Financial inclusion in Indonesia has been growing slowly. A greater proportion of concerted efforts are needed to bring the income-poor and other disadvantaged groups into the fold of financial inclusion. These efforts include monitoring through collection of information in the annual socioeconomic survey – Susenas. MicroSave’s Financial Inclusion Insight programme has collected evidence on financial inclusion in eight Asian and African countries since 2013. Our research in Indonesia, based on three years of Financial Inclusion Insight data, reveals more on this. Read the publication for details.
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Lessons from Informal Financial Systems: An Indonesian Perspective
Over the past few years, MicroSave has conducted several research studies in Indonesia to understand the household-level financial ecosystem in the country. Through focus group discussions (FGDs) and participatory rapid appraisal (PRA) tools, we gained insights on access to and use of financial products in communities across Indonesia. This blog focuses on the role of informal financial institutions. It concludes by highlighting how the products and methods of informal finance offer valuable suggestions for formal financial service providers. The following are some of the financial products or services we have observed in the field.
The Agent Profitability Conundrum in India – Time for Differentiated Agents?
Recent research from MicroSave suggests that although agents report their dissatisfaction as high, dormancy or dropouts are still relatively low at 20%. The low dormancy or dropouts are potentially due to the following factors:
- Hope – agents believe that the national financial inclusion drive (PMJDY) will increase the volume of business;
- Prestige – agents feel proud of their association with banks, especially public sector banks;
- Connect – agents feel a better connection with people in the village or area they operate in, as they typically come belong to that area.
However, agent profitability has to reach sustainable levels or else, agent dormancy and dropout will rise.
A significant proportion of agents in India continue to make losses. Of the agents, 46% report median monthly profits below USD 18 and 42% report profits below USD 11. This equals the PPP-adjusted monthly equivalents of the UN-defined poverty line of USD 2 and extreme poverty line of USD 1.25 per day respectively.
Previous studies indicate that agents in India expect a minimum income of USD 118 per month to consider their business sustainable. However, in part because of liquidity management challenges, operating expenses in India are higher (USD 62) than in other South Asian countries (Pakistan: USD 28; Bangladesh: USD 13) and East African nations (Kenya: USD 35; Tanzania: USD 25) and is comparable only to Uganda (USD 58).
Past MicroSave research indicates that rent of shop, electricity, and travel expenses for liquidity management constitute the bulk of operational expenses for agents. The expenses for agents in India are high when compared to other South Asian countries. This is because half of the agents in India are dedicated as opposed to Pakistan (77% non-dedicated) and Bangladesh (96% non-dedicated) and Indian agents have to allocate full costs of the outlet to the agency business.
However, a significant proportion of expenses are driven by devices to conduct transactions – front-end devices for biometrics (Aadhaar), supplemented in some cases by computers. Unlike in other countries, agents in India typically use a multitude of front-end devices for agency banking operations.
Expenses at the agent-point further increase due to power backup systems required in areas where power-outs and load-shedding are common. See Transaction Economics for Technology Enabled Branchless Banking. The median monthly operating expenses for agency banking vary according to the devices used by the agent.
For several years now, MicroSave has advocated differentiated agent outlets. Differentiation involves:
- Relatively sophisticated sales agents, who are usually exclusive and dedicated. These agents are responsible for selling products, onboarding customers, and conducting larger value transactions;
- Basic service agents, who are usually non-exclusive and non-dedicated. These agents are responsible for conducting typically smaller cash-in and cash-out (CICO) transactions.
Uber-ising CICO Agents
One idea worth exploring is to reduce the dependence on agents by empowering every customer to act as a CICO point. This is akin to the app-based transport model of Uber, where users can avail cab services at almost any point. The CICO system will increase cash accessibility for customers and ensure less dependence on the scarce number of available agents. For providers, this would mean an increased outreach of CICO points and reduced agency management costs.
Customers may also get the benefit of convenient and proximate cash-out, leading to a lesser need to cash-out in bulk. Fintech companies can develop smartphone applications that enable users to act as liquidity merchants ― mimicking what Uber has done for transportation. Similar initiatives can help address the cash-needs in the ‘last few hundred yards,’ while agents provide the ‘last-mile’ backup underpinning a more decentralised cash market. To make this work effectively, the idea of Uber-ising CICO agents needs to be ubiquitous and interoperable across providers. However, at the moment, the idea can face regulatory hurdles, as RBI does not allow individuals to act as cash-out points. Another potential risk could arise from unscrupulous individuals acting as cash-out points, which could become a security risk. -Re-Imagining the Last Mile – Agent Networks, 2016
Sales agents are usually located in towns with higher footfall and with easier access to bank branches for rebalancing and support. This is because their location allows them to manage transactions of higher value and sale of sophisticated products. These sales agents are likely to be (but not necessarily) exclusive to a specific bank and are linked through computers to that bank’s core banking system.
Basic service agents do not need sophisticated front-end devices to conduct CICO transactions. In such cases, a smartphone and a basic fingerprint or card reader is adequate. Indeed, at the extreme, anyone could become a CICO point. This is happening informally across the globe. Wherever CICO agents are not easily available or liquidity is an issue, people exchange e-value for cash and vice versa among themselves for a mutually-agreed commission. Some service agents could also become mobile agents who can cater to the demand in sparsely populated and remote areas.
If this is too radical an idea, another alternative would be to permit ‘white label’ agents to operate. White label agents act as agent networks for banks or financial service providers with direct access to settlement systems. Our 2017 Agent Network Accelerator survey indicates that 94% of agents remain exclusive and tightly coupled to one bank. Utilising white label agents can de-link agents from specific banks and thus reduce exclusivity across India. The Reserve Bank of India’s Committee on Comprehensive Financial Services for Small Businesses and Low-income Households recommends such ‘white label business correspondents’. DFS expert Ignacio Mas also supports this idea.
Given the predominance of cash-out transactions in rural areas, agent outlets act as human ATMs. India has already permitted white label ATMs, wherein a third-party owns and operates a network of ATMs under its own brand and not necessarily for or by a particular bank. Indeed, they are already relatively common, due to high costs of running proprietary ATMs. Similarly, white label agents would be able to serve a large number of customers of various banks at a lower cost, thus bringing economies of scale.
This will also help establish a network shared by multiple banks and free up agents and agent network managers from depending on sponsor banks for operational decisions and for expansion of outreach. It will also eliminate the need for individual banks to set up parallel BC networks. Finally, and perhaps most importantly, this could result in better returns for front-line agents, and lead to a viable and sustainable financial ecosystem, which in turn would improve both outreach and customer convenience.
Understanding Demand for Financial Products Among Young Women in Central Java
Indonesia has the world’s third-largest youth population of 15–25-year-olds. Estimated at around 43 million, these youths represent 17% of the national population. Over the past few decades, the country has made phenomenal progress in achieving full literacy. Although this is encouraging, we must also consider the worrisome fact that the unemployment rate for this cohort of the population is 19%, with a slightly higher percentage in the case of women in this age-group. Furthermore, Indonesia is among countries with the lowest average marriage age across the globe, at 19.7 years, while the median age for expectant mothers is just 23 years. These factors bring enormous responsibilities at an age where the journey to financial independence has just begun. This paper understands the demand for financial products among young women in Central Java.
MicroSave’s Government and Social Impact domain: Aiding governance, bettering lives
In the past five years the domain’s work has spanned a great width, right from scheme based assessment and evaluation to policy design and implementation. We believe that the most effective knowledge is shared knowledge. Therefore, GSI domain is also leveraging years of experience from India to assist countries in other geographies to better design their financial inclusion and implementation policies.
India Needs More Women Business Correspondent Agents
The 2018 budget of the Government of India has taken a number of initiatives to empower women in the country. These include increased gas connections through subsidies to 80 million women under the Pradhan Mantri Ujjwala Yojana (from the earlier 50 million) and a 37% increase in loans to women Self-Help Groups (SHGs).
These initiatives are expected to contribute towards women’s social and economic empowerment. However, it is critical that the government strengthens its commitment to women empowerment and continues to introduce and support programmes that enable greater financial inclusion for women. The Financial Inclusion Insights Wave IV India report reveals a significant gender gap in terms of access to formal financial services. As of June, 2017, 33% of women had active bank accounts as compared to 47% of men.
The agency banking channel, which has been the backbone of financial inclusion efforts in India, is yet to succeed in serving as many women as men. As per the ANA India Wave II study1, women comprise 43% of the customer base of agents. The study highlights a vast gender imbalance in the agency banking channel with only 8% of agents being women2.
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The Financial Inclusion Insights Wave IV India report reveals that only 6% of Indian women are advanced active account users3. This indicates that in India, women with bank accounts do not utilise them to their full potential. Women find female agents easier to approach, more trustworthy, and better at maintaining confidentiality as compared to male agents. ANA data shows that half the customers served by a woman agent are women, while two-fifths of customers that male agents serve are women. This shows that a woman agent is more likely to have women customers than a male agent. Clearly, more women agents on the ground are likely to boost the agenda of financial inclusion. |
Women Agents in India – Current Status
The ANA Wave II study finds that women agents have a mean age of 31 years. More than half have a bachelor’s or a higher degree. Predominantly, it is women agents who serve rural areas, with a presence of 71% as opposed to 54% male agents. Approximately 65% of these women agents are dedicated solely to agency banking 4 as opposed to 44% male agents. The ANA Wave II findings also reveal the following:
a) Women agents perform at par with the male agents in terms of running the business
There is a myth that women are less enterprising than men. The ANA data reveals a contrary reality. The portfolio of services that women agents provide is quite exhaustive. At the country-level, the median number of services that women agents provide is seven, which is slightly more than male agents, who provide six services. The proportion of women agents who provide various services is roughly equivalent to, or greater than the services that male agents provide (see below graph). The one exception is domestic remittance, which is mainly an urban phenomenon. The presence of women agents in these areas is much lesser (metros – 4%, non-metro urban – 6%) compared to rural areas (10%).
Eighty percent of women agents provide a Government-to-Person (G2P) facilitation service, such as insurance registration, pension registration, scholarship registration, subsidy registration, and linking the Aadhaar card, among others. The range of services is much higher when compared to male agents (68%). This indicates that women agents are more likely to serve customers even if the transaction does not generate as much revenue 5.
In terms of business viability, at the country-level, women agents generate less revenue. However, they also incur less operating expenses when compared to their male counterparts. In rural areas, where almost 71% of the women agents operate, there is almost no difference in their profitability levels as opposed to male agents (see below graph).
Additionally, the proportion of women agents (33%) who incur losses or achieve break-even is actually a little lower than male agents (34%).
b) Providers do not offer similar levels of support to women agents
Women agents receive much less support from service providers. Only 8% of women agents have cash or e-money delivered to them (that is, they do not travel for it) as compared to 16% of male agents. A widowed woman agent in Kapurthala, Punjab observed, “there are training sessions that service providers conduct, but there is no such regular monitoring. I think it is important to be regularly monitored by the service providers. It is all the more important, especially for women – it makes things easier for us.”
c) Women agents face a lot more challenges
MicroSave’s research indicates that women agents find it difficult to establish a good rapport with the staff of service providers, who are mostly male. For example, women agents cited instances where they struggle to get answers to their queries from the support staff. This results in forfeiting new opportunities that may arise from new services and products. Furthermore, women agents often cite challenges in handling a difficult customer, particularly men. Women agents emphasise that previous experience of dealing with customers is a prerequisite for running a successful agency business 6.
Way forward
It is time for financial service providers and policymakers to put policies and practices in place to ensure higher participation of women in their agent workforce. Here are a few points that could potentially make it happen:
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In India, more than 137 million women are still excluded from formal financial services. There is evidence that women agents handle clients more professionally and perform at par with male agents in terms of business. In fact, women agents do more transactions and are preferred by women customers. These developments together indicate a business value proposition that we simply cannot ignore.
1The State of the Agent Network India 2017 report, based on the Agent Network Accelerator (ANA) Wave II survey, is a nationally representative study of the business correspondent (BC) agent network in India.
2Agents who offer digital financial services are known as business correspondent agents in India. We have referred to business correspondent agents (BCA) as agents and women BCAs as women agents.
3 Advanced active account users: Users who use a financial account for services other than basic or P2P services. In the FII study, in the case of mobile money, airtime top-ups are not considered an advanced use.
4 Dedicated agent – An agent who solely conducts agency banking business
5 The commission income from G2P facilitation is lower than CICO charges; MicroSave analysis and review of commission structure of providers in public domain.
6 The team conducted qualitative interaction with women agents during the fieldwork for ANA India Wave II