In this podcast, Sakshi Chadha and Nicola Giordano explain the transformative potential of cash transfers around the world. In particular, they focus on how digitisation of cash transfers can bring improvements in process delivery, hence realising development outcomes more efficiently and effectively. To achieve this aim, MSC is currently engaged with CICO networks in the roll out of G2P payments in India and across the world.
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One Step Closer to the Clients
Maintaining close engagement with clients is an important prerequisite for efficient and sustainable microfinance operations. It allows building strong relationships, delivering efficient services, and responding to client needs with greater agility. This Note examines the work of ASKI in the Philippines to set up Collection and Disbursement Points (CDPs) and their positive impact on client satisfaction and outreach, as well as portfolio growth and quality.
Building Operational Excellence as a Core Differentiator
The briefing note is a case study on operational excellence path adopted by a microfinance-oriented thrift bank in the Philippines. The bank started its operational excellence drive in the year 2012 with focus on three key excellence parameters i.e. efficiency, productivity and quality. The bank reported positive results as an outcome of their initiative. In the period of 2012-13, the bank streamlined its systems and as a result achieved reduced expenses and increased process efficiency. The direct expenses have reduced by 30% and business income increased over 70% in the reporting period. As the bank nears break-even, it has set ambitious targets for both business and efficiency by 2016. The bank aims to increase its business by 3 -4 times from its existing levels and achieve this with a tight control on cost of delivery.
Rebuilding a Bank – Case Study of OK Bank
The briefing note is a case study of OK Bank, a thrift bank in the Philippines, which is on its way to create a silent but effective turn-around story. A few years ago, the bank was struggling for survival. However, since the bank chose a path built on operational excellence as its core strategy it has experienced successes in its endeavours. The strategy is focused on three key strategic areas of brand building, superior credit management and leveraging technology, and efficient processes. The bank reported a 7 per cent increase in disbursements and a remarkable 30 per cent decrease in operational expenses. A key driver of this turn-around story is the vision to inculcate strategy as an institutional culture within the bank. MicroSave, has been associated with this turn-around story as technical advisors, supporting the bank on strategic planning and process efficiencies.
Sustainable Microfinance: What does it take?
Past decade witnessed an unprecedented success of microfinance institutions in India. And when we thought nothing was going to break its stride; Andhra Pradesh crisis surfaced. It was an eye opener for many that surely confirmed microfinance is not the panacea for poverty. Since then MFIs have grappled hard to recover from the tight spot.
This MicroSave video is an attempt to understand the past, present and future of MFIs in India. Watch MSC’s Managing Director, Manoj Sharma, explain what it takes for MFIs to bring about the transformation for long term sustainability. He emphasizes on the unquestionable need for client focus, innovation in product and processes through effective use of technology, integration of social performance agenda, etc. to name a few. He concludes by drawing attention to the prominent role of donors and regulators for success of microfinance agenda.
Mor Committee report – Is there a take away for insurance industry?
The report of Reserve Bank of India’s Committee on “Comprehensive Financial Services for Small Businesses and Low-Income Households”, commonly known as the “Mor Committee report” has generated unprecedented levels of exuberance, interest, and debate. While most of the RBI committee reports are conservative and confirmatory in approach, this report talked about a paradigm shift in the sector. In addition, the report stands apart because of its focus on global learning, and an appreciative outlook towards India’s business entities and creating a vision for a financially included India.
Since insurance does not directly come under RBI’s regulatory purview, the report did not delve deep into the intended steps or activities for insurance. However, it suggested two important milestones that can impact the insurance and microinsurance sector in India.
- The report suggests that all districts of India should have 30% sum assured (for life insurance) to GDP (of the district) ratio by 2016 and that this ratio needs to reach 80% by 2020; and
- Banks and financial institutions need to insure their portfolio against natural disasters, or at least put rainfall insurance in place.
With a 3.17% insurance penetration (premium to GDP) level, overall the life insurance industry of India has probably already achieved more than 30% sum assured to GDP at a country level (minimum premium to sum assured is fixed at 10 times). However, Indian life insurers currently operate through a high operating cost model that requires them to focus on urban high-income segments (See Securing the Silent- I for details of cost and performance of life microinsurance in India). In the absence of low-cost distribution solutions, they are unable to provide quality insurance solutions to low-income areas and segments (See IFN 88: Challenges of Microinsurance in India).
Currently, less than 5% of low-income people in India are insured through micro life insurance products, a majority of which is contributed by term life products (individual and group) sold through microfinance institutions linked to their microcredit loan. If some alternative low-cost distribution does not emerge, insurance companies are unlikely to take microinsurance seriously. If they are obligated to balance their portfolio geographically, the cooperative and regional rural banks would probably become their preferred conduit. These entities can help insurers achieve the first milestone (30% sum assured to GDP in all districts) through credit-life policies through the banks’ existing exposure to a farmer and small value loans.
Achieving the next level of inclusion (80% sum assured to GDP), however, is going to be difficult for Indian insurers. The milestone demands overall growth of the industry (to achieve 5-7% insurance penetration) with a balanced geographical portfolio. To achieve this, insurers necessarily will need low-cost third party distribution channels, so that growth can take place without compromising profitability. The proposed mobile and digital finance entities, with their massive outreach potential and low cost of operation, are probably the only channels that can help insurers in the pursuit of this target (See Agent Banking and Insurance: Is There a Value Alignment?). So far insurers have shied away from using these entities due to considerations of quality and compliance. If the Mor Committee’s recommendations are implemented, Business Correspondents (BCs) and agent network managers may become more formal financial entities, giving confidence to insurance companies. In their new avatar, these entities can emerge to become the most attractive distribution partners for insurers to achieve the intended targets.
However, the insurance regulator needs to consider that achievement of this milestone will not help the sector get resolve two persistent and pertinent issues.
- The milestone is biased in favor of life microinsurance and does not talk about other risk solutions, like health and property insurance. While state-sponsored Rashtriya Swasthya Bima Yojana (RSBY) covers the poorest of the poor (Below Poverty Line) segments, it still leaves a massive missing middle of the upper poverty line – lower middle-class segment for whom health insurance remains and will remain a pending need.
- Since sum assured is a function of premium collected, the milestone only indicates a revenue surrogate, instead of an outreach indicator. Therefore the milestone, in absence of other measures to ensure outreach, will not be able to stop the concentration of insurance business around high net worth individuals. Moreover, under the proposed targets, penetration of insurance will become a function of the area’s GDP and not the other way around. Given that the district level GDPs are skewed in India, poorer areas, where people live a life of enhanced vulnerability, might remain under-covered, even though the milestones are achieved.
The next milestone or recommendation proposes an extension of current practices followed in crop loan schemes in India. While the state-sponsored NAIS (National Agriculture Insurance Scheme), mNAIS (Modified National Agriculture Insurance Scheme) and WBCIS (Weather Based Crop Insurance Scheme) programmes reached impressive scale due to their linkage with crop loan schemes, the Mor Committee goes a step further to recommend that all exposed loans be insured. In the absence of such cover, banks generally avoid lending to areas prone to natural disasters. Such a paradigm shift, therefore, will not only ensure the soundness of the financial institutions but could also improve the flow of financial services to low-income communities in natural disaster-prone areas. However, such arrangements need to be supported by an increase in credit disbursements to the low income and vulnerable segments of the population. Otherwise, these segments will continue to be unable to access proper insurance cover to mitigate disaster shocks.
Overall, the Mor Committee report proposes a new economic framework for banking and financial inclusion in India. Most of the recommendations make sense only if other recommendations are implemented too. If the regulator/s pick and choose the “easier” recommendations to implement, while leaving the revolutionary ideas aside, it will cease to impact the sector in any substantial way. In the case of insurance inclusion too, the regulator needs to implement the economic logic of the recommendations, rather than translate the milestones blindly.