TEAM TROJANS

NITINSUPRIYASANACHIRAG

MICA

Financial Inclusion – Need of the Hour

India ranks poorly in Financial Inclusion National Sample Survey Organization, 51.4% of the 89.3 million total farmer

households in the country - No access to credit27% of the households - Indebted to formal sources of which 1/3 borrowed from informal sources.

Financial inclusion, the base of inclusive growth is integral to the inclusive growth process and sustainable development of the country.

Only 135 million of the 204 million households in the country come under financial inclusion

Financial Inclusion - Framework

Banking-correspondent is the only model to increase financial inclusion – Usha Tharot, Financial Inclusion Portfolio, Ex-RBI Deputy Governer

Business Correspondents

Business Correspondents are organizations or individuals that organize and offer one or more points of transaction outside of bank branches. The BCs organize and manage a network of such transaction points in partnership with a bank.Additionally: Technology Vendors provide hardware and

processing capacity and connectivity which can link clients to BCs and BCs to the bank.

Customer Service Points are individuals, shops or other outlet points responsible for the direct contact with the clients. CSPs open bank accounts, conduct KYC, cash out withdrawals, receive payments and in some cases, extend credit.

A Little World

Developer of ZERO, India’s first domestic payment system with specific focus on reaching out to masses with lowest available communication infrastructure.

Zero Microfinance and Savings Support Foundation -appointed as a Business Correspondent by 15 Banks – SBI, PNB, DENA, UBI etc.

Manages field force, account creation, appointment of Customer Service Points (CSPs), management of cash etc.

Collaborates with strongly placed local organizations, district and state administration to ensure smooth deployment and operations.

ZMF creates the last mile operations network in villages and front-ends the delivery of full-featured transactional services on behalf of Banks.

Leverage RBI’s BC model to set up a technology driven ‘Bank-in-a-Box’ in every village, at no capital cost to the partner Bank

Use new generation low-cost NFC mobile phones as POS terminals for secure offline transactions using biometric authentication, Provide robust account management systems to Banks

Use GPRS data coverage of mobile operators for batch synchronization with bank’s back-end systems Use cashless transfers, post-transaction settlements, and negotiated overdrafts to reduce handling of

cash to the minimum needed cycles Open no-frills free bank accounts with photo and biometric ID for every villager, minimal cost to the

bank A complete set of financial services in village (under brand ZERO):

Deposits, withdrawals, transfers Disbursal of Pensions, NREG wages, other Government benefits Loans (via Bank / MFIs / directly as a BC) 3rd party deposits, collections (MFI loan repayments, utilities, mobile recharge, deposits for

FMCG, Pharma, Fuel, Fertilizers) Other banking products as a Business Facilitator to the partner bank. Insurance products, MFI

transactions

Key Characteristics of Little World

ZERO – The Application – Primary Research

Mobile Phones act as core Bank branch

Mobile phones used for opening accounts on the spot by local CSP

Biometric Identification Smart Cards not needed for

biometric authentication in local service area

Voice prompts during enrollment and transactions

Printout at the end of each transaction

Pictures by Field Team

Source: Avdhoot Say, you have 100,000 locations with a population of at least 2,000. Of these, 30,000 have bank branches. You still have about 70,000 locations, with a population of at least 2,000 that is unbanked.ZERO Card very efficient in covering maximum villagers in a villageIt is easy to carry and minimum amount to open account Rs. 25/-Maximum: Rs. 1000/-

Little World - Achievements

Little. World. Pvt Ltd (ALW) raised Rs 28.5 crore in second round of financing in 2008

SBI bought 20% stake in ALW for Rs.80 Cr, which valued at Rs.400 Crore in total.

ZERO MASS FOUNDATION crosses 3 million mark

A Little World among Top 10 Innovative Companies of India

Collaborated with all major banks in India

RBI new guidelines support ALW a lot. 31/01/2011 – Pranab Mukherjee ,

Finance Minister sets a tough target to open at least 1 branch each in 72000 villages. Rest will be covered by Business Correspondents which is a big opportunity for ALW

Competitive AnalysisBC Products

OfferedPartner Banks

Customer Service Points

Technology Partner

Clients Reached

Eko Aspire Foundation

Savings, Remittances

SBI Eko Financial Services Ltd. mobile phone based SMS, MIFOS for backend

Basix Savings, Remittances, Micro-credit, Micro-insurance

Axis Bank

A Little World 8000

Drishtee Savings, Loans

SBI, HDFC

450 For SBI – ALW For HDFC – Magnetic strip card and POS

Swadhaar Finaccess

Savings ICICI, Citi

9 FINO 6009

Benefit and Impact analysis

Prahlad Kakkar’s Sandbox

Rules followed

Scalable Model

Cards and machines of Plastic so not biodegradable

Concentration on Inclusion

Malfunctioning rarely

Priced nominally

Check Viability

Costs Involved

Rent of Smart Card Device : 9000/month Cost of Smart Card: Rs. 112 Incentive for Business Correspondent: Rs. 4.50/smart

card Stipend to correspondent: Rs. 1000 + .5(each

transaction) RBI reimburses to Bank: Rs.50 per card Customized Device: Rs. 25000 Bank to Foundation: Rs. 2000/custom service provider

Revenue and Cost by Bank

Revenues earned by reporting banks using BC model (Rs./client)

Total Revenue From Credit From Savings From Payments

16.33 11.94 1.03 3.25

Costs incurred by reporting banks (Rs./client)

Total Cost Paid to Tech vendor Paid in Taxes Paid for Capex Paid toALW

62.71 33.79 8.59 6.14 5.15

Cost of Capital Expenses for Staff Expenses for Operations

4.37 3.61 0.64

So in all the breakeven takes around 3 years for a bank but BCs like ALW reach break even sooner. So scheme is financially viable.

Scale of Innovation

Scale Of Innovation :2. Coverage of (Estimates based on various studies and Market Surveys):

Check in accounts - 40% Life Insurance - 10.0% Non-Life Insurance - 0.6% Credit Card - 2% ATM + Debit Card - 13%

3. Geographical coverage- 5.2% villages are having a bank branch

4. Farmers coverage-- Out of 119 million farmers, small and marginal farmers are 97.7 million (82.1 %)

Initially, the scale of the innovation was small but now with new RBI guidelines to include all rural parts of India without a bank branch can act as a big opportunity.

The Innovation is capable of being scaled up as it is easy to use, simple to understand and suits different terrains.

The distribution pattern shall be the most important in the case of scaling up.

Figures by Source: Dr. K.C.Chakrabarty, Deputy Governor, Reserve Bank of India

Viability Continued

Scale on all parameters

0 1 2 3 4 5

Capacity to scale up Y

Ensuring Social equity Y

Creating new price – performance levels Y

Fair & Transparent transactions & relationships Y

Environmental sustainability Y

Respecting rule of law and individual rights Y

ALW’s expansion strategy Presence in 21 states and intends to cover whole of

India and also expand internationally Use existing affiliation with Zero ZMF to create pre-

eminent last mile delivery infrastructure in villages ALW to use rural infrastructure created by ZMF for

distribution of multiple products and services catering rural demand for e.g. micro insurance, mobile recharges , green goods etc.

25000 new accounts open everyday by ALW

Continue growth strategy of deepening its penetration in current areas of operation, and broadening its national outreach

After the initial pilot phase in early 2007, ALW increased its presence to 21 states covering a total of 119 districts. Current customer base stands at 3.75 Mn, with over 25,000 accounts being added every day. ALW has created 6,530 points of presence till Feb 2009

Future Growth Goals

Growth in Revenues and Enrolments

FY2013 GoalsCustomer Base: 100 Mn CSP : 151,500

Way Ahead

ALW need to give more focus and attention to the financial viability of the channel.

ALW and its staff to be encouraged to gain minimum banking knowledge and skills; common programmes should be instituted by the regulator or banks; support should probably be provided though govt-sponsored social programmes

Cross-subsidy as in case of SHG - Bank Linkage Programme is required to absorb initial investment costs

Improve client adoption and better meet client needs. Several thoughts and ideas emerged on the subject of adequate client education and the tailoring of services to their needs.

ALW and Banks should try to build client confidence by offering services such as remittances and then graduate to savings products

No Frills Accounts should be treated as first steps and supply-side payments like NREGA payments, old age pensions, etc should be routed through these accounts to enhance their usability.

Improve coordination and interoperability between banks and ALW, also in a range of channel management relationships. Invest in new low-cost technological platforms for transaction & MIS

The key to success of ALW lies in banks making client acquisition and business expansion a business proposition; and not treating it as a CSR activity. When ALW becomes an instrument of business expansion and profitability, banks will ask different questions and find practical answers to the many problems that exist today