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    The Rural Banking Paradigm

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    Ami Parikh
    The document discusses rural banking in India and outlines an approach to expanding access through technology. Key points: 1) Banking has made progress in rural India but large segments remain underserved due to low financial literacy and a narrow product range. 2) A comprehensive approach is needed using multiple channels like branches, kiosks and microfinance partners coupled with a diverse product portfolio. 3) Technology can help reduce costs and expand reach through solutions like biometric authentication devices, smart cards, and a unified banking platform accessible across channels.

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    The Rural Banking Paradigm

    Uploaded by

    Ami Parikh
    50 views29 pages
    The document discusses rural banking in India and outlines an approach to expanding access through technology. Key points: 1) Banking has made progress in rural India but large segments remain underserved due to low financial literacy and a narrow product range. 2) A comprehensive approach is needed using multiple channels like branches, kiosks and microfinance partners coupled with a diverse product portfolio. 3) Technology can help reduce costs and expand reach through solutions like biometric authentication devices, smart cards, and a unified banking platform accessible across channels.

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    Icici Bank

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    The document discusses rural banking in India and outlines an approach to expanding access through technology. Key points: 1) Banking has made progress in rural India but large segments remain underserved due to low financial literacy and a narrow product range. 2) A comprehensive approach is needed using multiple channels like branches, kiosks and microfinance partners coupled with a diverse product portfolio. 3) Technology can help reduce costs and expand reach through solutions like biometric authentication devices, smart cards, and a unified banking platform accessible across channels.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    50 views29 pages

    The Rural Banking Paradigm

    Uploaded by

    Ami Parikh
    The document discusses rural banking in India and outlines an approach to expanding access through technology. Key points: 1) Banking has made progress in rural India but large segments remain underserved due to low financial literacy and a narrow product range. 2) A comprehensive approach is needed using multiple channels like branches, kiosks and microfinance partners coupled with a diverse product portfolio. 3) Technology can help reduce costs and expand reach through solutions like biometric authentication devices, smart cards, and a unified banking platform accessible across channels.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 29

    The Rural Banking Paradigm

    Banking in India has made inroads


    Indian banking system has achieved a formidable outreach in rural areas 48% (31,999) of all scheduled commercial bank branches are rural 31% (131.1 million) of the total deposit accounts are in rural India 43%(22.4 million) of total credit accounts are in rural India Number of people per branch has reduced from 64,000 in June 1969 to 16,000 in March 2002 (all India average)
    Source: BSR, March 31, 2001, Table 1.3, RBI Deolalkar, G.H., The Indian Banking Sector: On the road to progress, A Study of Financial Market

    Significant proportion of Indias population is at the Bottom of the Pyramid


    (% of households)

    FY20051
    Rich

    1% 34% 65%

    Middle Income

    Low income

    NCAER estimate Low income < Rs. 90,000 per household p.a. Middle income Rs. 90,000-5,00,000 per household p.a. High income > Rs. 5,00,000 per household p.a.

    1 Source:

    The Bottom of the Pyramid is underserved


    Predominantly in rural areas Predominantly in rural areas but also in semi-urban & urban areas but also in semi-urban & urban areas Rich Rich Marked by low financial literacy Marked by low financial literacy Mostly not reached by Mostly not reached by formal banking system formal banking system Same channels attempt to Same channels attempt to cater to all customer segments cater to all customer segments

    Middle Middle Class/SME Class/SME

    Low Income Low Income

    Narrow product suite Narrow product suite leading to lack of integration leading to lack of integration

    by the traditional banking model


    Traditionally viewed as a regulatory burden

    Existing credit methodologies have reached a narrow range of clients High operating costs
    Limited outreach by the banking system

    Rural population: 740 million Population per branch: 22,793 Number of villages per branch: 19 36% of credit is from informal sources
    78% incase of low income households

    Banking with the poor is challenging


    Special needs Doorstep banking Flexibility in timings Low value and high volume of transactions Limited background information and proof of income Require simple processes with minimum documentation Conventional banking not suitable High costs of delivery through traditional channels High transaction costs Dependence on documentation and financial history Inflexible procedures

    and requires a comprehensive approach


    Multiple products
    Low-income customers require full range of services: credit, transaction banking, investment and risk mitigation

    Deeper penetration of markets with a variety of channels


    Branches at selected locations Franchisees, internet kiosks, MFI partners Using a combination of channels to completely cover selected areas

    Economies of scale
    To reduce average operating costs

    Key Learningsfrom across the globe


    Hybrid agent Hybrid agent linked model11 linked model

    Uncoupling of bank and front-line service operations Appointing authorized agents Opening accounts through agents Enabling (card-based) transactions through agents, merchant outlets, etc Low cost POS based front end with cellular network connectivity Smart cards for: Identification Offline and online transactions Low cost ATM

    Advantage Advantage Technology22 Technology

    1Brazilian

    models - Banco Popular de Brasil, CAIXA, Bradesco, Lemon Bank 2 South African models

    Prompted us to redefine our strategy


    Conventiona Conventiona l lbanking for banking for the low the low income income Branch Branch based based Manpower Manpower intensive intensive Product Product driven driven Single Single product product

    Our strategy Our strategy

    Hybrid Hybrid channels channels

    Technology Technology intensive intensive

    Customer Customer driven driven

    Multiple Multiple products products

    And come out with a holistic approach


    Cluster is a district or geo-economic continuum

    Branches
    No White Spaces (NWS) Strategy

    Kiosks Franchisees Micro-finance institutions


    Penetrate a cluster with all channels and products

    delivering multiple products through a variety of channels


    Financial products Banking Insurance Loans Remittances Investments Derivatives
    Entrepreneu r

    Non-financial products E-governance Education Health Agri-extension Communication Entertainment

    Complete suite of financial products


    Thrift/saving s Credit Insurance & Investments Transfer Payments etc

    A specific market segment


    Informal rural and urban areas Micro and small enterprises A very dynamic, grassroots economic sector Vast untapped market bottom of the pyramid

    A truly commercial approach


    No charity motive No contradictions with social objectives Greater outreach through commercialization

    In collaboration with partners we offer customized products


    Service
    Rapid, convenient access Respect, connection Asset building, risk mitigating products Micro savings Life and non-life insurance Flexible loans Small initial sizes Larger subsequent loans Longer terms

    What customers want?


    Variety of products Income generation loans Housing loans Emergency loans

    Group based Individual loans No traditional collateral

    Financial services that respond to low income clients

    Way forward
    An inclusive banking paradigm Building credit history through credit bureau Linkage with capital markets mainstreaming Suitable regulatory environment

    our vision

    Rural Technology Initiatives

    The Rural Reality


    II D D M M EE D D II A A C C H H A A N N N N EE LL SS SS YY SS TT EE M M Authentication Identification

    Lack of efficient monitoring system Lack of efficient monitoring system Lack of reliable identification mediums Lack of reliable identification mediums Lack of proper skill set for validation Lack of proper skill set for validation Customer literacy levels affect product acceptance Customer literacy levels affect product acceptance Single Product specificity Single Product specificity Customer inability to validate transactions Customer inability to validate transactions Cash Logistics is aachallenge Cash Logistics is challenge Cost economics not justified Cost economics not justified Intermittent /Unreliable connectivity Intermittent /Unreliable connectivity Cash fulfillment Expensive Cash fulfillment Expensive Low Literacy Levels Low Literacy Levels Need to take household/individual view rather Need to take household/individual view rather than product view than product view Loss on default is high and difficult to repossess Loss on default is high and difficult to repossess Delivery system away from online/real time to Delivery system away from online/real time to offline/store and forward mode offline/store and forward mode

    Cards Cash Cheque Branch ATM Internet Phone Banking POS

    Assets Liabilities

    The Technology Landscape


    Unified product Unified product processors processors Unified workflow engines Unified workflow engines Channels powered on a Channels powered on a Service Oriented Service Oriented Architecture (SOA) Architecture (SOA) Each product on every Each product on every channel channel Single token for access Single token for access access across channels access across channels Customer token is a key to Customer token is a key to unlock access to channel unlock access to channel

    Portal Portal

    Smart Card Smart Card

    ATM ATM

    Branch Branch

    Mobile Mobile
    Portable Portable Devices Devices

    Legend Core product processors Channel Layer Customer Interface Layer

    The Product Core


    Workflow Asset Mgt Asset Mgt System System Workflow

    Liability Mgt Liability Mgt System System

    Card Mgt Card Mgt System System

    Unified Unified Banking Banking System System

    One single enterprise wide unified customer view Centralized customer data and limit monitoring Facilitation of straight through processing Amenable to integrated maintenance management

    The Channel Layer


    TODAY
    Discretionary Logic Decision Making Physical presence, System dependency & Cash Mismatch Computers Networks Connectivity Separate logistics for cash deposit & withdrawal Third Party

    TOMORROW
    Dump, rule based operations Cash deposits & withdrawal managed at Agent level

    Branch ATM Internet

    Mobile presence, Device dependency & Local cash management

    POS in store and forward mode

    Low infrastructure cost & fully compliments an Internet kiosk Low infrastructure cost & fully compliments an Internet kiosk Cost per transaction is less Cost per transaction is less Solves last mile problem Solves last mile problem Capability for remote maintenance and services Capability for remote maintenance and services Doorstep delivery of banking services Doorstep delivery of banking services

    The Customer Interface


    TODAY TOMORROW
    Biometric Online Offline PIN TPIN ID / Pwd Online In person

    Connection based Channel Specific Multi-token Debit Card Credit Card Pass book

    Connectionless Channel Agnostic Uni Token

    Smart Card

    Smart Card Virtual Bank in Pocket Single customer ID across systems / channels Standardised multi-product delivery platform Enabler for secure banking in an offline environment STP originates at the customer last mile

    Authentication Device (AD)


    Arrow Key for Arrow Key for starting the device starting the device Receipt Generation Slot Receipt Generation Slot Slot to Slot to capture capture thumb print thumb print F button F button

    Slot to insert Operator // Slot to insert Operator Customer card Customer card

    Authentication Device Features


    Connectivity through GPRS, GSM, PSTN or upload through Connectivity through GPRS, GSM, PSTN or upload through connection to USB port on PC. connection to USB port on PC. Biometrics and printer integrated with device. Biometrics and printer integrated with device. Smart card reader integrated Smart card reader integrated 8 MB SDRAM, 32 MB Flash Memory 8 MB SDRAM, 32 MB Flash Memory 8 Hours + battery life. Re-chargeable battery 8 Hours + battery life. Re-chargeable battery Averages more than 200 transactions Averages more than 200 transactions

    Transaction Card (e Pass Book)


    Name of customer Name of customer Photo of client Photo of client

    Date of Birth Date of Birth

    This side in This side in

    Address Address

    Smart Chip with 32 KB Smart Chip with 32 KB memory memory

    This side up This side up

    Transaction Card (e Pass Book)

    This side in This side in

    Thank You

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