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Micro savings and microinsurance in india. Presented by: Manoj K. Sharma. Financial inclusion Scenario. Financial Inclusion in South Asia. Gross Deposits as % of GDP. Rank in terms of financial inclusion. Index of Financial Inclusion. Country. 50. 63. 69. 76.
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Micro savings and microinsurance in india Presented by: Manoj K. Sharma
Financial Inclusion in South Asia Gross Deposits as % of GDP Rank in terms of financial inclusion Index of Financial Inclusion Country 50 63 69 76 • ICRIER’s index of financial inclusion (IFI) captures dimensions of financial inclusion in a single digit between 0 and 1, where 0 denotes least financial exclusion and 1 indicates complete financial inclusion in an economy on the basis of availability and usage of financial services
Banking in India … Extensive but Unwilling / Unable to Cater to Poor Deposits Held by Financing Institution (March 2009) Banking Statistics • In common with all countries in South Asia, in India, the commercial banks hold over 80% of the countries deposits • India scores fairly well in terms of bank branch density – last mile problem is solved but banks don’t perceive poor as worthy customer
Needs of Poor in Savings What Do the Poor Need? • Frequent opportunities to save small amounts locallyallow poor people to save up useful lump sums • Nearly ¾ of opportunities to save are unplanned – and typically remain in the informal sector because of ease of access issues • Regular/structured/disciplined savings opportunities are highly valued – and used even when they are risky • Bishi/RoSCAs (often do not complete) • SHGs/ASCAs (often captured by group leaders) • NBFC agent-based doorstep systems (agents often disappear with money) • So the poor want … • Frequent opportunities to save • Small amounts in • Conveniently located outlets of • Trustworthy/secure institutions
Why Do People Save? Why Do People not Save?
India: Why Still Save in the Informal Sector? Key Findings • Despite reasonable bank branch density- usage is low because: • Too many people have either had or heard of a bad experience or have concluded that banks are simply not for the poor which includes behaviour/ attitude of bankers and poor systems • Affordability of travel and transaction time/money to use them is a hindrance • Others are put off by the “barriers to entry” provided by account opening requirements • One of 3 queues at an RRB: • Transaction registration • Transaction checking/validation • Transaction with cashier • Each queue/process takes about 45 -60 minutes – total process: nearly 3 hours.
Understanding/ Awareness of Insurance Products Attributes Liked in Insurance Products Attributes Dis-Liked in Insurance Products
India: Cost for the Potential Clients Direct Costs Involved in Transacting at a Bank • Transportation: Going to the banks is an expensive affair for poor people. People use public transport like auto rickshaw, jeep or bus to reach bank. People pay between Rs.1 to Rs.50 (and sometimes even more) • Unintended expenses on refreshments: Expenses on snacks and intoxicants while going or returning from the bank. Key Findings • Loss of wage labour or daily income is a cost that some respondents have to bear. • Mostly wage labourers mentioned that going to bank in itself (that takes one complete day or half) leaves them no time to search for work • Some respondents mentioned loss of important household work as a cost
Potential solution: E-banking Business Models Ground Realities Bank • In India, all efforts towards Financial Inclusion are “Bank Led” • No entity except banks is allowed to accept deposits from public. Even if some are allowed, the norms are discouraging • Very little that the other channel members, banking correspondent/agent entity or the technology provider can do on their own • One time KYC documentation is mandatory. Most households in the target segment do not have the basic documents required • Logistics is a key challenge, especially managing the agent network and cash involved Telco TSP TSP Kiosk MFI Branch Loan Officers Agent Client
Making the numbers add-up • Differentiating between client sign-up and on-going transaction … • The double break-even dilemma: it is more effective for agents just to sign customers up • Transaction pricing • Africa is ahead of Asia since paying for withdrawals is an accepted norm • Simple fees/percentages/tranches – all incentivise agents in different ways! • Long-term solution: Multiple products across the platform – will revolutionise microfinance • Savings • Remittances • Payments • Top-up • Insurance • Loans Costing & Pricing of Agent-based Services http://microsave.net/briefing_notes/india-focus-note-32-making-business-correspondence-work-crossing-the-second-break-eve
Key Take-Aways • Poor people have rich and complicated financial lives • Managing the basics • Coping with risks • Raising lump sums • Poor people use a wide variety of instruments to save • Each financial tool is linked to a specific need • Mostly informal in nature • Mostly subject to the risk of loss • To design savings (and indeed other) services for the poor, we need to understand their needs, perceptions, aspirations and current financial behaviour • Key drivers are (usually): • Trust/security • Proximity/convenience/access • Interest rates/returns • Liquidity/illiquidity preferences • Get the products and delivery systems right … and the demand can be overwhelming • The poor want … • Frequent opportunities to save • Small amounts at • Conveniently located outlets of • Trustworthy/secure institutions • E-/M-banking solutions look like a high potential option but challenges remain • Driving adoption and usage • Developing and managing agent networks • Costing and pricing