The adverse effect that climate change is having on farmers and their farming operations cannot be disputed and includes reduced crop yield, access to nutritional food, and increased production costs. This session will touch on farmer vulnerabilities induced by climate change and whether climate resilient agriculture practices will help farmers alleviate the impact of weather-related changes. In this context we will discuss how farmers can be nudged to adopt climate smart agricultural practices. Integral to this discussion is the role that agtechs play in this dynamic, what is the business case for their services, and the barriers and opportunities they foresee as they attempt to tackle one of the most pressing development challenges of the century.
Blog
How can an efficient PFM ecosystem accelerate financial inclusion?
The public financial management (PFM) ecosystem facilitates digital payments from governments to its citizens (G2P payments) thereby impacting the pace of financial inclusion. A robust PFM system is, in part, the reason that the Direct Bank Transfer (DBT) scheme in India has become one of the flagship success stories of the Government of India’s digitization initiatives. During this session, we will discuss PFM systems and how the use of a smart payment system and/or just-in-time funding for social sector programs can strengthen financial inclusion, one of the SDGs, address key issues around inclusion and exclusion errors in social sector programs, and whether industry practitioners can develop replicable digital public goods for payment systems. We expect a lively discussion in which best in practice stories will be shared.
Has the development community done enough to support women entrepreneurs in a post-COVID world?
COVID-19 had a devastating impact on micro and small enterprises in developing markets, with evidence pointing to women entrepreneurs being the hardest hit. The panel will briefly discuss the challenges female entrepreneurs have faced in the aftermath of COVID-19. We will speak with a female entrepreneur, as well as an organization dedicated to supporting women led startups and businesses to learn about their experiences. Focus will be given to innovative interventions from which women entrepreneurs benefited during and after the pandemic, and lessons learned that have ultimately made female entrepreneurs more resilient.
Webinar series—Inspiration, Insights, and Learning (I2L): Digital transformation: Is the banking and microfinance industry ready?
We organized a discussion with a panel of experts drawn from leading microfinance institutions, banks, regulators, and philanthropic organizations worldwide. Their conversation focused on the following:
- Digital transformation strategy and framework,
- Data privacy and consumer protection in the digital age, and
- The role of regulators in supporting digital transformation.
Click on the timestamps from the webinar stream to hear specific segments.
00:05 – 03:37 Welcome note and introduction by Dr. Ravi Kant (Digital Transformation Emerging Area Group Lead, MSC).
03: 38- 09:56 Presentation on the importance of digital transformation by Anup Singh (MSC Africa – Regional Head).
10:07- 56:03 – A panel discussion: Two rounds of conversations with our panelists, moderated by Juliet Ongwae (Digital Financial Specialist, MSC)
Panelists:
- George Njuguna: Information Technology Director (CIO) Safaricom (Kenya)
- Imran Ahmed: Deputy Executive Director, Shakti Foundation (Bangladesh)
- Akhilesh Singh: Chief Financial Officer, Sonata Finance (India)
- Selim R.F. Hussain: Managing Director & CEO, BRAC Bank Ltd (Bangladesh)
- Tatiana Bet: Head of Business Support Unit, MicroInvest (Moldova)
Round 1
11:41- 15:34 George Njuguna: Safaricom, Information Technology Director (CIO) (Kenya), responds to Question 1: Safaricom and its innovations have been a huge enabler for the FinTech explosion in Kenya. This has led to an entirely new and transformed financial services landscape. What are your thoughts on how the digital infrastructure and future business models will look like?
16:13- 21:02 Imran Ahmed: Shakti Foundation, Deputy Executive Director (Bangladesh), responds to Question 2: Shakti has been on this digital transformation journey with the digitization of your microfinance and SME programs. How have digital initiatives helped Shakti Foundation offer customer-centric savings and credit products for low-income customers?
16:13- 29:36 Akhilesh Singh: Sonata Finance, Chief Financial Officer (India), responds to Question 3: As microfinance institutions digitize, what are some of the biggest roadblocks they face when doing so (in India)?
30:14 – 40: 25 Selim R.F. Hussain: BRAC Bank Ltd, Managing Director & CEO (Bangladesh) responds to Question 4: BRAC Bank has focused on transforming into a digitally-led organization, and the numbers show your tremendous success in this journey. How did you manage and execute a culture shift for digital transformation on a large scale (more than 700 agent banking outlets, almost 200 branches, and 300+ ATMs, per its 2021 annual report)?
41:00 -43: 11 Tatiana Bet: MicroInvest, Head of Business Support Unit (Moldova) responds to question 5: As an NBFI focused on lending to MSMEs, what has been your journey in transformation of credit risk management, specifically with credit scoring? What are some of the key lessons learned?
Round 2: Panelists answer the question: What is the biggest myth about digital transformation? Could you please debunk these myths for us?
44:37 – 46:11 George Njuguna: Safaricom, Information Technology Director (CIO) (Kenya), responds to this question.
46:15 – 49:37 Imran Ahmed: Shakti Foundation, Deputy Executive Director (Bangladesh), responds to this question.
49:59 -: 53:57 Selim R.F. Hussain: BRAC Bank Ltd, Managing Director & CEO (Bangladesh), responds to this question.
54:07 – 54:48 Tatiana Bet: MicroInvest, Head of Business Support Unit (Moldova), responds to this question.
56:04 – 58:43 Anup Singh (MSC Africa – Regional Head) MSC presents the concluding remarks.
BRAC Bank experiments with agent banking—a lesson for progressive banks across the globe
This case study on BRAC Bank shares lessons from its journey and its experiments with agent banking. It highlights its unique initiatives in making the agent banking channel a profit-making proposition. By reading the case study, you will get more insights into the key differentiating factors of BRAC Bank’s agent banking for its agents and customers.
The evolution of payments in India—looking ahead
The previous blog discussed the state of India’s digital payments ecosystem. This blog looks at where and how it may evolve further.
NPCI
The National Payments Corporation of India (NPCI) is the backbone of the country’s retail payments and settlement systems. NPCI’s efforts to build an open source and safe digital ecosystem have transformed how digital payment solutions reach the masses. NPCI now boasts an extensive product suite comprising UPI, AePS, BAP, Bharat QR, BBPS, RuPay, CTS, NACH, IMPS, NEFT, and eRUPI. NPCI will continue to play a pivotal role in enabling India’s 1.2 billion mobile phone users to adopt and access digital payments.
These products are replete with innovation, promote inclusiveness, and create a seamless payments experience for individuals, businesses, and governments. NPCI’s role in pushing India toward a digital economy remains critical. NPCI should address the country’s growing needs through stronger partnerships, besides new relationships with FinTechs, payment service providers, regulators, banks, and other institutions. Concerted efforts are now required from service providers to augment digital payment solutions by developing tailored use cases for each customer segment in the country.
New Umbrella Entity (NUE)
The exponential increase in smartphone users, coupled with the widespread adoption of new-age digital payment solutions, such as UPI, has positioned India as one of the fastest-growing digital payment economies worldwide. The acceleration toward digital payments has come about quicker than planned during the pandemic. PWC and the Payments Council of India (PCI) expect India to contribute ~2.2% of the global digital payment market by 2023. By 2025, digital transactions in India are expected to rise to 167 billion in volume and INR 238 trillion (~USD 3.21 trillion) in value. It presents substantial business opportunities for existing and new players in the digital space.
The New Umbrella Entity (NUE) could bring about greater financial stability and efficiency in the backend system, which NPCI currently manages single-handedly. Key players and allies in the payments ecosystem, such as HDFC, Paytm, PayU, Visa, Punjab National Bank, Union Bank, Google, Amazon, Flipkart, and Tata, have applied to obtain the license for NUE. These entities should make the payments ecosystem more competitive, add to the existing product suites, and bring tailored use cases. These entities will also add to the overall innovation, insights around customer needs, and spending patterns, enabling them to align their offerings to increase the overall financial inclusion for several customer segments.
Payments channels
Four payments channels have tremendous potential to be digitized—P2B, P2G, P2P, and B2P. Targeted interventions through digital payment solutions across these channels will help address the specific financial needs of the unserved and underserved LMI customer segments. Promising examples include digitalizing domestic remittances, house rental payments, cash on delivery (CoD) payments in e-commerce, offline merchant payments, repayment of microfinance loans, recurring payments in agriculture and allied value chains, utility bill payments, and transactions in the public transit system.
The performance of these payment channels shows potential for growth:
- Migrant workers comprise the largest user segment of remittance services in India. About 120 million migrant workers from rural areas account for 80% of the country’s domestic remittances valued at ~INR 700 billion (~USD 9.45 billion). Presently, around 60% of domestic remittance transactions occur through non-traditional channels, such as friends, family, and agents for remittances. This untapped market offers an opportunity to digitize remittance transactions worth more than INR 400 billion (~USD 5.4 billion).
- India has 63 million micro-merchants in the country who facilitate P2B transactions. Many live in rural areas. While financial service providers have acquired around 10 million merchants, most are more prominent merchants from urban areas. Approximately 90% of micro-merchants currently transact exclusively in cash. The dependence on cash creates a massive potential to digitize cash-based transactions worth INR 4,200 billion (~USD 56 billion), as per MSC’s analysis based on IBEF estimates.
- India’s e-commerce sector is currently worth INR 2,600 billion (~USD 35.1 billion), a value that is forecasted to grow at a CAGR of 27%. Presently, around 17% of India’s total e-commerce transactions occur through cash-on-delivery (COD) payments. Converting even a conservative 10% of these cash transactions to digital presents an opportunity for digitizing transactions worth ~INR 45 billion (~USD 0.61 billion).
- India has 202 microfinance institutions (MFIs) with a branch network of 19,073 and 152,000 employees, per the Bharat Microfinance Report 2020. These MFIs have more than 59 million clients, primarily women, and an outstanding loan portfolio of ~INR 2,600 billion (~USD 34.6 billion). MSC’s analysis suggests that more than 95% of these loan repayments happen in cash through MFI field agents, highlighting the potential to digitize 5.8 billion transactions annually. Digitizing these MFI transactions can serve as anchor use-cases for women borrowers and increase the uptake and usage of digital payments across women in India.
- Salaries comprise the most significant use-case of payments made through the B2P channel but most of these payments are already digitized.
- Individual contract payments or payments for agriculture input and allied sectors constitute the next big use case under the B2P channel. MSC’s analysis suggests that transactions worth INR 880 million (~USD 40 million) flow through this channel annually, of which only 20% have been digitized thus far. This gap highlights the massive opportunity to digitize B2P payments.
- MSC’s analysis highlights that the P2G channel sees transactions worth ~INR 36,000 billion (~USD 486 billion). These include payments for government services, donations, bills, and taxes. However, more than 80% of these transactions occur in cash due to the consumers’ limited awareness and capability regarding digital payments and the institutions’ complex legacy systems.
Iris authentication payments
Currently, one in every three AePS transactions fails, with around 17% due to biometric mismatch using fingerprint authentication mode. The high failure rates in AePS transactions through fingerprint-based authentication have created a need for alternate authentication modes. Iris-based authentication provides a better alternative to fingerprint authentication. The iris-based mode is safe and secure—since the iris is difficult to forge, hygienic—as it is a contactless solution, and convenient—since it involves fewer scanning attempts than fingerprints. It is also far more accurate, with a false rejection rate (FRR) of 0.1-0.2% compared to 2-3% for fingerprint authentication.
Around 200,000 iris devices have already been installed across India to manage beneficiary authentication for various government schemes—public distribution systems, pension distribution, and mid-day meals. Currently, five banks—ICICI Bank, Andhra Bank, Fino Payments Bank, Central Bank of India, and RBL Bank are adopting iris-based authentication for AePS transactions. The average cost of an iris device is around INR 3,500 (~USD 47) compared to ~INR 2,000 (~USD 27) for a fingerprint device. Despite the comparatively higher device cost, iris devices have seen good adoption as 9% of Indians use them compared to the global average of 3%.
Way forward
The country’s payments ecosystem has many opportunities to grow and improve. NPCI has made moves to seize many of these opportunities. Meanwhile, the NUEs will encourage and enable innovation and diversification, which should further expand the frontier for digital payments.
That said, concerns about approaches to include those without access to smartphones persist. Regulators can address these concerns by enabling improved and intuitive USSD-based interfaces or agent-assisted transactions. This work will assume increased importance as user competition rises over time.