Slide 1 - INDIAN BANKS ASSOCIATION

							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.
 Package of Financial
      Services
         Savings




Credit             Insurance




                               7
                        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
                                                      Organize producers into their
                                                       collectives.
                           IDS                        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




          LFS                            Ag/BDS
   Savings, Credit, short-term as well as           Productivity enhancement
    long-term                                        Risk mitigation (non-insurance)
   Insurance, for lives and livelihoods             Local value addition
   Fund transfers                                   Alternate Market Linkages - Input
   Commodity derivatives                             supply, output sales
   Financial orchestration ranging from
    grants to equity for livelihoods
             Collaborative polygon
We believe in collaborating with players having domain expertise to…………….


 Enhance competencies, Increase outreach, Reduce transaction
 costs and Reduce risk for BASIX and its customers


                              Financial Services



        Input Supply                               Training & Extension


                              Customer

         Output Market                             People’s organization




                         Research & Technology
           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
      STEMS not Branches!
• In the existing model we did business through
  Branches (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
         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).
                        How would it work?

Backend Servers Backend Servers BASIX Server         Backend Servers Backend Servers
 AP Dairy Fed       E-Seva        Exchange            ICICI Bank         BAIF

                                Request   Response


                   E-BASIX STEMS
                   Computer with links to backend servers,
                   ATM, Inputs Shop, Godown,
                   Commodity buying point, courier
                         Cash from ATM        Registration
    Physical delivery of                                     Physical delivery
     Commodities by                                     cattle feed, vet medicines,
farmers and milk producers                                       AI services
                 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
nvramana@basixindia.com