Gautam Bhardwaj, 45, used to be an impulsive, hot-headed young man. He dropped out of college because “studies felt boring”. He got a copywriting job with ad agency Trikaya Grey in the 1980s, but quit after a tiff with his boss. He acted in a TV soap Fauji but quit that too. Why? “I was upset being sidelined by this unknown guy called Shah Rukh (Khan),” he laughs. He got married at 24 and found himself without a job and no college degree.
That was in a previous lifetime. Today Bhardwaj talks about retirement and pensions, not for himself though. He wants the poor, unorganised working class in India to have a shot at leading a comfortable life after the age of 60. It’s a remarkable goal given that retiring would be the last thing on their minds as they struggle to make ends meet on a daily basis.
Yet, in the last four years over 200,000 workers from the unorganised sector have signed up to his ambitious micro pension scheme. Hard selling, a grassroots level reach and low transaction costs are responsible for his success so far. His outfit, Invest India Micro Pension Sevices, is present in nine states.
He has created a strong ecosystem. State governments, international organisations like Asian Development Bank and KfW Bank, co-operatives and NGOs are partnering him.
Challenges are abundant. The most difficult one is getting agents to sell the idea as commissions are small. Premature withdrawal and closure is also a serious problem. But Bhardwaj is optimistic he will succeed. This idea has been on his mind since a decade. The Idea Takes Seed
In 2000, Bhardwaj began work on the OASIS (old age social and income security project) report for the government. As a consultant, Bhardwaj helped out with the implementation logistics of the New Pension Scheme (NPS).
While working on OASIS Bhardwaj met U.K. Sinha, a joint secretary in the finance ministry overseeing pension sector reforms. Sinha was equally passionate about pension for poor. But they were unable to take it further. In 2006 Sinha took over as MD at UTI AMC. UTI AMC was ready to manage a micro pension fund. The Self Employed Woman’s Association Bank (SEWA) with 12 lakh members was on the lookout for a pension product and Bhardwaj was ready to connect the dots. The micro pension experiment had begun.
In 2006 Sinha and Bhardwaj set up the IIMPS whose sole job is to promote micro pension in India. It has 45 staff, direct and indirect presence in 70 districts in nine states. UTI AMC and SEWA Bank have each taken a 10 percent stake. Individual promoters like Jayshree Vyas of SEWA Bank, Vijay Mahajan of BASIX and Renana Jhabvala of SEWA Bharat also own stake and sit on the board. IIMPS has become the anchor body that deals with the governments, policy makers, end customers and partners like SEWA and BASIX to scale-up micro pension reach in India.
IIMPS has been appointed as the pension policy consultant and turn key implementation agency for Rajasthan’s Vishwakarma Micro Pension Scheme.
Rameshwar Lal Kumawat, 49, is a vegetable vendor who lives in a hamlet in Jaipur, Rajasthan with his wife and four children — two sons and two daughters. All children are in school. The sons help their parents sell vegetables and one of the daughters, Mamta, does some tailoring at home. In spite of their efforts the family doesn’t make more than Rs. 8,000 a month.
Until three years back savings and pensions were alien concepts to Kumawat. But then the Rajasthan government launched Vishwakarma. Last year Kumawat opened a micro pension account. For every Rs. 1,000 that he puts into the account the state government adds Rs. 1,000 of its own. His wife and two of his children have accounts as well. “Of course it makes sense for me. The government doubles it. The money doubles,” he says.
There are already 40,000 workers like Kumawat in Rajasthan who are putting small sums away from their meagre incomes for their old age.
SEWA has 50,000 members who on an average save Rs. 78 monthly for their retirement. “It’s a slow process. People have to get used to the concept. But once a few sign up they will have a light house effect on others,” says Ramesh Ramanathan of Janaagraha, a not for profit institution based in Bangalore. Ramanathan works with the urban poor, and has some 2,000 members who have signed up in the last one year.
India’s old age population is set to double to 200 million in the next two decades. About 85 percent of India’s workforce is in the informal sector and a third of them earn under Rs. 3,000 per month.
Most will become destitute when they stop working. The nuclearisation of families at all income levels means the old will have to fend for themselves. Better life expectancy will mean more old people who will need financial support as they age.
Micro pension is a new concept. This is perhaps the first ever such experiment in the world. Selling this pension product and keeping it active for a long term is the most challenging task. There will always be emergencies that demand immediate cash. A maid may need to withdraw all her money in case someone has to be hospitalised. “She has so many competing needs — all of them important,” says Bhardwaj. You need to be extremely flexible about payments, the amount and have a grassroots reach so that when the maid has Rs. 100 that she can put away, there is somebody to immediately put it away for her.
Micro-pension also means low-ticket high-volume transactions which makes it unviable. With a small corpus, high transaction costs and wafer thin margins (or even losses) finding a manager willing to handle the copus is difficult.
Renana Jhabvala, chairperson, SEWA Bharat, says they find it very difficult to inspire bank sathis (representatives in the area) to sell micro pension when the commission is very small. At SEWA they used the same agents who sold insurance and credit to also sell micro pension. But lower commissions meant bad results. Now they have appointed a different set of agents who only sell micro pension products.
Sinha says, “For an organisation like UTI that prided itself in dealing with the best of companies, to think of low-end customers — it was a massive organisational challenge.” They required lot of convincing. Sinha had a bird’s eye view into the potential crisis. Around 87 percent of Indian workers did not have pension. But Sinha also witnessed the West struggle with pension liabilities. Italy was going bankrupt with its pension liabilities three times its GDP. Illustration:Malay Karmakar
Sinha had to offer sound bottomline reasons why UTI AMC should get into it. Today it is making losses with high transaction costs “but if we succeed and build scale and also eventually manage to tap high-end customers, it could be rewarding,” says Sinha. A fund manager heads a team of eight that looks at micro pension.
The micro-pension plan works because of low transaction costs. Since there are no precedents let’s take the example of NPS. Under NPS, annual administrative costs add up to a minimum of Rs. 700. If a worker saves Rs. 1,000 a year, it means most savings are wiped out. In micro-pension, the way IIMPS has structured it, the comparable figure would be about 15 percent of the amount. UTI AMC pays for the marketing and administrative costs via commissions.
IIMPS uses as much of existing infrastructure as possible. They tap bodies like SEWA Bank, dairy co-operatives and NGOs like Janaagraha. IIMPS has worked hard to identify and build strong business relationships with reputed and established MFIs and NGOs in the country who add micro-pension to the range of products they sell to people.
Two, they use technology to lower cost. For example, UTI AMC maintains just one account. All details of sub-accounts, their holders and payment details are maintained in IIMPS and government records.
IIMPS actively solicits grants for major one-time costs from multilateral bodies to ease up the financial burden. For example, the robust scaleable software on which issuance of new accounts and its record keeping is done was developed with the help of a grant from the KfW Bank. IIMPS realised that one of the biggest costs it incurs is on financial literacy. It is actively asking multi-lateral bodies like the Asian Development Bank to support financial literacy programmes. It has also designed a pilot testing module which can be used in every new geography it is launching. The cost of designing the module — a one-time expense — was borne by KfW again. The Journey Ahead
IIMPS is today working with 18 partners who have a member base of 3 million workers. For the last seven months IIMPS has worked closely with BASIX to train all its branches on handling micro pension. It is also spreading its physical reach — from the present 70 districts it will soon expand to 200 districts.
Bhardwaj is working with the Ministry of Overseas Indian Affairs to design a co-contributory pension plan for the 50 lakh migrant workers who work in 16 countries.
After Rajasthan, other states have shown interest. Andhra Pradesh has already launched it, Madhya Pradesh has announced it and Bhardwaj says at least four other state governments are at different stages of considerations. But poor workers need high-touch support and a lot of cajoling to sign up.
“The biggest challenge for micro pension is getting the buy-in of poor workers and helping them not exit mid-way,” Bhardwaj constantly reiterates the point. He believes he can get 100 million micro pension accounts under different programmes in the next five years. He expects the Unique Identification Authority project and person-to-person mobile transactions to reduce transaction costs.
But that’s just within the country. IIMPS has helped the Nepal government prepare a blueprint for the micro pension roll-out. Pakistan, Bangladesh and Sri Lanka — all countries with a large number of unorganised workers — are potential customers. Bhardwaj is clearly looking beyond Indian boundaries for his pension dreams. (Edited by Abhishek Raghunath)
(This story appears in the 16 April, 2010 issue of Forbes India. To visit our Archives, click here.)