Taking Banks to India's Poor
Image: Manoj Patil for Forbes India
Award: Start Up of the Year
Name: Manish Khera, CEO, FINO
Why He Won: For setting up the largest banking correspondence network in India and bringing financial inclusion to millions of people across 26 states, and using mobile tech in a smart way. It is poised to become the country’s largest banking correspondent.
Like any bank, FINO Paytech wants people to save, borrow and use financial services. Just that FINO is not a bank, and its clientele is not the kind of people you run into at teller machine kiosks. The company’s clients are rickshaw pullers, maids, paanwallahs, chauffeurs, casual labourers and other odd-jobbers who barely manage to eke out a living. Saving for the future does not really cross their minds. Or so it would seem. “Don’t assume for a moment that poor people can’t save,” says Rajeev Arora, director, Financial Inclusion Networking and Operations (FINO) Paytech.
Arora recounts meeting a paani puri vendor in Satara, Maharashtra. He tried persuading him to put Rs 100 in a recurring deposit account with FINO every month. The vendor refused saying he did not have any money left to save. “I randomly asked him, ‘Chit fund karte ho? [Do you invest in chit funds?]’ Pat came the reply, ‘Haan saab. Mahine ke Rs 1,500 [Yes sir, Rs 1,500 a month]’. I was blown away. Here I am begging him to give us Rs 100 and he goes and puts Rs 1,500 into a chit fund company; and we know how they shape up.”
FINO wants people like the paani puri seller to start saving in bank accounts, transfer money electronically, take loans and buy insurance. There are already a set of companies that are focussed on this segment: Muthoot Finance, Manappuram Gold, Western Union, chit funds, and pathpedi outlets. FINO wants to offer all that under its umbrella; a financial superstore at the bottom of the pyramid.
“There’s no doubt that there’s need for a gamut of services which would fulfil the needs of this sector,” says Samit Ghosh, founder of Ujjivan, a financial services firm for the urban poor. “You can’t just open a bank account for the poor and say they are financially included. You have to offer them loans, insurance, etc. I always draw a parallel with the Indian middle class. Until 1985, the middle class had only savings. It was later that banks reached out to them and gave them loans etc. FINO is using technology to do it and that is the right way. However, the hard work is only just beginning for them,” he says.
The challenge is to wean people away from their familiar and largely informal ways of saving and bring them to a proper, well-regulated banking channel. These are people who earn between Rs 90,000 and Rs 200,000 a year and float a little above the government’s poverty line. “They are too far down the value chain [for banks],” says Manish Khera, the CEO of FINO. Where banks don’t see a viable business case, Khera sees a catchment of 90 million potential customers for selling loans, insurance, mutual funds and other financial services.
FINO, incubated by ICICI Bank in 2006 to act as a technology provider to microfinance companies and banks, has now evolved and describes itself as a business and banking technology platform with an extensive services delivery channel. In plain English, it operates as an agent of banks in areas where they don’t have branches.
At the time, the Reserve Bank of India and the government were trying to expand the formal financial sector, beginning with a bank account for every Indian. But banks were reluctant to open branches in remote areas. That’s where FINO stepped in as a banking correspondent (BC), an agent which takes over banks’ front end for a fee, and did the due diligence for banks in lending money and opening accounts for customers. Between 2007 and March 2009, it signed up five million customers for banks. However, over 80 percent of these accounts were inactive and banks took just cursory measures to ensure that they were in line with the RBI. Then the Central bank cracked the whip. In 2009, then RBI deputy governor Usha Thorat decreed that banks would have to reach 70 percent of India’s villages by 2013. Banks had no choice but look for agents who would act as their extensions.