Revolutionizing Financial Services in Rural India
Last night, along with 150 or so others, I sat in rapt attention while Nachiket described his latest thinking on banking at the base of the pyramid in a talk entitled The Next Big Step: Revolutionizing Financial Services Distribution in Rural India. Yes, the event started at 6:30, and they served delicious (but heavy) hors d’oeuvres. And since the auditorium was bright in the late-day sun, the organizers drew the blinds and dimmed the lights. But for the duration of Nachiket’s presentation and through the Q&A, the entire audience sat and stood at attention. It was that good.
I shouldn’t be surprised; Nachiket really knows what he’s talking about. After early-career success at ICICI Bank, he moved to Philadelphia and worked for a hedge fund while pursuing his Ph.D. from the Wharton School. Upon graduation, he returned to India and moved up the ladder at ICICI, joining the Board of Directors until he stepped down last year to become the president of the ICICI Foundation for Inclusive Growth. His passion and life’s work center on financial service delivery in the base of the pyramid markets – the subject of last night’s talk.
Nachiket talks about banking low-income consumers in straightforward terms. After all, whether his customer is rich or poor, a banker must do a few things and do them well: take and give money, determine the borrower/saver profile and properly value uncertainty. These basics are the foundation on which the Kshetriya Gramin Financial Services (KGFS) initiative has been started. KGFS is Nachiket’s latest initiative to bring banking services to the BoP, which he’s doing in partnership with the IFMR Trust.
Kshetriya (regional) Gramin (rural) Financial Services is an effort to blanket rural districts with full-service bank branches, reversing the typical microfinance model where banks are located in urban areas and MFI officers visit villages periodically. KGFS branches, on the other hand, are open from 6:00 AM to 11:00 PM and offer villagers a range of financial services from savings to loans. Nachiket describes the branches as providing continuous, reliable, convenient and structured financial services, which sounds simple but hasn’t been available to date in many areas of India.
Some key elements of the KGFS business model really struck me last night:
They recruit bank managers from the Indian Army, which has a well-earned reputation for neutrality. This helps prevent caste- and income-based bias by bank staff against customers.
Starting an account takes less than 7 minutes; each transaction takes less than 3 minutes. These strict time limits are a response to customers’ complaints about microfinance institutions. MFIs hold lots of meetings – but many see these as a waste of time, especially when the attendees could be at work instead. KGFS wants to respect its customers’ time.
“Wherever we enter, we will stay” – KGFS is committed to the communities it serves and is rolling out slowly – first in Tamil Nadu, later in Bihar and Orissa.
If they can pull it off at scale, KGFS will be revolutionary. They are offering savings accounts at 9 percent (vs. government savings rates of about 3 percent). Loans, at the full yield to maturity, can be had for 11.25 percent (vs. typical microfinance rates of 30 percent or more). They can offer such attractive rates because they’ve built an IT platform that keeps costs absurdly low ($0.50 per year per account!) The attractiveness of these services is undeniable.
But what stands out from the presentation is Nachiket’s palpable passion for the business of banking the unbanked. He says that every customer is seen as a high-quality, rational human being – an obvious statement, but in a society dominated by caste and income inequality, it’s no small step. Audience questions are answered enthusiastically and honestly, without pretension. If only every presentation could be this compelling.
We will have to keep an eye on KGFS to see how it goes. After all, even Nachiket is straightforward about the possibility that the model won’t work. But, like a true entrepreneur, he understands the power of learning from one’s failures as much as one’s successes. As I left the NYU auditorium last night, I couldn’t help but think that, in the case of KGFS, Nachiket and IFMR Trust will be learning from success in this case.