One of my favourite movie scenes is from “It’s a wonderful life”. The hero, George Bailey, is a reluctant banker. On his wedding night he has to deal with a bank run. In trying to stop the bank run, he tries to explain the concept of illiquidity to his depositors. " "You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can." George's vision of banking is infectious: it is not about pieces of paper or ledgers. It is about helping people build houses and dreams. This vision drives me. Along with my awesome team at IFMR Trust (where I am the president), am obsessed with seeing that all of India has access to high quality financial services; be it a daily wage labourer seeking to protect her Rs. 100 wage from inflation or a municipality issuing its bonds to build sanitation for its residents. I believe that finance, when done well, can be a tremendous force for good. I live and blog from Chennai (and planes) but most of my stories are from Thanjavur, Ganjam and Uttrakhand.
A few colleagues and I recently travelled through Varanasi and Mirzapur in Eastern Uttar Pradesh visiting Micro Finance Institutions (MFI) in that region and their clients. I am delighted to report that this region, one of the poorest in India, is a hotbed of innovations.
Cashpor is a leading MFI operating in the region founded by Professor David Gibbons, a thought leader in the area of financial services for the poor. Operating costs in the MFI model vary between 6 – 12% and one culprit for these numbers in extensive manual data entry processes. Cashpor has deployed a remarkable mobile-based payment and reporting solution developed in partnership with Atom Technologies that replaces the paper-based data entry with real-time mobile entry and reconciliation.
We witnessed the working of this mobile based system in a centre meeting of the Pandeypur branch in Varanasi. The field officer starts with recording the attendance of each member in the application. Many MFIs believe that attendance rates are an important indicator of group quality. After that, the officer proceeds to record the amounts collected from each client against what was due. The field officer can also record requests for new loan cycles and see future disbursements on the application.
The field officer’s handset is programmed at the back end to access data for only the centres under his responsibility. This is done to cut down on data transfer as both the handset and network connectivity cannot handle large data transfers. When the meeting is completed, the field officer uploads the data to a central database, which the head office can access immediately to understand overdue position, if any. The entire process was smooth and effortless.
When we asked Cashpor staff about the benefits of implementing this solution, they mentioned that eliminating the manual data entry processes saved an entire workday per week! They are preparing for a significant interest rate reduction riding on some of these large productivity gains.
Another highlight of the trip was watching Cashpor’s officer talk to a group of women about the New Pension Scheme Lite (NPS-Lite), a pension product for informal sector workers with a matching contribution by the Central Government. He started by asking the group whether they knew women in the village who were finding it hard to support themselves in their old age. Disconcertingly, almost everyone nodded their head. He then spoke about the power of compounding – how small amounts set aside every week could create meaningful lumpsums for old age. We were thrilled that the officer had a perfect understanding of the features of the product and explained the implied illiquidity in a pension product. The women clients had several questions for him, all of which he patiently addressed. It was a powerful reminder of the value of last mile institutions like Cashpor for building meaningful financial inclusion.
Our next stop after Cashpor was at Utkarsh. Set up by a former colleague from ICICI Bank (Govind Singh) only a few years ago, Utkarsh has rapidly emerged as one of the most promising MFIs in India. Here, we saw several innovative client protection processes in place. Notable among them was a grievance redressal system where a client is provided a toll-free line to call Head Office and share any concern they might have. Utkarsh mentioned that they receive several calls every day ranging from enquiries about membership and getting loans to complaints about credit officers not being on time. Utkarsh has tied up with a service provider in Delhi that provides the entire toll-free service, including recording, classification and retrieval of call information. This is systematically analysed and discussed by the senior management of Utkarsh.
Between Cashpor and Utkarsh’s growth plans, Eastern Uttar Pradesh and Northern Bihar look set to have access to basic financial services in the next few years. Both organisations have battled significant odds including infrastructure and operating risks in moving cash. Their success is an inspiration for everyone in the field of financial services for the poor.