The Rural Banking Paradigm
Banking in India has made inroads
Indian banking system has achieved a formidable outreach in rural areas 48% (31,999) of all scheduled commercial bank branches are rural 31% (131.1 million) of the total deposit accounts are in rural India 43%(22.4 million) of total credit accounts are in rural India Number of people per branch has reduced from 64,000 in June 1969 to 16,000 in March 2002 (all India average)
Source: BSR, March 31, 2001, Table 1.3, RBI Deolalkar, G.H., The Indian Banking Sector: On the road to progress, A Study of Financial Market
Significant proportion of Indias population is at the Bottom of the Pyramid
(% of households)
FY20051
Rich
1% 34% 65%
Middle Income
Low income
NCAER estimate Low income < Rs. 90,000 per household p.a. Middle income Rs. 90,000-5,00,000 per household p.a. High income > Rs. 5,00,000 per household p.a.
1 Source:
The Bottom of the Pyramid is underserved
Predominantly in rural areas Predominantly in rural areas but also in semi-urban & urban areas but also in semi-urban & urban areas Rich Rich Marked by low financial literacy Marked by low financial literacy Mostly not reached by Mostly not reached by formal banking system formal banking system Same channels attempt to Same channels attempt to cater to all customer segments cater to all customer segments
Middle Middle Class/SME Class/SME
Low Income Low Income
Narrow product suite Narrow product suite leading to lack of integration leading to lack of integration
by the traditional banking model
Traditionally viewed as a regulatory burden
Existing credit methodologies have reached a narrow range of clients High operating costs
Limited outreach by the banking system
Rural population: 740 million Population per branch: 22,793 Number of villages per branch: 19 36% of credit is from informal sources
78% incase of low income households
Banking with the poor is challenging
Special needs Doorstep banking Flexibility in timings Low value and high volume of transactions Limited background information and proof of income Require simple processes with minimum documentation Conventional banking not suitable High costs of delivery through traditional channels High transaction costs Dependence on documentation and financial history Inflexible procedures
and requires a comprehensive approach
Multiple products
Low-income customers require full range of services: credit, transaction banking, investment and risk mitigation
Deeper penetration of markets with a variety of channels
Branches at selected locations Franchisees, internet kiosks, MFI partners Using a combination of channels to completely cover selected areas
Economies of scale
To reduce average operating costs
Key Learningsfrom across the globe
Hybrid agent Hybrid agent linked model11 linked model
Uncoupling of bank and front-line service operations Appointing authorized agents Opening accounts through agents Enabling (card-based) transactions through agents, merchant outlets, etc Low cost POS based front end with cellular network connectivity Smart cards for: Identification Offline and online transactions Low cost ATM
Advantage Advantage Technology22 Technology
1Brazilian
models - Banco Popular de Brasil, CAIXA, Bradesco, Lemon Bank 2 South African models
Prompted us to redefine our strategy
Conventiona Conventiona l lbanking for banking for the low the low income income Branch Branch based based Manpower Manpower intensive intensive Product Product driven driven Single Single product product
Our strategy Our strategy
Hybrid Hybrid channels channels
Technology Technology intensive intensive
Customer Customer driven driven
Multiple Multiple products products
And come out with a holistic approach
Cluster is a district or geo-economic continuum
Branches
No White Spaces (NWS) Strategy
Kiosks Franchisees Micro-finance institutions
Penetrate a cluster with all channels and products
delivering multiple products through a variety of channels
Financial products Banking Insurance Loans Remittances Investments Derivatives
Entrepreneu r
Non-financial products E-governance Education Health Agri-extension Communication Entertainment
Complete suite of financial products
Thrift/saving s Credit Insurance & Investments Transfer Payments etc
A specific market segment
Informal rural and urban areas Micro and small enterprises A very dynamic, grassroots economic sector Vast untapped market bottom of the pyramid
A truly commercial approach
No charity motive No contradictions with social objectives Greater outreach through commercialization
In collaboration with partners we offer customized products
Service
Rapid, convenient access Respect, connection Asset building, risk mitigating products Micro savings Life and non-life insurance Flexible loans Small initial sizes Larger subsequent loans Longer terms
What customers want?
Variety of products Income generation loans Housing loans Emergency loans
Group based Individual loans No traditional collateral
Financial services that respond to low income clients
Way forward
An inclusive banking paradigm Building credit history through credit bureau Linkage with capital markets mainstreaming Suitable regulatory environment
our vision
Rural Technology Initiatives
The Rural Reality
II D D M M EE D D II A A C C H H A A N N N N EE LL SS SS YY SS TT EE M M Authentication Identification
Lack of efficient monitoring system Lack of efficient monitoring system Lack of reliable identification mediums Lack of reliable identification mediums Lack of proper skill set for validation Lack of proper skill set for validation Customer literacy levels affect product acceptance Customer literacy levels affect product acceptance Single Product specificity Single Product specificity Customer inability to validate transactions Customer inability to validate transactions Cash Logistics is aachallenge Cash Logistics is challenge Cost economics not justified Cost economics not justified Intermittent /Unreliable connectivity Intermittent /Unreliable connectivity Cash fulfillment Expensive Cash fulfillment Expensive Low Literacy Levels Low Literacy Levels Need to take household/individual view rather Need to take household/individual view rather than product view than product view Loss on default is high and difficult to repossess Loss on default is high and difficult to repossess Delivery system away from online/real time to Delivery system away from online/real time to offline/store and forward mode offline/store and forward mode
Cards Cash Cheque Branch ATM Internet Phone Banking POS
Assets Liabilities
The Technology Landscape
Unified product Unified product processors processors Unified workflow engines Unified workflow engines Channels powered on a Channels powered on a Service Oriented Service Oriented Architecture (SOA) Architecture (SOA) Each product on every Each product on every channel channel Single token for access Single token for access access across channels access across channels Customer token is a key to Customer token is a key to unlock access to channel unlock access to channel
Portal Portal
Smart Card Smart Card
ATM ATM
Branch Branch
Mobile Mobile
Portable Portable Devices Devices
Legend Core product processors Channel Layer Customer Interface Layer
The Product Core
Workflow Asset Mgt Asset Mgt System System Workflow
Liability Mgt Liability Mgt System System
Card Mgt Card Mgt System System
Unified Unified Banking Banking System System
One single enterprise wide unified customer view Centralized customer data and limit monitoring Facilitation of straight through processing Amenable to integrated maintenance management
The Channel Layer
TODAY
Discretionary Logic Decision Making Physical presence, System dependency & Cash Mismatch Computers Networks Connectivity Separate logistics for cash deposit & withdrawal Third Party
TOMORROW
Dump, rule based operations Cash deposits & withdrawal managed at Agent level
Branch ATM Internet
Mobile presence, Device dependency & Local cash management
POS in store and forward mode
Low infrastructure cost & fully compliments an Internet kiosk Low infrastructure cost & fully compliments an Internet kiosk Cost per transaction is less Cost per transaction is less Solves last mile problem Solves last mile problem Capability for remote maintenance and services Capability for remote maintenance and services Doorstep delivery of banking services Doorstep delivery of banking services
The Customer Interface
TODAY TOMORROW
Biometric Online Offline PIN TPIN ID / Pwd Online In person
Connection based Channel Specific Multi-token Debit Card Credit Card Pass book
Connectionless Channel Agnostic Uni Token
Smart Card
Smart Card Virtual Bank in Pocket Single customer ID across systems / channels Standardised multi-product delivery platform Enabler for secure banking in an offline environment STP originates at the customer last mile
Authentication Device (AD)
Arrow Key for Arrow Key for starting the device starting the device Receipt Generation Slot Receipt Generation Slot Slot to Slot to capture capture thumb print thumb print F button F button
Slot to insert Operator // Slot to insert Operator Customer card Customer card
Authentication Device Features
Connectivity through GPRS, GSM, PSTN or upload through Connectivity through GPRS, GSM, PSTN or upload through connection to USB port on PC. connection to USB port on PC. Biometrics and printer integrated with device. Biometrics and printer integrated with device. Smart card reader integrated Smart card reader integrated 8 MB SDRAM, 32 MB Flash Memory 8 MB SDRAM, 32 MB Flash Memory 8 Hours + battery life. Re-chargeable battery 8 Hours + battery life. Re-chargeable battery Averages more than 200 transactions Averages more than 200 transactions
Transaction Card (e Pass Book)
Name of customer Name of customer Photo of client Photo of client
Date of Birth Date of Birth
This side in This side in
Address Address
Smart Chip with 32 KB Smart Chip with 32 KB memory memory
This side up This side up
Transaction Card (e Pass Book)
This side in This side in
Thank You