations to participate in our first summit to learn more about how they can associate with Milaap for funding opportunities. The summit will also showcase the work of our existing partners and serve as a platform for collaboration and for forging partnerships. Who is this for: CEO/Management of ·       NGO-MFIs ·       Livelihoods Organizations ·       Producer Groups ·       Crafts Promotion Groups ·       Skill Enhancement Organizations *EIM is a cloud based data management solution customized to align with the operations architecture of Milaap's community partners. This system holds and analyses the social data of borrowers, & thereby aids in management decision making. Link for Registration: https://docs.google.com/a/milaap.org/forms/d/1ojm9ErmZwlikXNbw-Ju6S2YWMdm12h8hN6kTcMRdpBQ/viewform

Our Partners

Find out more about our Field Partners

In case of any queries, you can also write to us at summit2013@milaap.org

Price Information: Leading to Roads Less taken

For many of India’s 850 million rural inhabitants, 40 per cent of whom live in poverty, delivering agricultural output in a timely manner is a significant challenge. Poor infrastructure, lack of scale  economies (70 per cent of landholdings are less than one hectare, or 2.5 acres), and costly transportation means smallholders routinely sell their output to traders. However, this potentially efficient division of labour suffers from limited competition among these middlemen, who are able to exploit their bargaining power to extract a surplus. On the other hand, farmers who sell their produce directly to end consumers face difficult timing and/or locational decisions, uncertainty about prevailing market prices and an inability to visit every market every day.

CMF's “Increasing rural incomes by expanding access to agricultural price information” in Karnataka intends to rigorously evaluate the “success or failure” of Fasal (a cell-phone based service that provides current price information on a variety of agricultural outputs at a range of markets on demand) within the context of an RCT with an encouragement design.

The study is being conducted in three districts of Karnataka. Currently, the study is in the baseline data collection stage. The sampling criteria for the selection of the villages in the district was multiple market access , so that there could be an option for the farmer to decide the harvesting and selling based on the crop prices (through Fasal). In the three districts identified for the study there are eleven major markets where the farmers sell their crops mostly. However as we sampled the villages based on the multiple market access criteria it became evident that for any village the distance between  village and the market will not be exactly same as between the alternate market. Thus, the selection of the village was to be done keeping in mind the geographical constraints and  sampling criteria. For this we used symmetry in geometrical shapes

The market networks in the selected districts are of two types

•      Two Market Area Access
•      Three Market Area Access

This means that the village has access to either two or three markets respectively. The market pair or triangle was selected based on the infrastructure (Road Network) facility available for the farmers from the villages to the selling markets. The distance in kilometres was an important criterion for selection of Market Pair/Area.

Mapping of the Villages

Once the selection of the districts and market networks was completed, the villages needed to be mapped. The villages being selected had to have access to a minimum of two markets within the same or the neighbouring district.

A total number of 190 villages were mapped in 12 market pairs selected across the three districts of Karnataka. The villages are not equally distributed across different districts or market pairs.

The villages were first identified on the District and Block level maps and checked in the Census list. Based on certain selection criteria the villages were selected for further sampling.  The methodology has been discussed in detail below

Plotting of Villages on District/Block Maps 

Firstly the Paper Map plotting of the villages had to be done for the villages. To do so the District and Block level maps for the three districts were purchased from the Department of Settlement and Land Records from State Revenue Office of Karnataka.

1.      Market Pair network was drawn on the District Maps

2.      Two types of villages were identified

A.    Two Market Access: The connecting road between any two market pair was bisected. The Villages on the perpendicular bisector were selected

B.     Three Market Access: A circle was drawn in the triangular area between the three markets. The villages within the Circle were selected.

Once the village was identified on the Hard Copy of the Maps, they were tallied with the latest Census List. Only the villages which existed in the Census -2011 list were selected for further sampling. The following information were collected from the Census -2011 list for the selected villages

• Total Number of Households in every village
• Total Population of the Village
• Total Cultivator Population in the village.

Based on the above data the Outlier villages were dropped. The villages with extremely low number of Households or Cultivator populations were dropped. The villages were coded sequentially and a list of 190 villages was finalised for the baseline study. These villages were also mapped on the Google Map, creating a customized Map.

Whenever we plan to conduct a study in the remote villages, I am sure many of us come across the complicated question of successfully locating the villages where we plan to administer our survey. At times the administrative maps are also not very helpful in identifying the exact location of these villages. Also with time the government definition of the village boundaries change, which might not be reflected in the block and district maps created years before the change. To add to this the residents of the village who might not be very well aware about such recent definition change may continue to mention a different village name which can lead to mismatch of number villages in the sample. Though these are unavoidable realities some ground level planning can be done to prepare a list of the most updated village names. What is more important is the identification of the village on the maps to verify the location which may be important from  the sample selection point of view , like in the Price Information study.

The mapping is sometimes different as was observed when the field data collection actually started. The villages which seemed to be just few kilometres away (as seen on the Maps) from each other are actually separated by uneven terrain, forests or water bodies because of which the road takes a roundabout and longer route. The bigger challenge is the frequency of transport to get to these villages which are at a great distance from the main Blocks/Taluks. It will be interesting to see if the Farmers actually give up the closest and most convenient markets where they have been regularly selling and tread a road which takes them to a further but more profitable option.