Boosting the Business Case for Agents

This is the second piece in the five-part series launching CGAP’s Agent Management Toolkit. The toolkit is based on more than a year of research that yielded data on more than 16,000 agents in Brazil, India, and Kenya. In-depth interviews were conducted with 466 agents, agent network managers and providers, including mobile network operators, banks, MFIs and technology companies.

Today’s guest blogger is Prakash Lal, from Financial Inclusion Network & Operations Ltd. (FINO), which we found to have sophisticated insights on managing agents. FINO agents and technology connect more than 27 million Indians with 23 banks, 10 MFIs, 5 insurance companies and 15 government entities, via more than 11,000 POS terminals covering one-third of India. We’ve asked FINO to shed some light on how they boost the business case for their agents (referred to in India as “Business Correspondents”).

FINO was founded on 13th July, 2006 with the single objective of building technologies to enable financial institutions (FIs) to serve the under-served and the unbanked sector and also to service the technology requirements of entities engaged in servicing the bottom of the pyramid customers. Every step we’ve taken on technology, we’ve taken an equally important step forward in developing a highly-distributed, reliable network of Business Correspondents (BCs), whom we fondly call “Bandhus”, connecting clients to our technology and onward to the financial institution of their choice.

BCs are a critical link in our service delivery channel, and we invest a great deal in ensuring that working as a BC is attractive. Most of our BCs have other sources of income as well, meaning FINO needs to provide enough income to ensure that BCs will devote an adequate share of their time to the FINO business. We calculate that extra income to be, on average, INR 2500-3000 (USD 55-65) per month. This amounts to around USD 2 per day, which may not sound significant, but for a rural Indian it is welcome incremental income. Further, many of our BCs are also motivated by the desire to help their community and the social standing which comes with being allied with a high-tech product.

In addition, there are four points which strengthen the business case for our BCs:

Multiple Products: FINO has a complete suite of products to meet the financial inclusion needs of financial institutions. A multiple product suite roll-out enhances a BC’s option of increasing the number of transactions, hence an increase in their commission, as per the varied customer requirements. Product innovation in FINO is derived from its deep insight into the requirements of the client segment gained from pioneering work done with MFIs, banks and research organizations.

Financial Literacy: A regular saving habit by the customer will ensure regular transactions and thus more commission for the BC. FINO is doing various financial literacy projects with World Bank, International Finance Corporation (IFC), Microfinance Opportunities (MFO), UNDP and NABARD. FINO puts up the capital for our BCs and our staff play a large role in helping agents manage liquidity. FINO Block Coordinators manage approximately a dozen BCs and typically visits them every one to two days to retrieve excess cash or deliver new cash. In other words, if we look at the 9 drivers of the agent business case in CGAP’s Agent Management Toolkit, FINO removes the first two: upfront capital, liquidity management. We internalize that into our own business, making it much easier and more attractive for our BCs. We also pay our agents a fixed salary, in addition to per transaction commissions. This creates some certainty for our BCs as far as their income is concerned. We believe these are the best ways to build a viable network of agents in rural areas.

Take the case of one of FINO’s BC in Uttar Pradesh state, Md. Saleem. He runs a general store and also works with FINO. He handles 24 transactions on a typical day. His largest cash transaction on any given day is US$107 (INR 5,000), which effectively determines his cash-on-hand required to handle the largest transaction. A FINO Block Coordinator usually visits daily to pick up and deliver cash, and can get there within a few hours in case extra liquidity is needed for a very large deposit or withdrawal. Saleem uses his place of work—the general store—to conduct most agent transactions, obviating the need (and expense) for a dedicated agent location. As part of FINO’s “doorstep banking” model, Saleem also travels to client homes in three surrounding villages, incurring a transport expense. He nets a daily profit of US$1.84, which is very close to our target for BCs.

By FINO'S Prakash Lal for CGAP blog

TURNING THE TIDE: ENABLING POVERTY REDUCTION

It is rare to find a woman shoulder the responsibility of farming. It is usually the male counterpart who takes up the farm responsibility, but it is not so in the life of Kamatchi. She owns around 4.5 acres of rainfed land, and lives with her husband and their two sons in Sengapadai village of Madurai district, Tamil Nadu. As Kamatchi says, “He (her husband) never has once stepped on the land for farming.” She has to run the family all alone with the income she earns from the farm and from the income she earns as a coolie. Further, vagaries of monsoon and lack of effective coping mechanism, farming itself is loosing its lustre as viable livelihood option for many in this area. Adding to this, lack of suitable financial services pushes resource-poor farmers like Kamatchi into the depths of poverty.

She says, “… one has to walk four to five times to their house (the well-offs and moneylenders) to get a loan for urgent needs. They didn’t trust us for we are from Kallar community, and even if one could get a loan, it was at the exorbitant rate of 5 to 10%.” She was unable to enterprise herself due to such lack of support and an enabling environment.

A Ray of Hope

It was during this time that Kamatchi joined the Kaliamman Uzhavar khulu (or rainfed farmers’ groups) promoted DHAN Foundation in that area. With a bit of hope in her heart, she plunged ahead, and the group helped her all along the way. The group, thus formed, proved to be a safe platform to save, to access timely credit services. This helped her meet various household needs and supported her in farming activities.

An Array of Achievements

As of today, she has a total savings of Rs.5600 in the group, and had availed a total loan amount of Rs.70191 from her group, with the current loan outstanding of Rs.21360. “In earlier days, none of the banks cared us of our credit needs. Now, the bankers they themselves invite us to take loan from their bank, for they know our group’s credibility and discipline, and trust us,” says Kamatchi. And these loans were used for variety of purposes like to purchase goats and a milch animal. She also got a loan of Rs.15000 to purchase an acre of rainfed land and to purchase oil engine to pump water. She has recently taken a loan of Rs.12000 to construct a farm house in her land. Apart from this she has taken a variety of loans for various consumption needs like medical expenses, marriage expenses, outside debt redemption and household expenses. Further, time and time again, she had also taken loans for working capital requirement of her farm activities.

As part of the watershed project, an amount of Rs.54146 was invested in her land for the construction of farm ponds and to plant dryland horticulture crops in 0.75 acres of her land. The farm pond harvests around 14.4 lakhs litres of rainwater, and with that, she cultivates around 1 acres of paddy, and gets an yield of 1400 kg of paddy that is used for household consumption.

In the past five and half-years, Kamatchi found that little spark in herself, and with the support from the group, she had made major changes in her life and livelihood. The various intervention activities resulted in the following outcomes in the lives and livelihood of Kamatchi and her family.

·         Increased income

o    Brought more area under cultivation

o    Brought more area under irrigation

·         Reduced vulnerabilities and risks

o    Increased land holding size

o    Increased food security by increased paddy cultivation

o    Crop diversification with cultivation of dryland horticulture crops

o    Reduced vulnerabilities to risks–insured in human life insurance programme, and also insured goats

o    Reduced dependency on money lenders and increased access to mainstream financial institutions

·         Increased fixed asset holdings, and asset value appreciation

o    Conversion of rainfed to irrigated land

o    Purchase of land

o    Invested in farm assets like oil engine

o    Purchase of livestock–goat rearing and milch animal purchase

Beacon of Hope

Thus, DHAN Foundation and the group promoted by DHAN, had increased Kamatchi’s access to institutional credit facilities, and reduced dependency on money-lenders. There has been an increased level of awareness and social respect that she had gained. She speaks to bankers to get loan for her group; “Now the bankers, themselves, approach us; we have shown our trustworthiness,” she says.

With the additional income from the farm, she had further invested in purchasing a pair of cattle, and a bullock cart; she is also planning to complete her little farm house. This shows a positive trend in moving towards a farming-based livelihood options, which was once a not so dependable source of income. She has gained confidence to face the future.

Through the support rendered by DHAN Foundation, and with the confidence in her heart, Kamatchi proved it could be done–to come out of poverty with a sustainable source of income. She is now a beacon of hope, and a source of inspiration, for her own villagers and the community at large.

Source:-Dhan Foundation

Do the poor need financial literacy?

Olga Morawczynski is Project Manager for Grameen Foundation’s financial literacy project in Uganda.

When I started the financial literacy project at the Grameen Foundation in Uganda, I was faced with some very fundamental questions—what exactly is financial literacy? And do the poor really need it, or even want it? Aside from my own questions, I also faced some reservations from colleagues in the field. Many were very frank in their opinions. There is no need for financial literacy, they told me. What the industry needs is appropriate financial products. The learning bit will take care of itself.

I have spent the last months travelling around Uganda and speaking with individuals who depend on a wide variety of livelihoods, from fishing to trading and farming. And I have made some extremely interesting discoveries. Amongst the people I spoke to, there was a clear demand for financial information. Many of my informants did not have a lot of money, and their inflows of cash were extremely irregular. But they had many questions on how to manage it better. A significant portion wanted advice on savings and budgeting. As one farmer explained, “when you have so little, you have to become an expert at managing it. If not, it will disappear from your hands before you even had the time to count it”.

But what makes one an expert at managing their cash? “When times are good, you put cash away”, the farmer explained. “So when the cash is not flowing, you have something saved”. I asked what happens if you don’t have something little saved. The farmer pointed to a small herd of his cows. “You sell one of them”, he said. So maybe that brings us a little bit closer in our understanding of what financial literacy is and what it should do. That is, helping people to plan accordingly so they are prepared for the periods of cash deficits. And when you are an expert, you get to keep your cows.

Source:-Grameen Foundation

Remittance: a step towards financial inclusion

Financial Inclusion is the buzzword doing the rounds in the social sector these days. Financial inclusion is an umbrella term used to represent access to various financial services by the poor (bottom of the pyramid!). One of these services is the transfer of money i.e. remittance; a field which is seeing a lot of developments lately.

Remittance in common parlance refers to the transfer of money by a person abroad to his family/friends in his/her home country. Various reports by World Bank, United Nations University show that remittances form the second largest source of international finance to many developing countries of the world, often surpassing the official development flows. International Fund for Agricultural Development (IFAD) 2006 estimates put the total flow of remittances to developing countries at $301 billion (including informal channels) while the World Bank estimates are $250 billion (excluding informal channels), which mirrors the huge market potential.

And we are not just talking about the rich or middle-class but the poor too. We have known through personal experience or news stories about the sheer no. of unskilled labour who have migrated to areas for e.g. Gulf (from Kerala) in search of livelihoods. And it is this section of migrants that the development sector needs to concentrate on by ‘introducing’ formal channels to them which can be better leveraged to promote economic development.

Remittances make a real difference to people, a difference that’s measured not in money but in its ultimate utilization for better food, medicines, education and healthcare. But what’s the connection between remittance flows and financial inclusion?

In countries like Ghana, remittances can account for up to half the household income. In Bangladesh, they can represent most of the household income. It is estimated that about 10% of the world’s households receive remittances (DFID). And while this money is used to support basic necessities like roti, kapada, makaan, it can have a multiplier effect. It is known that most often the excess money is further invested for genetrating profits for the family. The cumulative effect on the economy could be increased employments, increased money flow for investments, thereby stimulating growth. And it is this aspect that if encouraged, can help communities to come out of poverty.

Money is sent through formal channels like banking institutions or money transfer agencies or more frequently, as in case of poor migrants, through informal channels like friends, acquaintances or illegal Hawala channels. There a number of impediments faced in the informal fund transfer – higher charges, delivery issues, possibility of theft etc., which may not just mean reduced money to the beneficiary but may even further tax the family. On the other hand, the formal channels ensure easy transference of the entire amount in return for set charges. And as money transfers through formal channels often require the use of a bank account, remittances promote access to formal financial services for the sender as well as recipient.

However the problem lies in the fact that the penetration of the formal channels is much limited, due to the same demand and supply problems which are plaguing the banking sector - problems of availability and accessibility, identification, information gap, illiteracy, higher operational costs.

This situation if utilized efficiently can prove to be a win-win situation for all stakeholders. As Dilip Ratha(World Bank) points out, encouraging remittances through the banking channels (formal channel) can increase the development impact of remittances by encouraging more savings and furthering investment opportunities. Banks and other financial institutions can introduce their other products to its remittance customers thereby reducing their costs per customer. MFIs can make use of the history of the remittance receipts to map out the credit history of the potential customers.

Access to remittance services in rural and remote areas can be improved by encouraging the participation of the microfinance institutions, credit unions, and saving banks (including postal saving schemes) in the remittance market thereby effectively increasing the probability of usage of formal channels by the poor.

The opportunities are limitless; and if combined with initiatives by the financial institutions and policy and regulatory support by Governments have the potential to make a difference!

By Ms. Swati Vempati.