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Optimizing agent network distribution

In the not-so-distant past, India suffered from a severe lack of banking facilities. This was especially true for rural areas, where less than 10%[1] of villages had a brick-and-mortar branch. In 1989, the Reserve Bank of India (RBI) implemented a service area approach as part of its Lead Bank scheme, which was reviewed later in 2004. The introduction of Business Correspondent (BC) agents in 2004 further supplemented the approach (see Appendix).

Today, less than 15%[2] of villages in India have a brick-and-mortar bank branch. In most rural areas, a network of 543,472 BC agents primarily drives banking operations and is integral to the business strategy to achieve financial inclusion. However, despite a growth in the number of accounts, the number of dormant accounts in the country increased by 16 percentage points from 2014 to 2017. Hence, optimizing the performance and availability of BC agents becomes important to enable meaningful financial inclusion that goes beyond focusing on access and looks at the use and quality of access.

 

We undertook this study to optimize agent networks in two blocks—administrative subdivisions that fall under districts—in two aspirational districts in the country. Based on our analysis, a number of trends emerge in the country, which requires specific action plans to enhance financial inclusion:

1. A national-level study is required to understand the true impact of the Sub-Service Area approach for financial inclusion (see Appendix) and to identify the underserved or unserved areas in the country.

2. Efforts are needed to strengthen the supporting infrastructure, which will enable the smooth functioning of existing agents. An example of such a method is agent segmentation, wherein agents are classified into two types. The first type comprises relatively sophisticated sales agents who are usually exclusive to specific financial service providers and are dedicated solely to the agency business. These agents sell products, on-board customers, and conduct transactions of larger value.

The second type comprises basic service agents. These agents are usually non-exclusive, which means they offer services on behalf of a range of financial service providers. They are also non-dedicated, which means that the agency business for them is a marginal, add-on to

another core business, typically in retail. This second category of agents is responsible for conducting typically smaller cash-in and cash-out (CICO) transactions. The sales agents can act as rebalancing points for service agents, which can help solve the problems related to liquidity that agents potentially face.

  • Agent segmentation is even more important in areas with underdeveloped agent networks. Segmentation will optimize the spread of agents and ensure maximum population coverage while maintaining agent viability.
  • Potential service agents should ideally be already engaged in other businesses in the area. PDS shops, CSCs, and post offices are examples of such potential agents, as identified by MSC’s analysis. Policymakers may wish to develop a framework to identify businesses, establishments, or persons as potential agent types, as proposed in reports published by Helix Institute of Digital Finance and GSMA.

Navapur block in Nandurbar, Maharashtra and Kursakatta block, Araria, Bihar. We mapped the geographical locations of all agent points, bank branches, and post offices and conducted geospatial analysis to understand the current penetration of banking services in the respective blocks. We also mapped non-banking infrastructure setups of the government to explore their potential as an alternative to expand the current outreach of financial services. These included primary health centers, panchayat offices, Public Distribution System (PDS) shops, Common Service Centers (CSCs), and commercial establishments like grocery stores, mobile recharge shops, and computer centers. The sections below provide details of the key findings from both blocks.

In all, nine BC agents are present in Navapur, who cater to a population of 367,443, out of which 85% live in a rural area. Furthermore, most agents are located in clusters around the more urbane establishments in the block. Several BC agents operate from inside a bank branch, which undermines the entire objective of creating such agents in the first place. Hence, it was not surprising to find that for 30% of the total population and 52% of the rural population within Navapur block, the nearest agent was located more than five kilometers away.

Low population densities[3] and an undulating and difficult-to-access terrain are possible contributors to the meager presence of BC agents in the block. The effectiveness of the service area approach in the district, therefore, has been severely undermined. Moreover, the selection of agents in new locations depends on the constraints of access and viability. In such a scenario, non-dedicated agents become the best option to ensure a sustained and well-spread-out presence of agents in the block.

Kursakatta, on the other hand, has 28 BC agents who cater to a population of 149,231. The network of BC agents in this block is well established, with a majority of the villages lying within a two-km radius of existing agents. However, we found disparities in the replenishment of cash reserves by the BC agents. Given that the block has only two bank branches, almost half of the BC agents in the block have to travel more than five kms to reach their nearest rebalancing point. Optimizing agent performance becomes necessary in this case by reducing the loss of person-hours, which currently occurs due to the long trips to bank branches. At this point, we must consider the ANA India Report-2017, which revealed that 74% of BC agents across India face challenges in the rebalancing process, with long travel time being the major barrier.

The agent mapping study sought to understand the current landscape of financial services in the two blocks, potential new agent locations if any, and potential agent types. We conducted the geospatial analysis required for this study by using QGIS and collected the data by using ODK Collect and GPS Essentials mobile apps. Deep-dive analytics such as this reveals much more granular and contextualized data than what macro- or country-level data can yield. Information from such studies will enable policymakers, regulators, and development agencies to make better, evidence-based decisions to direct their resources towards holistic financial inclusion, especially in underserved areas.

Interactive online maps that illustrate the current financial landscape of the two blocks covered in this study can be found here—Navapur and Kursakatta. The “Map & Tools” option in the top-right corner of the link lets you select different features, and visualize and generate insights.

Appendix

Service Area Approach: The approach came into effect to address the lack of banking facilities in the country and to allow people in rural areas to gain access to formal financial services. Under this approach, a designated public sector bank, including regional rural banks, should cover 15-25 villages for their planned and orderly development. The proximity to a branch and contiguity of villages are the main criteria to allocate villages to each bank branch. All 600,000 villages across the country have been mapped according to the service area approach. Every bank branch needs to have at least one fixed-point banking outlet that caters to 1,000 to 1,500 households, which is called a Sub Service Area (SSA).

Business Correspondents (BCs): BCs are banking agents who provide basic services like cash-in cash-out (CICO), account opening, funds transfer, and balance inquiries. BCs enable a bank to expand its outreach and offer a limited range of banking services at a low cost.

_______________________________________________________________________________________________

[1] India has 649,481 villages as per Census 2011, of which 593,615 are inhabited. As of 2012, 75,801 bank branches operated in rural areas. Hence, assuming no village has more than one branch, brick-and-mortar branches cover, at best, 7.8% of inhabited and 8.5% of total villages. The real figures will be even lower if, for example, a single village has two or more branches.

[2] Between 2013-2014 and 2016-2017, 8,588 new banks opened in rural areas. Hence, the total number of banks that operate in rural areas became 84,389. The rest of the calculations remain the same.

[3] The population density of Nandurbar is 277 per sq.km., which is much lower than the population density of its parent state, Maharashtra, at 365 per sq.km.

Optimizing agent network distribution

Smart data collection and geospatial analysis have the potential to allow providers to optimize the distribution of agent networks. This report notes that in the areas studied 52% of the rural population lives more than five kilometers from their nearest agent or bank branch. Through geospatial-modeling exercises, we identified 52 alternate service delivery points that, if acting as agents, could bring all the villages within a two-kilometer radius of a financial service point. The report also discusses agent segmentation to ensure agent viability and reduce agent churn. Introducing segmentation in the geospatial model resulted in the optimization of the agent network with fewer agents required to serve the target population.

Report on findings from the impact evaluation of Program Keluarga Harapan (PKH)

MSC as part of its MoU with the Ministry of Social Affairs conducted an impact evaluation and operations assessment of the PKH conditional cash transfer program. PKH is one of the largest social assistance programs of the government of Indonesia and has been operational since 2007.

The objective of this study was to give a snapshot of the implementation of the program and to evaluate the outcomes of key health-seeking and education indicators of beneficiaries. MSC adopted a modified Regression Discontinuity Design to measure the outcomes in the absence of baseline evaluation data.

The primary data was collected in 15 provinces across 60 sub-districts. The sample consisted of 1467 beneficiaries of PKH, who formed the treatment group and 1437 non-beneficiaries of PKH, who formed the control group of the study.

Please see Operations assessment and impact evaluation of Program Keluarga Harapan (PKH)

Boot camp experiences for start-ups: Cheaper by the dozen

Ang Lee’s Academy award winner Life of Pi shows the protagonist Pi Patel’s magical journey on a lifeboat where he attempts to discover himself.  The excitement of Pi Patel’s adventures was not unlike the exhilaration that start-up promoters felt at a boot camp conducted for the second cohort of BII’s FI Lab, at the IIM Ahmedabad campus. The atmosphere of the four-day boot camp could be summed up in two words — enthusiastic and intense. The boot camp brought in a confluence of ideas from multiple start-ups, was packed with elements that gave start-ups moments of self-discovery and prodded—at least many of them—to get back to the drawing board.

Most of the nine start-ups in this cohort were different from the ones in cohort 1. The start-ups in this cohort had tested their product market fit with customers who had paid for their products and services. Some participating start-ups who had graduated from the first cohort were willing to tweak and change their solutions as long as they could find an answer to the rhetoric, “show me the money”, as heard in the film Jerry Maguire. With their product and pricing in place and having completed market-testing, the teams wanted to validate it further, and scale-up to the next level. Various boot camp sessions were designed to help the start-ups introspect and redefine their growth and acceleration needs.

Begin by understanding the customer: Low and middle income (LMI) segments

Great companies do not just offer products—they solve problems that matter. For the start-ups, the first step to doing that was to understand who they are speaking to. Now while the definition of an LMI segment looks simple on paper, several factors are “unknown” and demand deeper insight.

The session on understanding the financial lives of LMIs helped participants to know the segment better, identify characteristics, and create meaningful solutions to problems. They worked on market selection, market size, and salient features. At times, these in-depth activities brought them back to the drawing board. Eventually, they were able to comprehend the nuances of a large market and the prudence needed to pick a precise segment.

Find the value proposition of the offering: Build a brand around the buyer

Customers select solutions based on affordability, accessibility, awareness, and acceptability. Hence, identifying the right customer segments and fixing the right value proposition is a critical challenge.

The boot camp included sessions on value creation for the customers, helping the start-ups ponder on building a “brand”. Customer Perceived Value Advantage (CPVA) was introduced as a concept to explain that the success of an offering largely depends on how customers believe it can satisfy their wants and needs. When a company develops its brand and markets its products, the customers determine how to interpret and react to marketing messages.

In the exercise on customer centricity, the start-ups were asked to draw their customer journey maps and see where their respective customers fit. These maps helped start-ups stand in the shoes of their customers, and experience their own offerings as a customer would. They could see clearly when, where and how interventions were needed so as to retain customers across stages. There were conclusive insights such as “a brand is a representation of what the customer is looking for” and “start-ups have to sell a solution and not a product”.

The start-ups understood that they needed to think like a customer while designing customer strategies. They realized that customer goals and company goals were different. With an enhanced understanding of customer awareness, consideration, decision, delivery, and loyalty, this was an eye-opener for start-ups that earlier struggled to detail out their CPVA.

 

 

Courtesy:  Dilbert by Scott Adams

Win the markets: Using right marketing strategy and pricing as weapons

The boot camp session on marketing strategies and communication (marcom) helped start-ups that were using social media for marketing. These sessions covered marketing strategies, while focusing on the importance of having repeat customers – and how this was an important goal of having the right marcom.

Products pricing: Pricing is crucial as it represents the start-up’s assessment of the value that customers see in their offering and are willing to pay for it. For start-ups that ride on aggregators, right pricing with the right channel partners is essential for rapid growth. Most start-ups had already priced their products, yet were seeking the sweet spot. Some start-ups had also experienced the decoy effect, where consumers change preferences between two options when presented with a third option that is asymmetrically dominated. For start-ups that ride on aggregators, getting the pricing right with the channel partners was a key aspect. Finding the right type of channel partners are essential for rapid growth.

Go-to-market (GTM) strategies: In this cohort, some start-ups had no GTMs, and others needed sharpening. A few start-ups had demonstrated the working of their business model with a robust GTM strategy. The boot camp discussed the “blue ocean strategy”[1]which referred to the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. The boot camp shared how start-ups can create and capture uncontested market spaces—called “blue oceans”, making the competition irrelevant. These specific sessions opened new possible strategies to enter unknown waters.

The boot camp concluded with entrepreneurs intending to make a difference in the lives of the underserved. They all echoed what Will Smith says in the iconic film, The Pursuit of Happyness, “if you want something, go get it. Period”.

This FI Lab will be helping the start-ups with all that they need to go and get it!

[1] Introduced by W. Chan Kim and Renée Mauborgne in their best-selling book of the same name

Boot camp image credit – Centre for Innovation Incubation and Entrepreneurship (CIIE), IIM Ahmedabad

Operations assessment and impact evaluation of Program Keluarga Harapan (PKH)

MSC as part of its MoU with the Ministry of Social Affairs conducted an impact evaluation and operations assessment of the PKH conditional cash transfer program. PKH is one of the largest social assistance programs of the government of Indonesia and has been operational since 2007.

The objective of this study was to give a snapshot of the implementation of the program and to evaluate the outcomes of key health-seeking and education indicators of beneficiaries. MSC adopted a modified Regression Discontinuity Design to measure the outcomes in the absence of baseline evaluation data.

The primary data was collected in 15 provinces across 60 sub-districts. The sample consisted of 1467 beneficiaries of PKH, who formed the treatment group and 1437 non-beneficiaries of PKH, who formed the control group of the study.

Please read Report on findings from the impact evaluation of Program Keluarga Harapan (PKH)

Jai Kisan: Farmer’s gateway to quality financial services

This blog post is part of a series that covers promising fintechs making a difference to underserved​ ​communities and supported by the Financial Inclusion Lab accelerator program​. MSC is a partner to the FI Lab​,​ which is a part of CIIE’s Bharat Inclusion Initiative.


Just hours away from booming urban setups, an average agricultural household in India makes a mere INR 6426 (around USD 100) per month: shockingly inadequate but surprisingly common. According to agricultural census of 2015-16,  as many as 126 million, or 86% of Indian farmers are small and marginal landholders with a land size of under two hectare. Farmers, especially the smaller ones, lack access to affordable and timely credit, preventing them from enhancing their income – keeping them trapped in a vicious cycle. Could there be a way out?

Today, smallholder farmers are the lowest priority for financial lenders and other service providers in the agriculture sector. The need of the hour is to fill the gap by enabling financing to such farmers at a lower cost.

Smallholder farmers regularly face issues of expensive and untimely financing, high-cost and low-quality agri-inputs, legacy or obsolete harvesting techniques, and an opaque supply chain. This leads to a sub-optimal realization of produce, making them a rare business entity that buys at retail prices and sells at wholesale prices—inverting the fundamental economic model, and leading to consistent net losses. While the Indian government has undertaken several initiatives to improve access to credit, the same could not reach to a majority of smallholder farmers.

Jai Kisan exists to disrupt this landscape by changing the lending ecosystem for smallholders. Jai Kisan is a fintech platform that caters exclusively to farmers by giving them access to finance, and enabling financial health in emerging rural markets.

Born from firsthand experience

Arjun Ahluwalia, Co-Founder , Jai KisanAdriel Maniego , Co-Founder , Jai KisanCo-founders Arjun (CEO) and Adriel (COO), graduated from Texas A&M University with expertise in investing, structuring, and operations. They got early exposure to solutions, thought leaders, and professors who championed the idea of serving the consumers at the bottom of the socioeconomic pyramid. However, it is when they saw firsthand how access to financial services could enable development in rural emerging markets—and how the rise of the rural consumer is the next big opportunity-that the idea of Jai Kisan was born.

Defeating the credit crunch through a comprehensive fintech platform exclusively for farmers

Jai Kisan is committed to breaking the current informal credit culture that stunts the economic and social growth of farmers. To begin with, it treats farmers as businesses rather than as consumers while facilitating formal credit efficiently. Jai Kisan’s FinTech platform analyzes farmers better, monitors the end use of capital, mitigates production risk, and facilitates repayment.

A unique pitch: Thriving with technology, differential lending

Jai Kisan utilizes a hyper-local credit-scoring assessment based on streams of financial and alternate data. Its credit-scoring platform assesses the risk of farmers quite accurately, enabling financing them at a lower cost. With its unique features and offerings, Jai Kisan aims to differentiate itself from the other players, through an innovative securitization solution that caters to current market needs.

Differentiators of Jai Kisan

Differentiators of Jai Kisan

Evolution: Unlocking ways to help Jai Kisan expand strategically and extensively

The Centre for Innovation Incubation and Entrepreneurship (CIIE) and MicroSave Consulting (MSC) conducted boot camps and diagnostic sessions to support Jai Kisan to build multiple business skills and identify present and future impediments to their business.  Various experts in the field of technology, Corporate Social Responsibility (CSR), and agriculture guided the Jai Kisan team on setting up their IT infrastructure, and mentored and advised the team on improving business plans and building their competitor matrix.

The current model of Jai Kisan requires them to extensively understand the region: including the dynamics of key agriculture value chains, agro-climatic zone, the progressiveness of farmers, existing level of mechanization, and potential demand for equipment financing, before they can begin lending operations. They also need to understand other factors such as credit culture among farmers, a network of input retailers, the existing relationship between key stakeholders, processing or aggregating units, and markets, among others. It needs efficient methods to evaluate the potential of an area and make a go or no-go decision.

The MSC team supported Jai Kisan in assessing the suitability of Barwani district in Madhya Pradesh for geographical expansion of their operations. It was based on a number of factors such as farmers’ outlook towards agriculture; comfort levels in using technology, such as computers, smartphones, and feature phones; and credit behavior of farmers.

MSC also built the capacity of Jai Kisan and equipped them with an assessment template to customize and use in the future for similar assessments while venturing into new geographies.

Advance Mulching TechniqueMSC team with Farmers

Advance Mulching Technique                       MSC team with Farmers

The future is flourishing

Jai Kisan plans to scale to 100 operational channel partner locations across Maharashtra, Madhya Pradesh, Karnataka, and Rajasthan by the end of 2019. Further, it aims to invest heavily in building partnerships with credible stakeholders, including input suppliers and buyers. It intends to offer bespoke sustainable financing options across several farm mechanization solutions, enabling many smallholder farmers to reap the benefits in the future.


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