NY Times – Indian microfinance – too many defaults

I hate this shit….sometimes, it’s enough for me to go completely cynical on any kind of change that could be possible in this country. Sometimes, even off capitalism

Read this: India Microcredit Faces Collapse From Defaults

Basically, microfinance organizations (as usual, the middlemen who take money from banks and distribute it to the poor) get too aggressive on loans, distribute too much money without adequate checks on whether the borrower can make the payments, charge ridiculously exorbitant rates which add to the inability of the borrowers to pay up, and then use coercive means to try and get the payments back which basically drags the poor into even more wretched poverty which they were trying to escape in the first place. And then people flee or commit suicide because they can’t pay up. Add politicians to this ultra-aggressive capitalistic, money-grabbing clusterfuck who encourage borrowers not to repay the loans since apparently, the terms of the loan were absolutely unacceptable and the people who suffer are the banks who tried to enter the microfinance in the first place. Jesus Christ dickheads ! If the same model of loan sanctioning which you used in the urban areas worked amongst the rural poor, don’t you think they would have taken the loans a long time before. SHGs is a design of the solution, not the concept. You still need to lend to people with the power and the propensity to pay it back.If you keep adding middlemen in your structure without them undertaking any risk, understanding any shred of the original concept or basically looking at the business as a way to grab whatever they can with minimum intervention,  this is what you get.

If you read Mohammed Yunus’ book on the original concept of microfinance, you know how far we have come from there. In the wrong direction. This is  not to say, it’s not a viable business. Or that an 18% interest is too large. It’s about building a business which is sustainable. For the banks. For the microfinance partners. And for the borrowers. So that’s just one thing: Are you giving a loan that people can pay back? In terms of either volume of loans or rate of interest? And the lack of that concept in the retail loans industry seems to be the only thing that seems to be well-reflected in this industry.

That’s why I love Kiva.org. It works. Not only do people lend directly to the borrower (The actual process is of repaying the microfinance organization for the loan that it gave the borrower. The details are here) which makes the microfinance organization, adopt a more facilitating role as well, but also  they award fellowships to students who volunteer to work with various microfinance partners around the world. This allows Kiva to keep its ears on the ground. Simple. Brilliant. Ethical. Profitable. The best part of Kiva I love? None of the loans given to a borrower go into covering Kiva’s operational expenses. For that, they ask for a separate donation. Which keeps their operational expenses really really lean. The point? You want to make money from the poor? Change your model….you cant sell a business loan to a rural poor person the way you sell a car loan to me.

I wonder if getting the UID thing to scale will solve that solution. I’ll probably do a brain dump on that in a subsequent post

How do we deliver education to the rural people

WARNING: This is a brain dump. Haven’t really researched this in any way.

I was just going through Sanjay Swamy‘s tweets the other day and how he kept promoting ZipDial‘s product of giving a missed call to a particular number so as to vote for a specific poll. Won’t get into an analysis of the product since I’m not really sure of the model.

Anyways, I’ve been on this wierd drive today on education for rural people. Well, it’s been on my mind for some time while doing my MBA. However, at that time, I envisaged this fat pipe of bandwidth being hauled around the rural country and then content could be delivered through off-takes from this pipe. Yeah !! I can really be an idiot sometimes.

Anyways, was just mixing around these two ideas and was wondering whether a service delivery model could exist wherein people could dial up into toll-free numbers through IVRs to get daily lessons. The word “lessons” preclude the requirement of a structured syllabus and schedule but that is not where I am coming from. Nor am I talking about lessons taught as we are taught in schools. We are not talking about learning the A,B,Cs and the written word. But there is a lot of information that does not require the written word. It can be information on the impact of weather forecasts, how to read the soil, how to determine market information, benefits of insurance, etc. Practical snippets on everyday life that can be delivered verbally. Maybe even political news relevant to their area, financial benefits or even any compensatory entitlements that they may not be aware of.

Even lessons of the didactic nature can be in certain ways deployed over such a system if they do not require memorization of sorts. Obviously, subjects that require logical thinking and working out the problems such as math and physics cannot be taught on this platform. But history? Why not? Civics and political sciences, anybody? Maybe, if 3G does come in kicking doors with its sidekick – video, then why not through the Khan Academy of brilliant simplicity in teaching Math

Learning is about awareness not rote learning. It doesn’t try to substitute personalized teaching but seeks to accentuate it. In cases, where the personal contact is not available, it seeks to atleast remedy certain basic faults through quick fixes in the short term. The infrastructure exists: the rural telephony system works, so does the IVR technology (including the authentication aspects) and the toll-free model wherein the content provider pays for the calls made (the obv revenue model is ads but we have to see how that works). The part that still remains is the design of the product. Can it be done? Effectively enough given that you target only those specific subjects that can be delivered? Or are there just too many issues or not enough “subjects” that can be delivered on this model?

Check-ins as an attendance monitoring mechanism

Well, the concept of check-ins is not new. Simply put, you use a check-in in an LBS service (Location based services) to announce the location where you’re at. For example, you can “check-in” at a movie theatre and the status is updated on your Facebook and Twitter streams that you are currently at the theatre. A lot of interesting stuff is possible around check-ins but the best I think would be in the future in rural India where the attendance of kids would be marked by checking in into the school. Checking-in cannot be done unless you are at that location. Hence, using check-ins at schools  to track the progress of the children at school would be the best way to ensure attendance. Obviously, the frequency of the check-in can be determined previously (after every class, twice a day, once a day, etc.) Make the data public and you can really track which schools are working and which ones are not

Mobile money matters – Part II: Rural Reco

<continued from this post>

Rural:

So let’s eliminate credit cards and online payments from this sector. It is too small, if existing, to create a viable market. In fact, this is the only region where the business can grow. Why ?

1. Distance from civilization: Banks are way too far away. I remember a village near Khed district, Maharashtra where there was only one bus in the morning to the nearest town and only one back in the evening. The town was 20 km away and hence, you ended up spending an entire day lost in travel.

2. Unscrupulous money lenders: Enough said. The entire “economy” of the village revolved around these guys. They were the only ones who could provide loans / cash/ credit. Hence, they supplied the seeds, decided the rates, decided the price at which the harvest would be purchased by them and hence, decided how poor the farmers would be. Why? Because there is no credit available otherwise.

However, the road to prosperity is strewn with the bodies of those who tried ! The first thing is: Have you really seen apps on a Nokia 1100? No ? Know why? Because the phone doesn’t even have an OS ! No OS ! No apps ! No service.

Second? Illiteracy. People can’t read and write so if you’re really expecting them to click and choose options for payment and then authenticate the transaction by entering a PIN, then tough luck !The only way to do it is either build a authentication around an voice-IVR based system or hope to

Third? Process: Despite the electronic revolution, the bureaucracy still demands its weight in dead trees. We still need to file paper documents, we still need to sign and add our thumbprint to a million documents and we still need a film-based photograph. In many ways, there is a drastic need to reduce these forms or atleast reduce the number of times that a person needs to physically move around to get an account opened. It’s one of the reasons of the low number of bank accounts open in the rural areas.

Fourth? Distribution and adoption. If you think that you can just go to a rural area, gather up people during the panchayat meetings, give a talk (I really hope you don’t intend to set up a Powerpoint presentation !) and expect your service to sell, forget it. I went only to do a survey and people would not give me any information unless I was introduced to them by someone who had a standing in that village. Sales can be made only on top of a layer of trust and recognition. And if we are talking about them literally handing over a significant portion of their livelihood to a service which they have to use without seeing the physical money….well, you can see how ridiculous that sounds. SKS Microfinance has only 15% of its subscribers possessing mobile phones so it’s not just the adoption of the m-payment service but the handset, the infrastructure and the base mobile services (Voice and SMS) as well

NGOs who work with the village SHGs are the best channel for distribution of these services. SKS Microfinance + Nokia + Obopay is what works. Not just Obopay.

But let’s be clear….despite the pessimistic note of this post, there really is a potential for this service. The hurdles are much higher than usual but so are the rewards, all social, psychological and financial. It just is a matter of a longer time period than what people anticipated. Interestingly, Yes Bank seems to be the only bank that seems to have made a serious foray into the rural m-banking market. Let’s see how that goes.

UID – An ambitious project. Let me add to those ambitions

Image Credit: Just Get There

I’ve been quite interested in this project ever since Nandan Nilenkani stepped down as co-Chairman of Infosys to take on the quite formidable challenge of taking charge of the unique ID project. As per CIOL, the unique id project is described as:

A project in which every Indian citizen would have one unique identification number that will identify him/her. It would not just help the government track down individuals as is highlighted by the media, but would make life far easier for citizens as they would not have to submit so many documents each time they want to avail a new service—private or government

What makes the whole thing mind-blowing is that we can now do away with multiple proofs of addresses and identity. There would be only one single identity for each citizen from “birth to death”. Obviously, this makes it much easier to track and monitor cases with “disproportionate assets” as well.

Further from CIOL:

It would also serve as the basis for many e-governance services incorporating online verification of a person’s identity. UID would enable the government to ensure that benefits under various welfare programmes reach the intended beneficiaries, prevent cornering of benefits by a few people and minimize frauds. It would enable financial institutions to exchange information regarding defaulters and encourage responsible borrower behaviour.

What I wonder is what if we could generate a standard protocol for generating UIDs for all living citizens. I know that Sri Lanka already has a concept of NIC along with 55 other countries. If we were to able to integrate these various ID’s on a global level, can you imagine what redundancies we could eliminate: Unnecessary immigration stamps, visas, hell, even to an extreme even passports.
Further, this helps me create an incredibly vivid profile if they consolidated various people’s profiles into some sort of villages profile, village profiles fall into district profiles and so on. The ability to create some incredibly what-if scenarios could be performed. For example, if Vidharba is suffering from drought, how many farmers are going to suffer? That would be based on what percentage of farmers grow crops which require significant amount of water? Secondly, what percentage of say Pabal have farmers who are insured and how many are covered by the drought. If by some hook or crook, the government (What am i saying? I obviously mean only Nandan Nilekani’s team) could integrate data from various insurance companies, banks and other financial institution, it could automatically decide the cost-benefit analysis of any steps it takes. For example, let’s say the government decides on deploying Rs. XX crore for investments in irrigation facilities, it could be based on the following factors:
1. Which areas have been consistently having droughts
2. Where are the maximum farmer suicides in areas with drought (this is can be interpreted as reducing the political embaressment of farmer suicides)
3. Where has investments constantly be made and what was the result?
4. Which areas are dominated by farmers that grow crops which require large amounts of water (as mentioned above)

I agree to any person who says “That’s going to be incredibly tough and way too futuristic.Hell,it’s probably impractical” I agree. But this is the only chance we have. The only chance to actually track the investments made by the government, whether it be in food distributed through PDS, loans forgiven, agricultural subsidies, what have you?

Cons:

1. Big Brother anybody? Privacy would be the main issue
2. The government may not have the capability to do something this huge?
3. How do we control modification of profiles? A farmer who actually grows a low rain crop like wheat might demand irrigation facilities saying that he grows rice?
4. Every and I mean, every single person has to be profiled. This system will not work with exceptions. Given the number of Indian citizens who don’t even have birth certificates, this is going to be an almighty challenge. A quote from the CEO of Logic Designers says it all: “Our field engineers had to carry the PCs from place to place, especially in remote villages, where a UPS was a must because of the uncertainty of load shedding. But now the availability of laptops and PDA and hand-held biometric devices will make data collection more convenient.”

Other interesting links on the UID project:
UID project: A tough task ahead for Nilekani
UID to benefit poor and marginalized: Nilekani
All about Nilekani’s UID project
India Development Blog 

Disclaimer: Dad works at IFMR as a professor but not at either the CMF, CDF, CIRM. These teams maintain the India Development Blog

Indian Firms Shift Focus to the Poor

Interesting but I wonder some how I feel the root cause to getting services in rural India is not the lack of availability of such products but increasing the revenue from the existing  businesses i.e. productivity in agriculture (2084 kg /hectare against China’s 8752 kg/ hectare – more than 4 times !). Unless people earn, they won’t spend !

Read:  Indian Firms Shift Focus to the Poor

Rural Markets

Ever since I got started on mobile money and m-commerce and stuff, unfortunately, the only one track mind my thought process has been running on is rural markets. I mean, we do have credit cards and debit cards and ATMs all over the urban country side so the concept of mobile payments would work as a novelty at best unless they so drastically re-do the GUI that it’s simpler than the other instruments.

I’ve tried Googling it but I’ve never got a chance to really understand how rural markets operated in terms of what are the monetary instruments used e.g. are they only through cash? Since, it is seasonal, what kinds of credit are available?  I’ve obviously heard of Project Shakti which attempts to convert women into distributors of HLL products and the e-choupal initiatives that ensure that market information reaches the farmers on a real-time basis. Obviously very noble intentions, but two questions arise:

1. Where is the residual money stored?

2. Why are the manufacturers doing this? Why not these big retailers?

The first question is the most important. Unlike urban sprawl, villages don’t have ATMs. Bank branches are like 20 km from some villages. Especially some villages I saw where there was a single bus from a village to the nearest town in a day. One to the town where the bank was and one back. If you wanted to withdraw money, you either hiked it back, or waited till the evening. Not exactly what you would call a convenience lifestyle. So most of the money gets stored at home, in pigeonholes. That’s residual money of the people.

Now what happens when you run out of cash or working capital? You need to take a loan for seeds, fertilizer or whatever raw material you need.  But the banks are too far away. So they go do the next “best” thing. Moneylenders who welcome them with open arms and hatchet knives. I won’t go into that except that it’s such a bad alternative that it’s not an alternative at all. So banks don’t have the liquidity and neither does the farmer. That I think is an easy one to solve on mobile banking and commerce. Go once to the bank, set up an account and link up your phone to it. Obviously, there are some massive problems with in terms of documentation that a bank requires which the poor do not have and the literacy aspect of it. But if the banks found an easier way to deliver loans hence reducing the cost of acquisition and the risk, you can bet that something would work out to make this process more fluid.

The second benefit is using this platform now created as a bridge or a pipeline. I can’t imagine why we couldn’t move insurance products and other financial services on this pipeline to them. I think this is one thing a lot of people are thinking of.

What’s even cooler is something I overheard when I was off galivanting in rural Maharashtra on one of my projects. Here, the moneylenders, the procurement people AND the retailers are in it together. They probably are from the same family or the same person. So what happens is that you take money from a guy, buy supplies from the same guy, sell your grain off to the same guy and the funny part ? You’re in debt. While it really sucks to be the farmer, I can imagine what a riot of opportunities it opens up for big retailers in rural markets. Same thing but a lot less exploitation. This comes to the second question. Why should the retailers be interested? You want to sell products….this is the way ! Sell them raw materials on credit, get payment in grain, convert grain into in-store credits, and then sell stuff they really need against those credits. Then take the grain and sell it to your urban stores at really really low prices. Obviously, there is a lot of distribution and logistics to handle but I don’t see it being more than slightly incremental effort. This is the chain I see:

The numbers are all made up. Those in yellow are market-related prices (inputs) and those not highlighted are calculated variables.

Anyways, there are a few things that would and can go wrong in this whole deal:

1. The most potent is the lorry unions and the “normal procurement” channel partners who are going to be the most pissed

2. Excess control over the area by the retail boxes in procuring from both, the manufacturers and the farmers.

3. Acceptance of mobile transactions in rural areas.

4. Availability of mainly low-end mobile phones in rural areas. Hence, you can’t make a Symbian-based or an Iphone-based application to use. The frontend would simply have to be SMS-based.

Some of this may be  based on my own exploration of these ideas during my 2-week trip to rural Maharashtra.

Interesting link: Mobile banking: for real or just a mirage? (Read the comments as well – pretty good insights)