Presented at the College of Agriculture Banking, Reserve Bank of India, Pune for a panel discussion on design and evaluation approaches to financial education (FE) programmes, this presentation outlines MicroSave’s current thinking on product-led FE, as well as the perspectives to consider while designing and evaluating FE programmes.
Blog
Agent Network Accelerator Programme
Around 20,000 detailed assessments of more than 25 agent networks, in eight countries (Uganda, Tanzania, Kenya, Nigeria, India, Indonesia, Bangladesh and Pakistan), twice, over a period of 4 years. These assessments will generate systematic qualitative and quantitative data and leading operational insights across a wide range of agent networks. Data and insights acquired during this research project will be documented into outstanding knowledge pieces and research documents.
Launch of The Helix Institute of Digital Finance in partnership with the Gates Foundation, IFC and UNCDF. The Institute will provide world-class training courses, an elite networking community and cutting-edge operational insights to develop and grow the capacities of MNO’s and financial institutions in building sustainable and successful deployments around the world.
Access to Credit Post Microfinance Crisis
MicroSave conducted a study in August 2011 to collate clients’ experiences, opinions and needs, to inform policy makers and perhaps help devise solutions most suited to the requirements of the poor. To further enhance understanding of the effect of the microfinance crisis on poor clients two years after it started, MicroSave conducted another study in July 2012 in two states – Andhra Pradesh and West Bengal. While the MFIs in AP have struggled to make a turn around, MFIs in West Bengal, such as Bandhan, still grew during this period – albeit at a reduced rate. This Policy Brief draws a comparison between how access to credit for the MFI clients changed in these two states post AP crisis, and its impact on the MFI clients. It then offers policy and operational recommendations for MFIs, regulators and those that finance MFIs.
Design Considerations for Credit Scorecard for MSME Financing
Globally, Micro, Small and Medium enterprises (MSMEs) have been playing a crucial role in promoting economic development. MSMEs contribute to the local economy by creation of employment opportunities for millions and in the process inject much-needed capital and liquidity in the local economy. However, one of the major challenges faced by MSMEs is the lack of access to finance. As per a recent McKinsey1 study, 15-40% of SMEs cite finance as the most important obstacle to growth. On the other hand, financial institutions are wary of financing MSMEs and cite a variety of reasons including lack of reliable financial information, poor financial record keeping and absence of credit history. High transaction costs in servicing MSMEs as well as a perceived high-risk profile further add to the distrust. Through this paper, we suggest a fresh approach to MSME finance by introducing a simple but effective credit scorecard. We base our approach on practical examples from MicroSave’s work in expanding access to finance for MSMEs and hope that this approach will help financial institutions to look at MSMEs as a strategic segment.
Harnessing the potential of Aadhaar via digitisation
The real potential for achieving the desired results with Unique Identity Authority of India – UIDAI Aadhaar depends on the effective execution of digitisation of the welfare programmes, extending banking services to the weak and the unbanked sections and linking the above two with Aadhaar. The government proposal on DBTs includes all of these components.
Apart from reducing the leakages from the system, these ensure that the entitlements reach only those targeted.
Digitisation is one of the prerequisites for the implementation of Aadhaar enabled systems. Aadhaar’s de-duplication function helps to eliminate duplicate and ghost beneficiaries.
The impact of digitisation and the role of Aadhaar in the delivery of public services can be observed in the case of East Godavari. Aadhaar details of the beneficiaries complemented the already digitised PDS database of Andhra Pradesh (AP). The AP government, realising the potential of IT systems in the implementation of welfare programmes, digitised its PDS database in 2005.
Digitisation helped the government to address the structural bottlenecks within PDS and reduce corruption. It allowed the government to track rations that were supplied to the fair price shops.
It also tackled the supply side problems hindering the PDS system. However, problems related to identification persisted in PDS with many of the rations being taken by corrupt dealers or their family members or other ghost beneficiaries. The Unique Identification (UID) number of the UIDAI was able to address these issues to list and identify beneficiaries.
BC model of banking was effectively leveraged in Aurangabad for the delivery of pension payments to the poor. The district administration involved the business correspondent (BC) staff at every step, and combined their efforts with the banking partner to provide banking services to the poor. The final delivery process required beneficiaries to use their Aadhaar card for authentication after which the BC agent makes these payments through a network of point of sale (PoS) devices, that is interoperable and Aadhaar enabled. This process not only increased the speed of payments to the poor, but also contributed towards savings to the exchequer by removing large numbers of ghost beneficiaries.
Employing the BC model and scaling it up for implementation across various geographies and programmes is challenging due to the several policy and operational drawbacks. The BC model, when launched in 2006, was promised to be the vital tool for financial inclusion of the poor, and to remedy the inadequate reach of the banking infrastructure in rural areas. However, the vast majority of BC network managers reported massive losses. The BC agents too were unable to earn a decent livelihood and a large percentage of them have closed or gone dormant.
UIDAI is working towards creating an enabling environment with the Aadhaar platform to address these challenges. The three fundamental pillars of its approach include, an online system built on the assumption that reasonable quality wireless data connectivity would be available to most rural areas in India over the next few years.
Secondly, Cloud-based storage and computing will rapidly become universal and cheaper, and hence storing and accessing biometric or account information from, or processing transactions in, cloud-based environments using online access will increasingly become a reality.
And lastly, following Moore’s law, the cost of front-end device such as micro-ATMs, handheld devices, mobile phones and computers would continue to come down, while their computing power and performance would continue to improve.
UIDAI has rolled out (and is developing) applications that would enable easier, faster and cheaper enrolment of beneficiaries by banks or other institutions involved with the delivery of government benefits transfer. One such application is electronic KYC (e-KYC), which re-uses the KYC information previously captured during enrolment for Aadhaar, and makes it available electronically to banks or enrolling institutions to speed-up KYC, increasing efficiency, reducing errors and lowering costs.
UIDAI’s online Aadhaar authentication system can be accessed by banks and other service providers to verify an individual’s details anytime from anywhere. This can be a replacement for smart cards, leading to substantive cost saving for the banking system, in addition to the enhanced security the system offers.
The pilot studies provided important lessons about the various operational challenges that need to be addressed for the Aadhaar enabled programmes to be implemented seamlessly.
Some of these challenges include, beneficiary details under several programmes continue to be decentralised and in paper format as they are yet to be digitised.
The government staff entrusted needs support and monitoring with the task of automation and use of technology.
Also, banks and BCs do not receive adequate compensation from government departments for opening beneficiary accounts or for processing payments.
Customers are not aware of how they can use their Aadhaar number to open a bank account and access financial services.
Cash distribution by agents frequently fails for want of Aadhaar authentication due to poor connectivity, coupled with the need to distribute the entire amount credited to beneficiary accounts within a short period. Agents often opt for alternate approaches such as manual authentication or offline payment to overcome such operational challenges, defeating the very purpose of Aadhaar linkage.
The pilot programmes demonstrated the great potential of Aadhaar enabled systems, but for this to be scaled both across the country and for many benefit transfer programmes, many barriers remain to be addressed.
(A print of this article was also published with One World South Asia).
Solving Indonesia’s sanitation woes
The problem is toilets for the world’s fourth most populous nation. Of the estimated 251 million Indonesians, only 11 percent fall below the poverty line, but in rural areas, a startling 61 percent still practice open defecation. Close to a third of city dwellers do not use or have access to toilets either. A miniscule 2 percent connect to functioning sewerage network.
Indonesia is one of the developing world’s success stories and Southeast Asia’s largest economy. Growth has been a healthy 6 percent or better in recent years; GDP in terms of purchasing power falls right behind Spain and Canada. And yet the government’s allocation for sanitation, previously two U.S. cents per person, is now five cents per person. Both are clearly well below the UN Millennium Development Goal of $6.30 a head for improved sanitation.
The figures above are further complicated by the fact that poorly constructed toilets do exist for many, but waste either goes untreated into open drains or seeps into the groundwater—a country of 17.508 islands obviously has fairly shallow water tables–thereby polluting it.
Designing and building reliable sewer networks for almost 57,000 kilometres of archipelago coastline is also a lot more complicated—and expensive—than it would be for comparable economies. Septic tanks and soak pits are the imperfect, interim solution.
The far more daunting expense, however, is the $250-300 that 40+ percent of the overall population currently without improved sanitation would have to pay to install a household toilet with a safe waste disposal system. No surprise, the bottom fifth quintile (~22 percent) with an approximate net income of less than $2,200 a year have other priorities they deem more pressing.
The government’s solution — two large information-awareness programmes to promote sanitation and hygiene — and similar efforts among international development agencies for Community Led Total Sanitation (CLTS) help underscore the need, but do not actually help finance or build the desired end result.
Some readers might well ask here why the significant cash outlays necessary to design and disseminate these extensive information efforts aren’t simply used to give people the toilets they need. The short answer is that in many poor countries, outside defecation has been the norm for so long that new toilets are viewed only as useful storage or deployed for other purposes completely unrelated to better hygiene.
We also know that, rich or poor, we value what we budget for and purchase ourselves. Free hand outs come with little sense of ownership or pride.
The one option that MicroSave has seen work in India and Kenya is microfinance loans. The $250+ required for toilet and system installation are feasible loans, with easy repayment schedules, for interested applicants. Many are also already MFI loan customers, allowing for speedier authentication, credit assessment, and clearance.
Social and behavioral change is never quite so simple as offering attractive financing for what is still a puzzling innovation for many in the developing world. For a long time, no noticeable change occurs, and then there is what Malcom Gladwell has defined as the tipping pointwhere, suddenly, everyone is doing what no one was doing before.
This transition may happen for sanitation in Indonesia more readily than elsewhere. Household disposable income continues to rise, even in very poor sectors, and close to half goes to domestic consumption, according to a Bank Indonesia summary. Muslims, more than 86 percent of the Indonesian population, emphasise personal hygiene and purification as an integral part of their religion. An even higher majority of the country are literate and own or have access to a mobile phone.
Infrastructure and geography remain problematic, but the social odds are heavily favour of a solution, if not now, then soon.