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Making Digital Financial Services Relevant – Part 3

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Some Design Ideas and Principles to Make Digital Financial Services Relevant

Across the globe, there is an exponential growth in the adoption of technology and digital tools. Technology enabled advancements including smartphones, social media adoption and data usage are increasingly penetrating the mass market, in India as elsewhere. This is further accentuated by the ever-declining costs of smartphones and data prices. Given the limited bank infrastructure available in developing countries, embracing digital provides a huge opportunity to improve financial access for the mass market.

We believe that increase in smartphone penetration will be a significant game changer in the financial inclusion landscape. Smartphones offer flexible, user-friendly interfaces with graphical icons, touch screens and soft keys which facilitate intuitive usage; provide extensibility through NFC/Bluetooth to link up smartphones to scanners, printers, card readers, POS etc.; and offer low incremental communication cost through data plans. For service providers, it offers an opportunity to be independent of telecom organizations and enable more efficient ways of data capture, providing for richer, more frequent customer interactions.

There are lessons from the digital world and the explosion of broader Internet trends which we think largely apply to the financial services industry as well.

  • Digital market places and match-making applications are increasingly substituting intermediaries (e.g.: Uber). For example, financial institutions can think beyond promoting the institution’s own products and services to evolving into digital marketplaces where products and services from a variety of service providers are available and peer-to peer-transactions are facilitated.
  • Social networks are increasingly digitized and service providers are beginning to tap into these digital networks to promote adoption and usage of their products and services. For instance, social networks could be used to understand a person’s financial capabilities and to enable social guarantees for access to credit.
  • User-generated content is increasing the interactivity of people with products and services they use (e.g.: liking). People need products and services that can be customised to their needs by themselves to suit their context.​

While there seems to be a sizeable opportunity to leverage these new developments to further the goal of increasing financial access, not many service providers have started exploring this yet. Most service providers have focussed on developing solutions catering to the low hanging fruit (e.g.: domestic remittances, bill payments, online purchases) which largely focus on the higher-middle income customers.  Service providers have focussed on specific anchor products like domestic remittances or airtime top-ups which are not necessarily central to, or sufficiently transformative to the daily financial lives of people.

None of the current wallet issuers have yet developed solutions which appeal to the mass market. A good example is mobile money accounts in India. Intermedia, in its report on financial inclusion in India dated July 2015, estimates that only 0.2% of Indians use a mobile money account. This is despite heavy marketing and promotion efforts by service providers.

Key Principles to Follow While Catering to the Mass Market

People think about money in an instinctive, story-based manner and transact in the physical world primarily using informal systems. Financial inclusion is normally believed to imply a double shift: towards a more deliberate and quantifiable way of thinking about money as well as to the execution of transactions through digital channels using formal mechanisms.

Too often, the approach is to seek to move people on both fronts at the same time – to seek to adjust their mental models that guide how they think about money and to influence the tools they use by providing direct access to digital channels and formal systems. Often, providers seek to nudge changes in behaviour first through financial education campaigns, with the hope that this will then drive adoption of formal services and digital channels. However, teaching people to do something new, especially when they are not well educated and are hard to reach, is not always feasible or ideal. A better approach might be to support current behaviour and practices and let the new tool take them to new behaviours and practices.

An interesting alternative approach is to let people continue with their behaviour and practices in essence and let them apply their mental models digitally. Various aspects on this have been covered in Part 1 and Part 2 of our earlier blogs in this series. The focus is not on customer education. Intuition and customer perspective will be stepping stones in enabling financial inclusion.

Key shifts are needed in the way we think about financial access.

  • Intuitive, not simple: Providers should not be setting out to do simple things. The aim should be to do things that are intuitive and cater to ways in which people already think about money.
  • No moral stances: There should be no moral positions on whether people should save or not save or on how much they should save. The objective is not to help people save, but to help people to be more deliberate about how they go about preparing for future payments and purchases. Savings, in the minds of poor people, often stands for money which is not spoken of and therefore is vulnerable to being spent. Helping them with future purchases or payments resonates much better with their thought process than helping them save.
  • Managing money gaps, not money: The objective should not be about helping people manage money which they already have. The objective should be about helping them manage income gaps.
  • Organising money, not budgeting: Budgets and goals do not resonate well for the low income groups since a budget presupposes a regularity of income, which does not exist in the mass market. The classifications need to be fuzzier for people to be able to relate.
  • Supporting full transaction cycles: More than facilitating instant action and views, the objective should be to be able to support full transaction cycles. For example, the priority should be to offer a person tools that can help him accumulate balances to pay school fees, not just the action of paying the school fee. The focus is not on e-payments (for e.g.: remittances, bill payments) but on e-money and providing people the means to manage it.
  • Marketing tools, not products: The objective is not to provide digital products. The aim is to help provide poor people tools which they can use themselves to better manage their money. The tools should have a minimum number of functionalities and they should help facilitate the largest number of use cases. The focus is on co-creation of use cases.
  • A continuum between informal and formal financial services: The tools should act as a bridge between informal practices which they already employ and formal financial services. The objective should be about enhancing the experience of current practices and not dropping what people already do.

Service providers should try to support the ways in which people deal with money in their daily lives in order to facilitate management of money through digital channels and technology. They should consider developing tools which will help people organise their money in their own way, which may not be numerical, concrete or complete. However, a person using these tools should be able to replicate his own ways of thinking about money on a digital platform. Tools should give a sense of control to the users – of empowerment, even if using them doesn’t give better financial outcomes.

Digitising information as well as money should be a key goal. The objective is to constructively use the available information on social behaviour and transaction behaviour to optimise the financial status of people. People ought to feel that they can make decisions on their own or by utilising their social relationships, instead of highly structured products and services. They should be able to assign attributes and characteristics on their own to their financial transactions.

Tools should consider ways in which people separate money, recognise that people worry as much about income as expenditures, and incorporate social aspects of regular money management. Tools should be relevant for more people. The desired result should be to get more people to do more things, more often through digital channels.

Building Relevance of the Stored Value Functionality

While nearly all Digital Financial Services (DFS) deployments (except for OTC services) have a default stored value function in their wallets, the usage of these as stored value instruments are minimal, the evidence for which is the negligibly low value of balances maintained in them.

The stored value functionality should be rehabilitated for ‘financial inclusion’ to be truly achieved. It is also a vital component to ensure business viability for financial inclusion. A well-functioning stored value functionality would encourage more savings and wallets being used for short term financial management by customers. These, in turn will drive more insights for expanding the value proposition as well as credit scoring and help drive merchant payments. Usage of digital value for merchant payments will also reduce the need for an intensive presence of cash-in/cash-out agent networks. Utilising customer insights for expanding value propositions, credit scoring, merchant payments, and better operational efficiency entailed by reducing the dependence on cash-in/cash-out networks will in turn drive the business case for service providers. Stored value functionality will be the critical gear to enable bigger payments being driven through digital money, besides facilitating credit through digital channels by generating enough history on which various algorithms can be built.

For the stored value functionality to make sense for the mass market, it is essential to revisit the concept of discipline discussed in part-2 of the blog series. It needs to facilitate discipline-in, discipline-out, as well as flexibility – all at the same time.

In a digital environment, discipline-in can be enabled by prods like reminders, prompts, and rules. These can be applied at several points, for example, at the time of receipt of income, or when there is idle money. Pre-defined rules can also facilitate assignment of money to specific buckets defined by the customers themselves.

Discipline-out can be reinforced with locks such as a waiting period, indivisibility, peer pressure, etc. Another way to ensure discipline-out is through labelling, based on parameters such as origin of the money, purpose, etc. Labels can be applied on several dimensions, including time, social relationships and networks, location, or the task/purpose of money.

Along with discipline-in/out, there also needs to be flexibility to break discipline, or provide outs, if there is an emergency requirement. One of the ways this can be achieved is by replicating mechanisms like money guards where customers can keep money with a trusted and respected member of their social circle, so that they can ask the member for the money in case of an emergency, but not for routine or unnecessary spending.

The stored value functionality needs to provide tools which are intuitively suggestive of purpose, even if the purpose is fuzzy or changing. The terms of use also need to be intuitively clear to the user; i.e. how do the prods, locks and outs work.

Catering to People’s Coping Mechanisms

For digital solutions to be useful for the mass market, they should be a digital extension of the real life coping mechanisms that people use. In effect, this would entail creation of a hyper reality using digital tools.

Animating money can be replicated through gaming dynamics, liquidity farming can be replicated by leveraging social networks, and income shaping can be facilitated by tasking and calendaring. The figure provides some ideas on what digitising some of these coping mechanisms might look like.

The attempt should be to provide access to tools which help people implement these coping mechanisms on their own terms. This can be enabled through purpose buckets, time locks or indivisibility (limiting the ability to move a part of the money assigned to a particular money class) locks. Meaning can be attached to money through a variety of audio-visual cues, class of money (based on the purpose and/or the source of income), and through liquidity restrictions.

Concluding Thoughts

The ideas presented here are indicative, not prescriptive. We need to be cognizant of the fact that money organisation in people’s minds is not always explicit in their mind, it is fuzzy, abstract and changing. People organise their money matters in a way that helps them make small, daily decisions easily.

We feel that the key organising parameters in the visual expression of the solution relate directly with the basic Internet functionalities; they are:

  • Gaps (Tasks)
  • Geography (Maps)
  • Time (Calendar)
  • Relationships (Contacts, Social networking)

But maybe they shouldn’t exist in such an explicitly structured way. May be a scrapbook approach, where one has to find particular pockets of money, may work better. This may make it easier for people to maintain fuzziness, when they are not ready to concretise their goal.

It might be nice to help the visualisation with basic smartphone capabilities like, motions, music, image, colours, etc.

Before we wind up, let us reiterate that in designing a solution, you may not want to jump directly to the products (RD, FD, Instant loans, etc.). Think first of the coping mechanisms (Animate Money, Liquidity Farming, and Income Shaping) that your customers will apply mentally, and then think of the tools through which they will act on those coping mechanisms to devise their own suite of products.

Making Digital Financial Services Relevant – Part 2

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How do People Manage their Money?

In part 1 of this blog series we looked at the customer profile for digital financial services. In this blog, we explore the mechanisms used by customers for managing money and the key drivers for adoption of these mechanisms. This blog post borrows quite heavily from Money Resolutions, A Sketch Book and other publications by Ignacio Mas. We encourage readers to go through Ignacio’s website for a more detailed explanation of the ideas illustrated in this blog.

If we want to make digital financial services relevant to the mass market, there is a need to understand their (people’s) behaviour and the motivations behind that behaviour.

With regard to money, there are three key issues that people are faced with, especially when they have low and irregular incomes.

  • Where will my next $ come from? – People are often scrambling for newer sources of income, which creates a preference to find and work on multiple jobs / ventures.
  • How can I keep on….? – Since income is irregular, there is a need for structuring available money in order to manage expenses.
  • What if…? – People need mechanisms which help them tide over periods of adversity. For instance, family and social circles often act as a cushion when there is an urgent need for money, say, a family member’s hospitalisation.

These translate into the gaps people are constantly trying to cover. Gaps are hard to manage when uncertainty with regard to income and expenditure is significant.

The constant demand for expenditure (not savings, as is normally believed) gives rise to a need for maintaining discipline with regard to the financial practices of this customer segment. However, discipline is NOT the only goal or concern. There is also a great need to retain flexibility to be able to buffer income shortfalls or to deal with unforeseen expenditures. People can’t afford to segment their portfolio to meet the dual needs of discipline (e.g. time deposit, retirement plan) and flexibility (e.g. cash in the mattress, demand deposit). Every dollar would ideally deliver both: discipline when you don’t really need the dollar, flexibility when you do. How can a dollar do both?

In a monetary context, discipline needs to occur at two levels:

  • Discipline in: the discipline that I need to set money aside – to save, repay a debt, or support someone else. This is reinforced with prods, such as reminders, prompts, and rules.
  • Discipline out: the discipline that I need to stay the course once I have set money aside (i.e. to keep it saved). This is reinforced with locks, such as a waiting period, indivisibility, peer pressure, etc.
  • Flexibility to break: If there is an urgent need, I need to be able to dip into the money I have saved up. This is enabled by mechanisms like money guards where people keep money with a trusted and respected member of the social circle, so that they can ask for the money back if there is an emergency, but not for routine or unnecessary spending.

In classical financial jargon, budgeting can at least theoretically help establish discipline. Budgeting sets priorities, and commits you to pre-defined routines. But budgeting may be a difficult task if you are poor and:

  • Your income is unpredictable or volatile (what do you budget against?)
  • You face risks that can easily overwhelm your means and assets (ill-health, bad income patch)
  • You are under-educated and not very numerate (budgeting is an abstraction you cannot grasp, or cannot easily implement).

Budgeting works for people with predictable incomes. But, how can you budget when you cannot be sure of what you are budgeting against?

People often need a more flexible system that allows them to balance their need for flexibility with the desire for self-discipline. They need different tools that help them be more deliberate in how they go about building self-discipline and flexibility. They organise their money matters in a way that helps them make small, daily decisions easily. There are two intertwined approaches:

Hierarchies: establishing a pecking order, which acts as a decision tree Routines: establishing a set of defaults, which act as a benchmark of behaviours
  • What kind of expenditures to prioritise?
  • Which income sources are more important?
  • Which savings can be more easily raided if a need or want comes up?
  • Which assets are more easily pawn-able or sellable in case of need?
  • Which debts are to be repaid first?
  • Which relationships should be asked for help first in case of need?
  • Which relationships are to be helped first, if they ask for it?
  • Spending routines, e.g. on how much to spend on food, how often to have a family day out, target spend on the electricity bill.
  • “Shaping” income to coincide more with spending routines, e.g. by buying a cow that produces daily milk, if you are a seasonal income earner; or turning small daily income into a monthly lump sum or windfall, if you are a day labourer.
  • Recurrent savings behaviours, e.g. participating in a Beesi or Chit(ROSCAs[1]).
  • Buying bigger assets on credit, which forces you to commit to a certain repayment pattern.
  • Engaging in regular social activities, which build up your social reputation

To a certain extent, some of these hierarchies and routines are established through mechanisms which help automate these decisions. This is often done by applying purely psychological prods and locks on money. By thinking of money in particular ways, people reinforce or refrain from engaging in certain behaviours in a way that maintains discipline. And yet those thoughts can allow for certain outs that justify an alternative behaviour (such as dis-saving or spending money) under some circumstances. How those thoughts play out in people’s mind, i.e. the story that they assign to that money, is what allows them to think of it as discipline money and flexibility money – both at the same time.

These mental prods and locks are often reinforced by placing the money in an instrument that imposes additional prods and locks – like placing it in a box under a (literal) key or buying a recurring deposit. These instruments then in turn reinforce people’s ideas of what that money is about.

This idea of money having a story that incorporates prods and locks is not restricted to amounts that people have (i.e. savings, assets). It also applies to amounts that they owe (i.e. debts), or potential money (e.g. relationships that they have and could ask for money from).

People employ coping mechanisms for creating these routines and hierarchies. These include animating money, income shaping, and liquidity farming.

Coping Mechanisms used for Managing Money Affairs

The figure outlines three primary coping strategies people adopt to deal with their money related worries and inherent contradictions involved in thinking about money.

Animating money is the idea of separating money based on a hierarchy of money classes.  There might be a goal or a gap these classes of money are trying to address. However, it is very important to understand that many of the tasks defined by people might be fuzzy. For example, there might be a jar of money I’ve kept aside to buy a cow, but if the child is sick, I’ll dip into that jar to meet the more urgent or immediate need. These classes are not constant – they vary significantly across people and even the same person may change his/her categorization over time.

Liquidity farming expresses the social role of money. People depend on friends and family to smoothen their finances. They give and receive gifts and loans from them very frequently. This relationship makes upholding social reputation very important.  While banks have their methods of scoring, people have their own scoring methods and parameters. These methods take into account the reputation of the person, likelihood of them being of help in time of a financial crisis, size of their network, etc. Financial commitments across the social network can take different forms – they can vouch for each other, guarantee for each other, or give loans to each other.

 

People want to build their social capital by fulfilling their social responsibilities. The built up social capital is an asset for people since it acts as a safety net during times of need. Social responsibilities can expand or contract based on their level of financial success. The figure provides an example for the circles of responsibility that a migrant might have. The circles expand and contract based on financial position of the person. The extent of responsibility for the person will expand beyond his/her immediate circle as a certain level of perceived financial success is reached.

This can continue into multiple outer circles of responsibility.  At the same time, these circles may contract when the financial capability of the person goes down. The net result is that even during periods of surplus, due to the expanded social circles, people often do not have ‘excess’ money. People contribute to their social circles when opportunities arise. The social circle of the person, in turn, offers a safety net for financial needs. This constant movement of money from and to the social circles of a person is liquidity farming, where the person is creating and nourishing his social relationships with a view to leverage them for any perceived future need.

Income shaping strives to ensure that people have access to money when they need it. People often prefer a more predictable and stable income to larger income, often going to the extent of engaging in multiple jobs to do so. People care about the size, time profile and predictability of income.  It is important that money should be there when there is a need for money. In an ideal world, for them, income and expenditure should match and success is about establishing regularity in expenses. Introducing stability in this aspect is often equated to financial success.

Digital financial service providers often make the mistake of assuming that the solutions they offer exist in a vacuum. The reality is that any solution intended for the mass market will be co-opted or adapted to reflect the current behaviour and motivations for that behaviour.

Service providers need to ensure that their solutions enable an extension of people’s physical world – the mechanisms they use and the drivers which lead to the use of these mechanisms – into a digital format.

The final part of the blog series will examine how providers can potentially tap into these factors to ensure that their offerings are relevant and useful for the mass market.

[1] A group of individuals that fill the role of an informal financial institution through repeated contributions and withdrawals to and from a common fund. Members pool their money into a common fund, generally structured around monthly contributions, and money is withdrawn from it as a lump sum by a single member at the beginning of each cycle. This occurs for as long as the group exists.

Making Digital Money More Relevant, More Often – Part 1

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Who are the Customers?

Adoption of digital financial services are growing year on year, across most developing country markets. GSMA, in its 2014 State of the Industry Report, states that mobile money is now present in 89 out of 135 markets, and in 16 countries the number of mobile money accounts exceeds the number of bank accounts.

However, the GSMA also reports that only a third of mobile money accounts are active. Most service providers accept that a vast proportion of accounts have zero or negligible balances. India’s ambitious PMJDY programme, for instance, reports that approx. 40 per cent of the accounts opened under the programme have zero balances.

The question we often hear service providers ask is: “How do I make customers use my product/service more?”

The fundamental question that seems to be ignored is, “How do we make mobile money more inclusive and relevant in the daily lives of people?” Through this series of blogs, we attempt to answer this question.

Part 1 of the blog series explores the profile of the mass market customer (mainly low income group) as a necessary first step in answering this question.

The mass market has a few typical characteristics: a large percentage of people do not have a regular fixed income; most do not have a defined (predictable) income flow. Because of the uncertainty which comes along with a variable income, people employ various methods to manage and organise their money.

We can broadly classify people into the following three segments:

People in the ‘Survive’ category have unpredictable or uneven income. They are more concerned about meeting day-to-day needs. Their money matters usually have a very short time horizon since their objective is to ensure stability of income. They are constantly searching for liquidity and have to plan for what to do with money every time they receive it.

In the ‘Live’ segment, people have moved beyond daily survival and are looking at satisfying wants. The focus of financial behaviour shifts from fulfilling necessities to meeting aspirations and planned expenses. Income, even though much less uncertain may still be variable. They need to manage their available liquidity in order to meet their aspirations and are planning for these using monthly budgets.

The ‘Comfort’ segment consists largely of people with regular income. They seek to have more convenience in their lives and are building assets, particularly for their next generation. They do occasional financial planning to ensure that resources are directed to asset acquisition in order to keep their legacy secure.

Ideally, digital money should be useful for all the three segments. However, there may be less of a need to focus on the ‘Comfort’ segment as they already have suitable solutions in the market targeted at them. The comfort segment can manage their finances with traditional financial products and services due to the predictability of their income. The mass market, however, largely consists of the ‘Survive’ and ‘Live’ segments where incomes are unpredictable or, at the very least, variable. Mobile money offerings ought to cater to the complex methods, which people in the ‘Survive’ and ‘Live’ segments employ to manage their finances.

Below, we profile a customer, who mobile money service providers should be able to target if they are to make mobile money relevant for the mass market.

 

An example of a potential customer profile:
Ram Mohan is a resident of suburban Noida, India. He is married (to Seema) and has three children. Ram Mohan attended secondary school after which he started working full time. His two younger children attend a local school while the eldest is involved in cloth embroidery work. His wife works as a household help to support the family. She also takes up some sewing jobs in the evening. Ram sells fruits and vegetables for a living. He also has a small farm back in his village. He visits his village once in 2-3 months to take care of the farming needs. None of the sources offer the household a steady income.

He is a part of an informal savings group (comprised of vendors from the locality where he runs his shop). Seema is a customer of a MFI operating in the area. She recieves small loans from the MFI.

Ram Mohan also owns 5 chickens and a goat. Seema often tries to save small amounts of money to buy gold jewellery. She believes that it is an excellent investment. Ram keeps a part of his daily earnings with a supplier of FMCG goods who is based near his house. This allows him to keep some of his money at a distance, thus helping him save up for a bigger amount which is needed from time to time for paying the school fees of his children.

Ram Mohan is a smartphone user and uses data services frequently. He is comfortable in using his smartphone and has an active data connection. His children access social media applications including Facebook and WhatsApp, and use the phone for gaming (Candy Crush Saga) and for offline entertainment purposes (music, movies, video clips) after getting downloads from a neighbourhood shop.

Ram and Seema often discuss the ways by which they can achieve some stability in their income and expenditure. For now, they think that they need to continue to patch together various income sources to enable this. The diverse income sources coupled with the safety net of friends and families can help the family sail through any financial shocks that they might be faced with.

Ram Mohan is a good representative of the mass-market customer. He employs a variety of mechanisms to meet his financial needs. He is also aspirational, and importantly, has access to a smartphone. If mobile money is to be relevant to Ram Mohan, it should enable him to shape his finances in a personalised way by representing the complex ways in which he manages his money at present, using tools that are easily available at his disposal.

In part 2 of the series, we will explore in more detail the money management mechanisms used by mass-market customers.

DBT Readiness Assessment: Assessing Readiness for Direct Transfers

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Alongside the Indian government and few State governments, MicroSave was involved in the initial attempts at digitization and Direct Benefits Transfer (DBT). Direct Benefit Transfer or DBT is a way to pass on the benefits such as conditional and/ or unconditional cash transfers, and subsidies, by crediting the beneficiary’s bank accounts / wallets directly. On the basis of the learning, MicroSave developed a DBT Readiness Assessment tool which looks holistically at the environment for direct benefit transfer and the current status of different players / systems and the gaps, if any, which may impede the roll-out of DBT.

The tool is used by a variety of ministries in India to facilitate digitization and direct benefit transfers of their respective schemes. This model of transferring benefits directly to the intended beneficiary reduces costs, cuts down on leakages and eliminates middlemen from the system. This presentation highlights the key learning on DBT that was presented during Asia Pacific Financial Inclusion Summit, Manila.

Are the $2 Billion Annual Savings Arising from PAHAL Real?

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The Ministry of Petroleum and Natural Gas (MoPNG), Government of India announced its ambitious “Direct Benefit Transfer for Liquefied Petroleum Gas (DBTL)” programme on January 1, 2013. The programme had two key objectives: i) limiting subsidy outlay through de-duplication; and ii) achieving efficiency in payment transfers. Aadhaar, the unique identification system was the backbone of this programme. Unfortunately, the first attempt at direct benefit transfer of cooking gas was unsuccessful and had to be discontinued after Aadhaar-related issues surfaced during the pilot. MicroSave, which was involved in the first pilot, had argued against the discontinuation of DBTL since sustained efforts to digitise databases and link Aadhaar numbers with bank accounts, better communication with LPG consumers, and greater inter-agency coordination could resolve most issues.

The current government decided to re-launch the programme with some modifications. Accordingly, DBTL in its modified form, called the “Modified DBTL (MDBTL)” – and more popularly known as PAHAL, was launched on November 15, 2014. In this phase as well, MicroSave was involved alongside MoPNG, in different aspects of launching PAHAL.

Recently, questions have been raised about whether the savings arising from the roll-out of PAHAL are for real. Most of these questions are based on an article published by researchers at the International Institute of Sustainable Development (IISD). The article presented a case suggesting that savings under PAHAL are less than 2% of the $2 billion per annum savings claimed by the government. However, the assumptions and the figures used by the researchers to make this claim are flawed, thus resulting in erroneous calculations and results/inferences.

Direct Benefits Transfer (DBT) is a globally used concept and it refers to the transfer of subsidies through electronic means into the hands / bank accounts of beneficiaries by electronic means. Case studies across the world, especially in Latin America, have documented the benefits accruing to beneficiaries / recipients and indeed to government agencies on account of digitisation of databases and direct transfer of subsidies. The IISD authors note that PAHAL, “does not remove the LPG subsidy, but simply changes the mechanism by which it is delivered”. This indeed is the very essence of direct benefits transfer! The objective of DBT is to enhance operational efficiency in the delivery of subsidies, improve targeting, reduce (in some cases at least) the role of middle men, and ensure that non-beneficiaries that may have seeped into the beneficiary list, are weeded out.

What are then the actual savings that accrue on account of PAHAL implementation? Below we highlight the actual numbers, and the resultant calculations and inferences.

1. The assumption in the IISD article that the subsidy amount per cylinder for the months of February and March 2015 is Rs.161.81 (US$2.5) is not correct because the subsidy amount varies in accordance with the price of international crude oil. In recent months, given the sharp fall in prices of crude, subsidies on cooking gas cylinders have also been falling. However, the subsidy amount in the months of February and March 2015 was significantly higher, and not Rs.161.81. The subsidy amount was Rs. 218.18 (US$3.4) per cylinder in February 2015 and Rs. 239.18 (US$ 3.7) per cylinder in month of March 2015.

2. The nearly 23% reduction in the number of gas connections as a result of the nation-wide implementation of PAHAL indicates that over the years, about 40 million ineligible people had managed to get into the system (or set up connections in the names of non-existent beneficiaries), to access subsidies not intended for them.

3. If we calculate an average of the subsidy figures from 15th February to 31st March 2015, the figure is Rs. 232.18 (US$ 3.57) per cylinder. Therefore the total amount of savings as a result of PAHAL in the 54 pilot districts during the period of mid-February 2015 to 31st March 2015, is Rs.2,051 million (US$ 32 million). If we extrapolate this figure for the entire country, for the entire year, the potential savings will be 40 million (ghost connections) x Rs.232.18 x 12 months = Rs. 11 billion (US$ 1.72 billion). This has been the basis for the calculations and the subsequent announcements that have come from the government.

4. For the current year, even if we assume that the subsidy amount is going to be lower at the rate of Rs. 161.81 (linked to international crude prices), as used in the IISD article, potential savings will be 40 million x 12 x 161.81 = Rs. 77.7 billion (US$ 1.2 billion) just by weeding out unintended beneficiaries.

5. DBTL has also enabled oil marketing companies to launch the highly successful “Give It Up” campaign, which has led to more than 3.5 million people voluntarily giving up their subsidies. This maybe the first initiative of its kind in the world. The amount thus saved is another substantial sum: 3.5 million x 12 x 161.18 = Rs. 6.8 billion (US$ 104 million). The savings are used to provide LPG connections to those who are unable to afford cooking gas at full market price. These connections are even mapped one to one with each PAHAL Champion who has given it up.

The assumptions, calculations and inferences above highlight the achievements of PAHAL and the success of DBTL in the right context. By any standards, the gains made under PAHAL are significant and in our opinion, India should continue its journey towards digitisation of direct transfers. Indeed, developing countries which are plagued by corruption, “leakage” and inefficient targeting and/or delivery of subsidies should definitely look at the possibilities of digitising beneficiary database and the direct transfer of benefits.

All the above been said, there is clear scope for improvement. MicroSave conducted an assessment in 14 districts across three states in India viz. Uttar Pradesh, Uttarakhand and Bihar, with the objectives to assess:

1. Consumer satisfaction with PAHAL;

2. Satisfaction of LPG distributors;

3. The impact of PAHAL on the consumption patterns of LPG cylinders; and

4. The impact on cylinder inventories

We found that though 74% of the respondents were satisfied with the implementation of the programme, the main issue voiced by consumers was related to customer care services of Oil Marketing Companies. (MicroSave India Focus Note # 120 – PAHAL – From Discard to Cherished Success)

Nonetheless, MicroSave firmly believes that the success of PAHAL has developed a template for future DBT initiatives, not only in India but in other developing countries around the world.

Training, Monitoring & Support – Necessary Or An Opportunity To Cut Costs?

Posted on by MSC

While only 27% of agent network managers receive good support and involvement from the banks for which they are providing services, another 55%  do say that they receive moderate support, as per MicroSave’s recent State of the Industry Report 2015 on India note. The India 2015 ANA survey results enable us to understand this further by highlighting important differences across the different types of service providers.

Perhaps unsurprisingly, MNOs show a higher use of call centres to support their agents – but sadly, deliver training to a much smaller proportion of them.  This is evident from the fact that by and large, a much smaller proportion (59%) of Indian agents are trained than in other countries: Pakistan (62%)  Bangladesh (68%), Kenya (92%), Tanzania (79%), and Uganda (94%). Of the 59% trained in India, 61% agents have undergone a refresher training. 36% of these have received refresher training only once.

 

Indian agents also receive less monitoring/support visits than their counterparts in other countries. 58% of Indian agents reported regular visits (in contrast to 68% reported in major cities). The comparable percentages in other ANA countries are: Bangladesh (69%), Pakistan (76%), Kenya II (86%) Tanzania (76%) and Uganda (33%). Of those agents who received a visit, 60% were visited at least monthly and 32% reported ‘no fixed frequency’ of visits. All this matters enormously because the ANA survey highlighted that agents’ biggest perceived challenge was to “deal with customer service when something goes wrong”. If they were adequately trained, monitored and supported (on-site and through call centres), agents would be more confident about their ability to serve their customers – and (one reckons) things would “go wrong” less often.

Furthermore, an elegant study by The Helix Institute and Harvard Business School revealed that, “Agents who are more transparent with their pricing and more knowledgeable about mobile money policies experience significantly higher transaction demand than their less transparent and less expert peers. More knowledgeable agents also experience an even greater increase in demand when there are competing agents nearby.” So, the quality of service matters and directly affects agents’ ability to build trust and grow their business.  Indeed, the study concludes, “the ability to answer a difficult question about mobile money policy increases demand by over 10%. … The implications of this work to mobile money operators and agents are clear: service quality is critical to a healthy agency.”

Regular monitoring and support visits are essential to ensure that agents’ outlets are complaint in terms of branding, transparent pricing, liquidity balances and transaction processing. Similarly, training (as well as monitoring and support visits) is the foundation for creating confident, knowledgeable and thus trustworthy agents that are both capable of, and interested in, delivering high quality digital financial services. And, as we have seen in multiple countries, trust is a key determinant of levels of uptake and usage of digital financial services.

Agent network managers in India seek improvements in two key areas from the banks they serve.  The first, perhaps unsurprisingly, is the level of commission they are paid. The second is that of the marketing support they receive.

When MicroSave conducted the State of the Industry survey in 2012, most of the agent network managers were dependent on banks for marketing – in 2015, most are responsible for marketing and communication themselves. Thus, the burden of promoting digital financial services largely falls on the shoulders of agents and their network managers. As a consequence, they use a variety of exclusively below the line approaches to promote uptake and usage of their services.

Naturally, agent network managers have a series of “asks” of the banks:

• Share marketing & communication, and customer enrolment campaign expenses.

• Co-brand marketing collaterals.

• Design and run financial education campaigns for customers to increase awareness of banking products amongst and build trust that customers place in agents and the digital finance model.

• Provide ID cards and certificates of association to agents with bank logo and signature to increase the perception of legitmacy amongst customers and gain their trust.

• Create special queues for agents at bank branches (as privileged customers or DSA), as currently they have to stand in the same lines as customers to meet their liquidity requirements, which limits their availability for end customers.

Additional appropriate and necessary “asks” that we, at MicroSave recommend, are:

• Make agent performance a key performance evaluation criteria for bank branches to which these agents are linked, and by which they should be serviced/supported.

• Enhance both above and below the line marketing in support of agent banking and the opportunities it provides to rural communities.

With the advent of payment banks, it will be in the interest of the commercial banks that these agent network managers are responded positively to these modest requests.