1. Exploring the Nature, Scope and Feasibility of Existing Technological Infrastructure of India's National e-Governance Plan's Customer Service Scheme Towards Converting In-cash Transactions into Cashless Transactions “KIOSK BANKING” Parul Agarwal Amulya K Champatiray IFMR Research, Chennai, India

2. Agenda Background Model under study Motivation Research questions Methodology and sample Preliminary observations Steps Ahead & Further Research Questions

3. Introduction IMTFI's Fifth Annual Conference for Funded Researchers, University of California, Irvine Five researchers from IFMR, Amulya Champatiray, Deepti Kc, Lakshmi Kumar, Mudita Tiwari and Parul Agarwal attended the conference organized by Institute for Money, Technology and Financial Inclusion (IMTFI) at University of California-Irvine on Dec 4-6, 2013. This conference brought together the institute's fifth-year award recipients who presented their preliminary findings. Deepti Kc and Mudita Tiwari presented their findings on social, cultural, and commercial factors that influence the decision of using cash versus electronic transactions amongst the privately led enterprises in Dharavi, and discussed the scope for the mobile or electronic payment systems. Lakshi Kumar presented her findings on the privacy risks that the current mobile money framework in India accounts for. Amulya Champatiray and Parul Agarwal presented the findings of their study that focused on exploring the nature, scope and feasibility of existing technological infrastructure of India’s National e-Governance Plan’s Customer Service Centre scheme towards converting in-cash transactions into cashless transactions.

4. Background India is the 7th largest country by area and 2nd most populous country with a diverse socio-economic culture. It is an emerging economy – 10 th largest economies by GDP and 3 rd by PPP. 30% of population lives below poverty line 69% of population lives in rural India with poor infrastructure, services and employment opportunities More than 60% of population is unbanked with only 7 branches per 100,000 adults in rural India

5. Background Recently, the Government of India has increased efforts and investment into financial inclusion. - Revisions in SHG-BLP (SHG 2), RBI’s financial inclusion drive, BC and BF, New banking licence, Women’s bank, NREGA, NRLM, NHBY etc. - The National e-Governance Plan (NeGP) to enable a greater accessibility of all government, social and private sector services to the citizens at an affordable cost.

6. Model under study Model works on PPP Framework

7. Motivation Sector based factors Emphasis on “branchless banking” – critical inputs are essential to make relevant corrective and replication measures for a greater impact. Prior study conducted by CMF-IFMR found that the KIOSK model in rural areas is not financially viable if it just offers financial services. Model based factors Massive web-enabled infrastructure: over 100,000 internet enabled kiosks across 600,000 villages. Trust because of authentic system of government service delivery. Innovative approach: motivating enough to see if the model is promising enough to be scaled-up towards creating an impact on the financial behaviour of poor.

8. Research Questions To study the kiosk banking model, set up under NeGP, its financial viability and sustainability and to identify the motivation and aspirations of VLEs. To understand the beneficiaries’ perspective regarding the significance of this kind of banking model, their acceptability of electronic/ web-based financial transactions and their further expectations. To explore the potential of the well-equipped and established physical infrastructure of CSCs in converting villages’ major in-cash transactions (especially in case of agriculture) into cashless transactions.

9. Sample and Methodology Partnering with AISECT, the following sample in Sagar district, Madhya Pradesh was drawn for the study: –30 VLEs/CSCs were selected of which 10 were randomly selected for further exploration. –5 SBI Bank Managers were also interviewed 1 CSC/ VLE 30 Beneficiaries6 Farmers Agri Input Retailers

10. Preliminary Observations Characteristics of CSCs and VLEs Characteristics of Clients Factors that motivate VLEs Branding and Marketing Services and Footfall Clients’ Experience with CSC Insights form Bankers SWOT Analysis Scope of extending the model

11. Characteristics of CSCs and VLEs Average Age35 years old Education10 th standard and above Existing business60% (avg. income INR 10,000 PM) Investment (capital) Own savings 71% and 29% got support from family Average monthly income from CSCINR 15,500 Average number of villages covered13 Average Client outreach (overall)10,000 Average Client outreach for financial services8,000

12. Characteristics of Clients Age groupSchool going kids to old age people Male and female proportion of client36% female and rest are male clients Financial Decision maker62% of respondents Education>80% have acquired some level of education Occupation 36% Non-agri labour, 19% petty business, 12% each students and domestic services, 7% salaried and 2% old & retired Average savings bank account per hh2 Savings balance per householdINR 2300 (median) Most preferred source of savings34% household save in formal institutions Source of information about CSCVillagers / friends

13. Factors that motivate VLEs About 90% of VLEs believe that their social status has improved due to their association with CSC Further, 87% believe that it has strengthened their social networks. Learning from other VLEs helps them address the operational issues and make them feel informed and connected.

14. Branding and Marketing 87% of VLEs do their own marketing by using – sign boards, pamphlets, wall posters, announcements, word of mouth, demo in schools On an average, about INR 6,800 was spent by each VLE towards marketing 60% VLEs believe that people are aware about their services 57% of VLEs plan to adopt a new marketing strategy in future in efforts to increase their number of clients.

15. Services and Footfall: Financial ParticularsAverage Monthly Transaction # Opening Basic savings account 450 Opening RD/FD account 76 Savings deposit in basic savings account 139 Cash deposit in FD/RD account 30 Withdrawing cash from basic savings account 1156 Transferring money from savings to FD/RD account 13 Loan Repayment: transfer of money from savings account 14 Life Insurance 8 Remittance Services 107 (37% in other bank account) Bill Payments 47 Receiving government payments (pension, etc.) 275 Producing statements 300

16. Services and Footfall: Non-financial ServicesAverage Transaction # Government to Citizen (G2C) Services Utility /Telephone Bills 840 Employment exchange 373 Business to Citizen (B2C) Services Digital Photos 837 Desktop printing 847 Forms downloads 427 Photocopy 614 Citizen to Citizen (C2C) Services (research data, data entry services) 23 Commerce/Online Service (rail ticket, astrology, matrimonial, shopping, etc.) 30 Telemedicine Primary Healthcare 10

17. Services and Footfall: Revenue Generating Products Top 5 Financial Services – Usage & Revenue Top 5 Non- Financial Services – Usage & Revenue Withdrawing cash from a savings accountPhotocopy Savings deposit in a savings accountDigital photographs Opening a savings accountPrinting Cash deposit in FD/RD accountDownloading forms Opening FD/RD accountBill Payments

18. Services and Footfall: Usefulness of Services Source used by clients prior to CSC SourceSavingsWithdrawalRemittance Didn’t do any transaction 41.2%45.2%50% Used a formal bank 35.3%32.3%50% Other 23.5%22.6%-

19. Clients’ experience with CSC Most attractive feature to clients: withdrawing money Cost incurred to open a bank account includes Rs. 5 on transportation and Rs. 13 on documentation etc. It takes around a week to get an account opened 91% of clients are satisfied with the services provided by CSC Location of the CSC is a clear advantage

20. Clients’ experience with CSC: in comparison Advantages of CSC (over other service providers) Advantages Financial Services Non - Financial Services Location/proximity to village88.10%59.52% Prices of services64.29%52.38% Range of services33.33%34.15% Quality of service61.90%42.86%

21. Insights from Bankers Objective: Target small clients who otherwise cannot access banking services, increase SB accounts, loan recovery, sourcing new clients Challenges: Trust building among prospect clients Technology – knowledge and comfort Client KYC Larger Government payments Political interpretations Monopoly and discrimination at VLE level Future Plans: Transfer of 100% SB account to Kiosk (decongestion to give more assistance to high-end clients) Provide more services like General insurance and loan services Target small client 45,000 - 60,000 in next 2-3 years

22. SWOT Analysis Strengths Bank’s Policy Multi-service Approach Training Location Weaknesses Technical glitches Electricity Space & management Opportunities Scale-up Replication Innovation Threats Competition Perceptions Political environment

23. Scope of extending the model: Current Status Major source of livelihoodsAgriculture Average percentage of households that depend on agriculture 75% to 95% Average total cultivation land in the village1500 acres to 2200 Acres Percentage of irrigated land75% and above Average land holding per farmer household3 acres to 8 acres Common retailers for purchase of inputs5-10 KM radius Most popular selling points5-10 KM radius Average Cash or credit transactions for input purchase INR 10,090, 909/ village / year Average in- Cash transactions for selling output INR 12,272, 727/ village / year Annual Business to each RetailerINR 400,000 to 600,000

24. Scope of extending the model: Proposition A model that provides either the first or a combination of the following: - Scope to place (or receive) the order over phone and then transfer (or receive) money electronically through CSC - To get (or post) information on quality of produce and price offered (or demanded) through CSC Reactions: - Farmers are willing to pay for such a service as this will reduce costs and time for them - Retailers are willing to pay for the service as this will get them more customers and will lead to a healthy competition - Bankers believe that this model has potential but needs to be well thought through before implementation

25. Steps ahead and further research questions Over the next phase of data collection (in next two weeks), researchers intend to study the following in addition to the basic research questions: Does a child’s scholarship account motivate parents to get themselves into the formal banking system? Does owning a savings account at an early age inculcate the habit of saving and principle of money management among kids and youth? How can the model be extended and evolved to provide customized services to people engaged in various livelihood based transactions?

26. Thank you For further questions and discussion please write to the researchers at: parul.agarwal@ifmr.ac.in amulyakrishna.champatiray@ifmr.ac.in