What Works, What Doesn't, In Rural Financial Markets of India


Some 70% of India still exists in rural and semi-urban areas, where people derive their income predominantly from agriculture and related activities. Increasingly, there has been an emphasis on the critical requirement of inclusive growth with successive governments placing enormous stress on providing the necessary stimulus to make this happen. That has put relatively more liquidity in the hands of rural India.

From time immemorial, people in India have been amongst the highest savers in the world, saving around 32% to 33% of the country’s Gross Domestic Product annually. However, most of these savings, especially in rural and semi-urban areas, were parked in regular bank deposits. With these deposits earning only 3% to 4% net of tax and inflation hovering around 5% on average, the hard earned savings of rural India are actually depleting in value in the absence of proper financial planning.

Apart from Life Insurance Corporation of India and, to an extent, UTI in its erstwhile form, no other financial distribution or broking houses had made any serious effort to take modern financial products and services to the masses. Most state-owned banks and microfinance institutions cater to a different need – mostly accepting deposits and making loans.

At the same time, the advent of large companies and financial institutions as well as product innovations in the financial services industry over the last few years have necessitated an expansion of the overall market.

Identifying that gap, we deemed it necessary to expand geographically. We clearly realized that our growth aspirations would not be met if we concentrated on, and established our presence only in, the metros. Hence it became imperative for us to develop a viable long-term business model that looked beyond urban India to tap the vast rural market.

Bhor, Saswad, Talegoan, Saidpur, Goasigang, Gouribazar, Deoria, Tadipatri, Nizamabad, Gadag, Davangere and Perundurai are among the more than 5,000 tehsils (also called talukas and mandals in various regions) where we are present today.

We realized that employing city-based managers in these areas would not be a viable option as local people would never trust and feel comfortable with a non-native person who did not speak their language. So we devised a strategy which relied heavily on local partners.

It was extremely important for us to work with the existing eco-system prevailing in the hinterland as opposed to trying to create a new or parallel structure. We decided to take the franchisee route and appoint at least three or four local youths as our franchisees in each tehsil. Typically, all our franchisees are people whose families have resided in the area for several generations and who know most of the people residing in the village and are also known to people in the surrounding areas.

This strategy helped us achieve financial inclusion of the rural masses while creating a new breed of local entrepreneurs who could bring financial products and services closer to the villagers. With continuous training, we converted our local partners into our brand ambassadors, advising locals on financial investments and selling them appropriate financial products in an extremely beneficial manner.

An interesting aspect that we noticed during this exercise was the fact that not all our franchisees were illiterates. A sizeable chunk of them were graduates and some were even MBAs.

Like all initiatives, our rural foray also has had its share of highs and lows. However, there have been amazing lessons and insights, too. When we started our rural initiative, we had designed bright neon lit signs to be hung outside the kiosks. We thought these signs would attract attention and bring in a crowd. However, our thought process was off track. These glossy signs intimidated villagers and made them wary.

We redesigned these signs to make them blend with the background of the region. We also started using traditional painting techniques used in village homes. We also learned that speaking English and spouting jargon does not cut ice with villagers. It is essential to simplify the jargon and speak the language they understand. For example, to promote our money transfer facility, we conducted road shows in regional languages.

Even after two years, logistics still pose a major challenge. During the IPO boom days, we had to pre-plan each and every step and schedule timelines. The first step was to ensure that the forms and the marketing material reached the villages on time. We then had to get the forms filled in and delivered to the bidding centers on time. On certain occasions we missed the deadlines because we underestimated the travel time and costs.

Learning from this experience, we fine-tuned the entire operation to close two days prior to the actual closing date of an IPO. Overall, Reliance Money’s experience in this initiative has been mixed. We have ventured into and invested in this sector with the clear understanding that the exercise will pay dividends only in the long-run. Just because 70% of the country’s population is dependent on agriculture and lives in the villages, we know that we will not get 70% of our income in financial services from villages in two years’ time.

However the 80-20 principle (that 80% of the locations give you 20% of your income) works in rural India as well and we have already seen this in operation, allowing us to hone our marketing and distribution strategies.

Wall Street Journal

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