Mobile banking is just one of the reasons India is a place to watch for innovations in financial inclusion. This short film profiles one such innovation, Eko, to see how businesses chasing the fortune at the base of the pyramid are serving the needs of poor customers in India.
Five years’ ago, Abhishek and Abhinav Sinha created a software program that allows migrant workers in cities across India to send money to their families using a cellphone. Now their company, Eko Financial Services Ltd., is working with two major banks, the State Bank of India and ICICI, India’s second largest bank, to offer financial services to poor and low income customers using local corner stores, pharmacies, and airtime resellers as agents. By harnessing the huge potential of domestic remittances as an anchor product, Eko hopes to tap a huge potential market in India, where three quarters of the 1.25 billion people live on less than $2 a day.
The challenge to make Eko a success isn’t the technology—it’s the business model. When you see the long queues at the banks it’s clear that the demand exists to make a profitable business based on tiny margins if the right business model and regulatory environment can be created. “It’s a volume game,” says Eko marketing executive Purva Gupta. “But at the same time we need a particular ecosystem for the Eko business to sustain and to grow.”
Agent networks are the main issue that mobile operators and banks need to get right if they are to turn branchless banking into a sustainable business. The Reserve Bank of India recently removed restrictions on agent exclusivity, so customers can now transact at customer service points of one bank even if their accounts are held at another bank. Such interoperability should mean greater efficiency and lower costs across the system.
In February, the Government of India released a task force report on a unified payments infrastructure linked to the biometric Aadhaar number that proposes electronic payments for government-to-people payments as a means to cut costs for the government and bring added convenience to welfare recipients.
These two important moves by the government suggest that new momentum around branchless banking will shape the financial inclusion agenda in India. Domestic remittances and government payments are driving the electronic money market. If these payments can be translated into banking that goes beyond basic bank accounts—offering savings, insurance, and loans—they will make a major impact on financial inclusion in India.
——– Jeanette Thomas is the Director of Communications at CGAP.
Across India, in its rural villages and urban centers, an amazing social experiment is being rolled out. Millions of Indians—day laborers, beggars, office workers, rich and poor—are lining up to give their fingerprints to register for a government-issued ID. For many, it’s the first time they will have a formal ID.
Hundreds of millions of Indians today have no formal ID. As a result, they are unable to open a bank account, buy a SIM card, and most critically, claim the government welfare payments they are entitled to receive.
In August 2009 the Government of India set out to address this issue with an ambitious project led by an ambitious man–Infosys founder and software billionaire, Nandan Nilekani. Using the latest biometric technology Aadhaar, as the program is known (it means “foundation” in Hindi), aims to provide a unique ID to all 1.2 billion people who live in the country.
In last week’s budget, Rs 1,758 crore (US$343 million) was allocated for the Unique Identity Authority of India (U.I.D.A.I.), a significant boost for Nilekani’s aim to enroll half the population by 2012.
In this video, the Deputy Director General of the U.I.D.A.I., Ashok Singh, discusses the goals of this ambitious project, and how financial inclusion was built into its design. The U.I.D.A.I. has been enrolling a mind-boggling million people a day. This year’s budget allocation will allow it to increase enrolments from 200 million today to 600 million. If successful, India would find itself at the forefront of citizen ID technology, leapfrogging just about every developed country in the world.
Recent reports suggest that welfare payments are what’s leading a sharp drop in Indian poverty. The Unique ID program is at the heart of an ambitious plan to improve the delivery of welfare services. And Prime Minister Manmohan Singh has made it clear that Aadhaar will be the underlying platform for all government services.
It also promises financial inclusion. Every new enrollee is offered a bank account, and to date 84% of people have taken up the offer.
With its open source philosophy, Aadhaar is also considered an opportunity for private companies to innovate, and to find new ways to use the platform to benefit their customers.
The program is not without its critics. Civil society organizations have expressed concerns about privacy issues, and the project has faced challenges that have gone all the way to the Supreme Court. But Singh is confident those fears will be put to rest once the program is in operation. He also says that India’s ID effort is unique in motivation. Most governments that create ID programs are driven by security concerns. In contrast, the motivation for the Government of India is making growth inclusive, closing the gap between rich and poor.
For India’s growth to be sustainable, says Singh, the poor must benefit. And Unique ID is an instrument to make them part of India’s amazing growth story.
In late summer/autumn of 2010 the perfect storm hit microlending in the Indian state of Andhra Pradesh. In July SKS, the largest and fastest-growing microfinance institution in India with about 6 million clients, issued an IPO. The company valuation reached the top of the offer band price at US$1.5 billion, and five weeks after trading on the Bombay Stock Exchange, the share price rose 42%. In early October Andhra Pradesh’s chief minister passed a punitive ordinance that effectively stopped business for the microfinance institutions in the state. Today microfinance institutions in the state are struggling to survive.
The microcredit crisis in Andhra Pradesh was precipitated by a number of causes. CGAP has written about the context for the crisis and implications for microfinance more broadly here.
Now Vijay Mahajan, oft described in the Indian media as the “high priest of microfinance,” has set off on a spiritual and literal journey across India to explore the reality of what microcredit has done for poor people.
Vijay, who is the current Chair of CGAP’s Executive Committee and Chairman of BASIX, a microfinance and livelihoods business headquartered in Andhra Pradesh, has been on the front lines of the battle in Andhra Pradesh. His journey by foot, public transport, and by car—what he calls a “hybrid yatra” —will take him across five thousand kilometers of his country, walking through the villages and driving across the country to meet and talk to poor borrowers, and get the real, grassroots-level answer to an existential question: has microcredit been good for the poor or bad? Vijay is blogging about his journey here. The yatra, which will take him across 12 states, is ‘an inquiry into the lives and livelihoods of poor people’.
The yatra is a uniquely Indian phenomenon: a journey of self-purification. Vijay began his devotion to rural development in the 1980s, and the 2011 yatra is a chance to reconnect with his roots and to rethink the organization he founded—BASIX. His journey will end with visits across the state of Andhra Pradesh.
The Economic Times quoted Vijay as saying that his “soul searching on the need to reinvent microfinance started after he was elected as the chair of the executive committee (board) of the Global Consultative Group to Assist the Poor.” So we are following the journey closely, and Stephen Rasmussen, CGAP’s regional manager for South Asia, will join Vijay in the final days of his journey. Stay tuned.
Some months ago I asked CGAP senior advisor Rich Rosenberg what he thought was the most pressing challenge for microfinance today, and his response–understanding over-indebtedness–was passionate. You can watch a video clip of Rich talking here .
The issue of over-indebtedness, and whether microcredit does more harm than good to clients living in poverty is all over the news as the issue has bubbled up in the Indian state of Andhra Pradesh and hit the global headlines over the past year from Bosnia to Nicaragua. But how much do we really know about levels of over-indebtedness, or even what is a reasonable level of debt for a poor household to carry? Over the coming weeks, CGAP will be running a series from leading experts on financial inclusion with their thoughts on the issue, and what the global microfinance community should do to address it.
Part of Rich’s frustration comes from the lack of robust research tools for understanding whether there is an over-indebtedness problem. “I am more concerned about getting a handle on the issue of over-indebtedness,” he told me, “than about fine tuning other areas of customer protection. Yes, fair disclosure of interest rates is important. Yes, avoiding abusive collections methods is important. Yes, protecting client privacy is important. But for me, the basics, basics, of customer protection is to avoid over-indebtedness.”
Tomorrow, Rich will share his latest thinking, and over the coming weeks he’ll be joined by other experts, from regulators who have been dealing with the issue, to researchers who have been gathering data. Join us and share your insights through comments to help move the conversation forward.
—–Jeanette Thomas
This post kicks-off a blog series on over-indebtedness. Over the coming weeks we’ll be featuring a variety of voices from across the globe on this topic. We welcome your participation in this discussion through comments.
It’s inevitable that a review of the year would highlight the dramatic turn of events in the Indian state of Andhra Pradesh, as well as other fundamental issues about the provision of financial services for the poor that emerged in such stark light in 2010.
Early in the year CGAP released new research that raised concerns about the pace of growth in some markets and the degree to which that could strain MFI systems. By the end of the year, the unfortunate turn of events in South Asia took center stage.
In between, we saw the breathtaking SKS IPO, and much debate about different approaches to delivering services, high interest rates, and the various facets of commercial microfinance.
It wasn’t all controversial or bad news. Financial Access 2010 showed that access to financial services had continued to grow in 2009, despite the financial crisis. The G20 took up the cause of financial inclusion, and in June endorsed “Nine Principles for Innovative Financial Inclusion” at the Toronto Summit. And the Basel Committee–the Vatican of global banking– issued its first guidance on microfinance in August. All signs of progress.
Here is a quick recap from 2010′s most popular and most discussed posts. We hope the CGAP Microfinance Blog provided some context, and perspectives that went beyond what you were hearing in the news. The issues raised last year remain imminent, and the conversation flows into 2011. As new issues emerge, we hope the CGAP Microfinance Blog will continue to offer new ideas, data, and informed opinion, and we hope you’ll offer your views by commenting on the issues at hand.
The Perils of Uncontrolled Growth by Xavier Reille – “The Morocco microfinance sector wasn’t a casualty of the global financial crisis: this was primarily a crisis of the MFIs themselves.”
Perplexed about Over-indebtedness, part 2 by Richard Rosenberg – “What do we mean when we use that term? This question, like most others about over-indebtedness, gets annoyingly complicated.”
The Next Decade of Microfinance by Alexia Latortue – “Advancing financial access isn’t just about expanding access from a sheer numbers perspective—though that’s critical—it’s also about the quality of that access.”
6 Questions for SKS by Stephen Rasmussen – The post kicked off the blog series on SKS, shortly after the largest MFI in India launched its IPO. Steve asks whether SKS will be passing on the gains from the capital markets to their millions of clients in India.
Is SKS any Different from Wal-Mart and does it matter if it isn’t? By Malcolm Harper – “Now microfinance is a mainstream business, it’s been “Wal-Martised,” whether we like it or not, Compartamos and now SKS have shown the way, and soon many more will follow. The clock cannot be put back.”
Crisis by Invitation by N.Srinivasan – “More than 15 years of hard work has gone into the (microfinance) sector. For the mindless actions of a few with a profit motive, a large number of customers are set to lose linkages to institutions that had helped them over the years.”
Andhra Pradesh Crisis or Opportunity by Parmesh Shah – The post argues for creating a pro-poor ecosystem which includes a diverse range of financial products and services that meet needs related to health, food, education, and livelihoods.
Only 4 million Kenyans have bank accounts. But 10 million people in the country now use the M-PESA money transfer service. This short video by CGAP shows how mobile money is changing the face of banking in Kenya.
A couple of interesting nuggets from the Global Investment Congress in New York last week: first, as my colleagues Xavier Reille and Jasmina Glisovic-Mezieres have highlighted in a recent Web article, microfinance investment vehicles are currently over-liquid. It’s quite a reversal from just a year ago, when in the context of the spreading financial crisis, the concern was lack of liquidity. Today instead the issue for the funds is placing money. Indeed, responsAbility just announced that it has temporarily suspended new subscriptions to its Global Microfinance Fund in order to reduce the share of liquid assets from 30 percent to 10 percent of the fund volume. (The plea from the microfinance networks was to reach down to Tier II and Tier III MFIs, but as Ann Miles of BlueOrchard pointed out, that’s easier said than done: “We’d love to go deeper in the market and invest in Tier IIs and Tier IIIs,” she said, “But as fund managers wearing our fiduciary hat, we can’t do that. We need investors who are prepared to take more risks…”)
In case you missed the announcement, CGAP has named the winners of the 2009 CGAP Microfinance Photography Contest. You can see the photos that made it into the final selection here, and read more about the winners and the judges’ comments.
First Place Winner: The Magic of Microfinance
This year, the standard of entries was once again amazing—from professional photographers and non-professionals alike—and many of the finalists came from South Asia and India in particular, where there seems to be a thriving culture of photography, as well as widespread awareness of microfinance. While entries came from every region of the world, we want to make sure that next year’s Contest really attracts the best photographs of microfinance, since that’s what it’s all about. So help us to get the word out: the 2010 CGAP Microfinance Photography Contest will open for entries later in May, and this year we’ll not only have the first, second, and third prize winners, we’ll also be selecting a winner from every region. Watch this space.
Haiti receives between $1.5-1.8 billion in remittances each year. In the immediate term, it’s vital to ensure that remittance flows to Haiti are not disrupted for people’s very survival.
It’s not often that an account of financial systems and money transfers reads like a tale of derring-do. But Anne Hastings’ account of a middle-of-the-night airlift of cash co-ordinated by the US Department of State to Haitian MFI Fonkoze is a true Hollywood-style action-adventure. Anne details the hour-by-hour progress of ten boxes of cash ($2 million originating from Fonkoze’s accounts in City Bank of New Jersey) as they are transported from JPMorgan Chase in Miami in armoured trucks to a C17 diverted from Langley, Virginia to Homestead Air Force Base, and from there flown to the newly-functioning airport in Port-au-Prince.
Congratulations to former CGAP Excom chair, Fazle Abed, founder and chairperson of BRAC, for his new year honour. Fazle Abed is to be appointed Knight Commander of the Most Distinguished Order of St. Michael and St. George (KCMG) by Her Majesty Queen Elizabeth II for his work in tackling poverty and empowering the poor in Bangladesh and in other parts of the world.
Vijay, who is the current Chair of CGAP’s Executive Committee and Chairman of 
In between, we saw the 
