By N V Ramana Group CEO, BASIX BANKING IN THE HINTERLAND 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 Insurance Credit

Savings Functions Challenges Solutions 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 To be provided 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 IDS LFS Ag/BDS Organize producers into their collectives. 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 Savings, Credit, short-term as well as long-term Insurance, for lives and livelihoods Fund transfers Commodity derivatives Financial orchestration ranging from grants to equity for livelihoods Ag/BDS Productivity enhancement Risk mitigation (non-insurance) Local value addition Alternate Market Linkages - Input supply, output sales Remove the cetnral triange

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 Backend Servers AP Dairy Fed Backend Servers E-Seva BASIX Server Exchange Backend Servers ICICI Bank Backend Servers BAIF Response Request E-BASIX STEMS Computer with links to backend servers, ATM, Inputs Shop, Godown, Commodity buying point, courier Cash from ATM Physical delivery of Commodities by farmers and milk producers Registration Physical delivery cattle feed, vet medicines, 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

THANK YOU nvramana@basixindia.com