1. MICRO SAVINGS AND MICROINSURANCE IN INDIA Presented by: Manoj K. Sharma

2. FINANCIAL INCLUSION SCENARIO

3. Financial Inclusion in South Asia Country Index of Financial Inclusion Rank in terms of financial inclusion Gross Deposits as % of GDP 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

4. Banking in India … Extensive but Unwilling / Unable to Cater to Poor 747 Bank Deposit Accounts per 1000 adults 138 Bank Loan Accounts per 1,000 adults 10.1 Bank branches per 100,000 population 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

5. PERCEPTION OF THE POOR: GLIMPSES FROM MARKET RESEARCH

6. Needs of Poor in Savings Frequent opportunities to save small amounts locally allow 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 What Do the Poor Need?

7. Why Do People Save? Why Do People not Save?

8. India: Why Still Save in the Informal Sector? 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/valid ation Transaction with cashier Each queue/process takes about 45 - 60 minutes – total process: nearly 3 hours. Key Findings

9. Why Some Service Providers are Preferred? AttributesBanksPost Office NBFC- RNBCs Insurance Security of the savings  Interest paid  Proximity of the services  Liquidity/ability to withdraw  Acceptance of small savings  Deposit term  Frequency of saving 

10. Decision Variables of the Poor People Trust/security which is intertwined with: Brand – the reputation of the institution Corporate identity – appearance of branches/security Customer service – speed of service, accuracy of accounts, how clients are treated etc. Proximity/ convenience /access Where the outlet is located, its opening hours, waiting time etc. The ability to save and withdraw in small amounts Returns/interest rates Does not matter for transaction accounts Matters hugely for longer term accounts: Recurring deposits & fixed deposits Liquidity/ illiquidity preferences Relate to poor people’s approach to managing money (Often sources tied to uses) Implications for product design: need a range of products – short- long term Often people do not want ready access to their savings They simply want to know they could get to the money in emergency Would happily take a loan against their deposit balance They simply want to know they could get to the money in emergency Would happily take a loan against their deposit balance

11. Preferred Attributes in Savings

12. Why People Prefer Insurance? Why People do not Prefer Insurance?

13. Level of Awareness About Insurance

14. Understanding/ Awareness of Insurance Products Attributes Liked in Insurance Products Attributes Dis- Liked in Insurance Products

15. ISSUES AND PROSPECT: BANK ACCOUNTS

16.  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. Direct Costs Involved in Transacting at a Bank  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 Key Findings India: Cost for the Potential Clients

17. India: Barrier in Bank transactions and Willingness to Pay

18. India: Frequency of Transactions in Active Accounts Of the 121 active account holders (49% of sample) One in six said they transact daily and another one in four weekly Altogether, 58% said they transacted at least once a month Many of these were in areas served by business correspondent agents equipped with biometrically- enabled point-of-sales devices A further one in five said they transacted whenever their NREGA wage was paid in Agent ghar par aa jate hai jisse thoda thoda bachat ho jata hai “Since agents visit our place, we are able to make small savings” Agent ghar par aa jate hai jisse thoda thoda bachat ho jata hai “Since agents visit our place, we are able to make small savings”

19. India: Likes and Dislikes, and Ranking of Account Features

20. FINANCIAL INCLUSION TOOLS: AGENT BANKING AND M BANKING

21. Bank TSP MFI Branch Kiosk Telco Client Loan Officers Agent Ground Realities  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 Potential solution: E-banking Business Models

22. 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 http://microsave.net/briefing_notes/india-focus-note-32-making-business-correspondence-work-crossing-the-second-break-eve Costing & Pricing of Agent-based Services

23. Chander Bhan, 36 Occupation: Plumber Using SBI-Eko Client Since: March 2009 No. of Transactions: 29 (March’2009 to August’2009) Total deposits: Rs. 7,725 Total withdrawals: Rs. 7,425 No. of deposit transactions: 18 No. of withdrawal Transactions: 11 Average Deposit amount: Rs. 429 Average Withdrawal Amount: Rs. 675 Chander Bhan works as a plumbing contractor in Bindapur Village of Uttam Nagar. He has been living in Delhi for twelve years, while his family stays in their native village in Uttar Pradesh. He earns a monthly income of around Rs. 12,000 to Rs. 13,000 from his plumbing contracts. Most part of this income is remitted to his family. On an average, he sends around Rs. 9,000 every month by transferring this amount into his wife’s account in Union Bank in the village. He also has a savings account in South Indian Bank in Delhi, which he uses for keeping his savings and for transferring money to his wife’s account. Apart from this, his other monthly expense/outflows are room rent (Rs. 800) and mobile phone recharges (Rs. 800). He opened the SBI Mini account because his CSP had recommended him. He has not used his account since last two months as he had gone back to his village. But, during the six months after he opened his account, he used to make very frequent/regular deposits whenever he had extra cash in hand. He makes withdrawals to meet social and emergency expenses. He likes this account because he can deposit and withdraw small amounts frequently which he cannot do in his South India Bank account. He can now use his Eko account to remit money to his family. Also, he would like an ATM card so that he can have 24/7 access to his savings. M-banking Customer Case Study #1

24. M-banking Customer Case Study #2 Lajja Devi,62 Occupation: Housewife, 62 Using SBI-Eko Client Since: July 2009 No. of Transactions: 51 Total Deposits: Rs.9,530 Total Withdrawals: Rs.8,700 No. of Deposit Transactions: 38No. of Withdrawal Transactions: 13 Average Deposit amount: Rs.250 Average Withdrawal Amount: Rs. 669 Lajja Rani is a housewife and stays with her family in Mansa Ram Park in Uttam Nagar. She has always been very pro-active in saving and is the cash manager at home. She noticed the Eko banner at the CSP in her locality and opened an account. She also referred the account to her husband, son and daughter who is married and they also opened the account. She deposits small amounts saved from the money she receives household expenses. She does not even share the account balance within any one else and uses these savings to meet her personal and emergency expenses. The biggest advantage of the account, according to her is privacy because all transaction updates are received on personal mobile phone and cannot be known to anyone else. She has a savings account in SBI and PNB and also saves in Post Office. While these accounts are used for larger, long term savings and fixed deposits, the SBI Mini account is used for smaller, short term, more liquid savings. She said that she would like to have a facility of recurring and fixed deposits on the SBI Mini Savings account. She would also like to get emergency mobile top-ups from this account. However, she said that she would not prefer to pay her utility bills through this account because then she would have pay those out of her personal savings.

25. M-banking Customer Case Study #3 Sushil Sharma Occupation: MICO Dealer Sushil Sharma belongs to Sitamarhi but stays in Sheohar for his business. He has opened 3 Eko SBI accounts for his family. He was fascinated by this idea of SBI account on his mobile phone as he was in need of such a convenient account to meet his business needs. He interacted with the CSP at a canopy installed in front of SBI, Sheohar and clarified all his doubts. Uses of Eko SBI account He uses his Eko accounts for following purposes: Making payments to his suppliers who have Eko accounts. He also plans to make payments to merchants who do not even have an Eko account. He says that if CSP counters are opened in their area, he can make payments by depositing money in his account and telling the receiver about his phone number and PIN. It can not be mis-utilised as the code can be used only once and he will keep only the amount intended to be paid from the account Receiving payments from his customers in Sitamarhi. He has many customers in Sitamarhi, who pay him through his Eko account. Collection of payment is quite simple using this account and saves money and time: earlier he had to travel long distances on bike Problems faced: He wishes that he was able to transfer money to all his merchants directly without any need to visit CSPs. 50 signatures provided in the Signature Booklet is too few and should be increased as this is not adequate to meet his business needs. Customers should not be charged for the Signature Booklet. He feels that annual transaction limit and limit per day is too low. It should be enhanced to meet the needs of small merchants. In case the limit is exhausted, he plans to purchase new SIM cards and open new accounts in the name of his other family members. For higher withdrawals, he has to visit 2-3 CSPs as a single CSP is not able to meet his needs. On the other hand, he also says that now there is a competition between CSPs. CSPs request him to visit their counter.

26. M-banking Agent Case Study #1 Sujit Kumar, 29 Occupation: Selling CDs/DVDs/Audio cassettes, mobile handsets and telecom recharge CSP since: 15 Sept, 2009 Mobile Number: 9934076332 No. of accounts opened (till 12 Jan, 10): 54 Sujit came to know about Eko from his Airtel distributor. He was not able to understand the whole concept during the training, but later on when the distributor explained in detail, he became interested. Now, he is fully active and determined to take up this business to great heights. Selling Strategy He is a good motivator and convinces potential customers to open Eko account using the following: He compares Eko account with other popular savings accounts offered by Sahara and Cooperative bank which are recurring in nature. He explains that money in this account can be withdrawn anytime (no lock-in period) and they don’t have to pay fixed amount every day/month and can save as per their convenience. According to him many people have stopped depositing in Sahara and are planning to save with him. Account can be used to send/receive money from states where Eko services are available. Payments can be made from one account to another. This will help solve problems of fake currency notes and availability of change. This account works 24*7 and can be accessed anytime in case of emergency. This account can be used to recharge phone anytime and from anywhere. Customers can withdraw/get money even if they are robbed in a new area/state. He demonstrates the use of Eko account using his two mobile phones (both have an active Eko account) to the potential customers to help them understand the concept. To market the Eko account, Sujit sent New Year wishes to all Airtel customers in his area using way2sms.com, a free SMS website, mentioning about the SBI-Eko account.

27. 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

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