While India’s growth during the past decade has been impressive, there are several concerns about dimensions related to financial services. Lot of work needs to be done before the concerns of absolute poverty can be addressed. Low income households in India have very little awareness of banking, credit and insurance related services, through which they can enhance and protect their financial resources during times when they are unexpectedly struck by illness, natural disasters or death of the primary breadwinner.
This presents a very real opportunity for entrepreneurs. According to Gauravjeet Singh, Director at Unitus Capital (a financial advisory firm focusing on MFIs and other social enterprises), “Banking services in the country exclude over 600mn people in rural India. While MFIs have been able to provide access to credit to the poor, mobilizing both assets and liabilities presents a huge opportunity. We are increasingly seeing instances of banking correspondents not only opening no-frills banking accounts but also originating direct credit in rural areas from the same set of customers. Micro-banking is clearly the way forward and this seems to be the focal point in RBI's consideration for new banking licenses. This throws up various opportunities for startups engaged in community engagements in financially excluded areas be it either technology, credit scoring or even livelihood generation.”
Startups are best suited to solve the problem
Startups will have a major role to play in the financial inclusion of India’s BoP and they are inherently positioned to address the situation. For one, traditional approaches to delivering financial services will not work and there is a dire need for innovation – who better than startups to do that! Secondly, startups are relevant when someone identifies an unmet need or an unsolved problem. Existing financial institutions are so immersed in their existing solutions and meeting the needs of HNIs that they typically fail to understand the needs of the underserved. Thirdly, startups are great at finding a niche for themselves by filling in the gaps between existing value chain stakeholders.
Understanding the opportunities
In an emerging economy like India, financial inclusion becomes a question of both access to financial products and knowledge about their fairness and transparency. Hence, entrepreneurial opportunities can be broken into 2 broad categories: 1) Demand generation & analysis; 2) Demand fulfillment & service delivery.
Demand generation & analysis
Many people who fall in the unbanked category are not adequately informed about the nature of the financial services that might be available to them. Also, as YourStory reported in our coverage of InSight - a simple accounting tool that works through SMS to help low income individuals and business owners do daily accounting and financial tracking - 400 million people scattered across rural, urban and semi-urban India lack access to basic credit scoring. Today, InVenture partners with three major Indian banks accepting InSight scores from more than 4,000 users in India. On average, InSight users increase savings by 6% and revenues by as much as 30%.
Established in 1999, CoOptions Corporation set out to create an IT solution to computerize the existing Primary Agricultural Cooperative Societies (“PACS”). By enabling PACS to carry out all their financial transactions electronically and digitizing manual records, the company is creating a robust ecosystem that facilitates the flow and fulfillment of products and services to the agri segment, where fulfillment requirements are vastly unmet.
Demand fulfillment and service delivery
Led by the Government of India’s agenda of inclusive growth, the banking sector has taken a lead role in promoting financial inclusion. There has been in multi-fold increase in the number of back branches, especially in rural areas; the branch network was around 8,000 in 1969 and now it is more than 89,000. Minimizing transaction cost should be the prime motive while using the banking technology and that is where startups once again come in.
Atyati Technologies (now part of Genpact), has created a comprehensive end-to-end mobility based multi application platform called Ganaseva, which supports and enables the flow of products and services from financial institutions, government agencies and commercial enterprises to citizens in remote rural geographies. The company supports branchless expansion of a banking network, mobile micro-credit delivery, seamless tracking of disbursement of government benefits, cashless Public Distribution System, health care data collection, monitoring, creation and management of rural supply chains.
Companies like Neartivity Wireless and FINO are providing innovative wireless payment solutions. Neartivity provides payment processing on the web, mobile and smart TV platforms using a wide range of payment instruments like credit-card, debit-card, net-banking and telco carrier billing. FINO has developed a biometric card which can be swiped on a handheld device brought to the doorstep by a FINO agent for money transfer. They are also experimenting with prepaid cash cards.
Miles to go
With enhancements in technology and increased rural penetration of mobile networks, the opportunity that financial inclusion and payment systems offer is beyond doubt. That said, it is a challenging market where companies need to ensure that they retain focus rather than compete with the big players across a plethora of offerings, be wary of regulatory hurdles and ensure that they effectively leverage technology as a competitive advantage.
Moreover, given the high risks, VCs need to start looking at financial inclusion as a sector rather than select companies as part of their portfolio. As articulated by philanthropic investment firm, Omidyar Network, “Our experience from the past eight years is that impact investors can massively increase the number of lives they touch by concentrating investments in specific industry sectors in specific geographies, and by investing in a range of organizations to accelerate the development of these industry segments. The need for investment is particularly acute at the earliest stages of innovation, which provide the foundation in which entire new sectors can emerge and scale rapidly by tapping commercial capital markets.”
Know more about how you can leverage opportunities in financial inclusion at FIPS 2013 - a global conference on Financial Inclusion & Payment Systems. FIPS is being organised at Eros, Hilton Hotel, New Delhi on 24-25 October. Connect with FIPS 2013, http://fips.eletsonline.com/2013/