DESIGNING AND IMPLEMENTING LAST- MILE SERVICE DELIVERY SOLUTIONS AND INNOVATIONS: FINANCIAL INCLUSION OF POOR THROUGH COMMUNITY INSTITUTIONS IN INDIA

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1 DESIGNING AND IMPLEMENTING LAST- MILE SERVICE DELIVERY SOLUTIONS AND INNOVATIONS: FINANCIAL INCLUSION OF POOR THROUGH COMMUNITY INSTITUTIONS IN INDIA

2 Livelihoods Story Incomes Expenses Wage Income 53% Food Expenses 58% Farm 18% Healthcare 12% Livestock 15% Personal 15% Non Farm 14 % Interest Burden15% Bleeding Livelihoods Sheikwara, Gaya District (Birthplace of Bhoodan in Bihar) - Farm wages are paid in form of grain. NO WORK NO FOOD. - All Bhoodan lands mortgaged due FOOD and HEALTH SHOCKS. - Lease-in land (up to 10 decimals) to GROW FOOD for own consumption. - FOOD LOANS repaid in kind or tied labour and/or produce. - MIGRATION offers plausible solution, but with heavy upfront costs. Poor need financial products matching cash, income, expenditure and risk cycles in their life.

3 Livelihood projects made with Lego* Social mobilization of poor Building institutional platforms for the poor Developing pro-poor financial sector Access to entitlements Linking with markets & services Gender empowerment * Lego

4 Investing on demand side: Building access to markets agenda Entitlements and Social Security Food Security PDS, Food Security Enterprise Health Security Nutrition, CMHS Income Security NREGA, Pensions Risk Management Insurance (Life, health, assets) Access to Markets and Services Productive assets and skills Productivity Enhancement - SRI, SWI, CMSA, Dairy Collective Marketing - Agri Commodities, NTFP, Dairy Market linked Jobs

5 But Financial Inclusion has always been a story of the Fox and the Crane Both friends had an equal opportunity for nourishment, but each time one of them could not take advantage of the opportunity.

6 Financial Inclusion Strategies Building an inclusive financial sector Making poor preferred clients for banking system Monetize livelihoods economy of the poor Reduction in high cost indebtedness for the poor Financial education for planned investments Leveraging investments from mainstream banks Pro-active and systematic initiatives working on both supply and demand side of financial inclusion agenda

7 Lessons from banking with the poor Initial engagement in AP, Tamil Nadu and Orissa Saturation approach to SHG formation Saturated training and sensitization effort Coordination mechanisms: Govt, NABARD & banks Sharing of MIS with banks and tracking credit linkage Result: Initial inertia overcome, momentum picked up Accelerated change in AP, Bihar and Odisha Micro Credit Plan based lending Community involvement for bank linkage & recovery Livelihood innovations triggered financial innovations

8 Transformation in Delivery of Financial Services to the Poor Product innovations by the communities by bundling micro-credit with livelihood services Food Credit and Nutrition Credit Co-production model for rural financial services Relationship managers for the poor (Bima Mitras) Agency arrangements for financial services delivery New technologies and business models transform last mile service delivery IT enabled with Micro-insurance Companies Smart Card based Payment Systems

9 Co producing Financial Services: Innovations Strategic Partnerships with Commercial Banks AP: New product development Bihar & MP: Business process re-engineering Bihar: Dedicated spear head teams Product Innovations AP & Bihar: Bundling microcredit with Food & Nutrition AP & Bihar: Health savings Bihar: Swapping high cost debts land and milk Bihar: Loans for land and animal leasing AP & Bihar: Loans against anticipated NREGA payments AP: AP: Bank product for assistance food security line AP: Bank assistance for Total Financial Inclusion (TFI)

10 Co producing Financial Services: Innovations Service Innovations AP & Bihar: Help-desks at Bank Branches (Bank Mitras) AP: Branchless Banking for Social Security Payments AP & Bihar: SHG Federations as Banking Touch Points/CSC AP: SHG Federations as micro insurance franchisees enabling universal access to insurance by setting high standard of service delivery Consumer Innovations AP: Savings from social security payments Bihar: Poor use savings accounts of SHGs on CBS platform to make and receive remittances at ZERO COST Bihar: Micro Credit Planning as tool for financial and business education

11 Co producing Financial Services: Innovations Service Innovations Bihar & Odisha: Financial literacy and credit counseling Vitta Mitra AP, Bihar & Odisha: Help desks - Bank Mitra Alternative Banking Channels Odisha: Mobile Van (UCO Bank) Bihar: Kiosk Banking (SBI) AP & Bihar: Dairy Banking (HDFC Bank)

12 Financial Inclusion Building Informed, Empowered and Responsible Clients Micro Planning Financial Literacy and Counselling Vitta Mitras Community Managed audit and recovery Mechanism Enabling access to Insurance Product Innovations using CIF as catalytic fund Debt Swapping, Food Security Fund, Health Risk Fund etc. Making Formal Financial Sector Deliver Partnerships ( formal MoUs) with commercial banks & sensitization of local bankers Placement of customer relations managers (Bank Mitra) to smoothen the transactions at the branch level Alternate Banking Models for Total Financial Inclusion Enabling access to a suite of financial services at the doorstep SHG women as CSPs at the last mile

13 Vitth Mitra Financial Counseling

14 Bank Mitra Help Desk Outreach 4500 Bank Mitras across the Country Impact Transaction time down from 2.5 hours to just 15 minutes 95 + percent SHGs in these branches are credit linked NPA is less by at least 30%

15 Alternate Banking Pilots

16 Livelihoods Banking Pilot Center Operator as Business Correspondent for Cash Deposit/Disbursal Cash management thru Nearest Branch HDFC Bank Branch Customer Touch Points HDFC Bank s Maestro debit Card with the Customers EDC Terminal POS terminal at BC Centre to capture customer transactions Introduction of Hub ATMs HDFC DC Connectivity to HDFC Bank s Data Centre thru Landline/CDMA/GSM phone phone

17 Mobile-bookkeeping

18 Community led Micro Insurance Model Insurance Claim Settlement Process Claim village Phone Call Centre located in District Federation Payment of Solatium/Relief US$ 125 Alert ATM Commercial Bank Area Committee Members Area Committee completes documentation and sends e-claim to Insurance Company via District Federation

19 Favorable Investment Climate for Rural Poor Saving 5.5 billion

20 Learnings Invest with a long term perspective Investing in institutions requires experimentation, failure and learning. We need to put risk capital in and learn from failures Invest in political economy from the beginning. Governments need to see a political value preposition Need to invest in aggregate forms of social capital and institutions to create a favorable investment climate