Insightful perspective from industry leaders at NBFC’s Tomorrow Conclave by Banking Frontiers. Edited excerpts:
Panelists
Narendra Mairpady, Former Chairman & Managing Director, Indian Overseas Bank
Ganesh Ramani, Chief Business Officer, UNCIA
Bonani Roychoudhury, Managing Director, Nabsamruddhi Finance
Jiji Mammen, Executive Director & CEO, Sa-Dhan
Manoj: The fundamental point is this – there is a lot of transformation happening and there is a lot of innovation happening. The question is – what is the cause and what is the effect?
Bonani: Anybody would expect that there is so much of innovation, it is totally disrupting the financial ecosystem and it is inducing transformation in the way we do business. When we look at the other way also, it’s equally true. When you reposition yourselves for whatever reason, that kind of transformation induces innovation. Ours is a totally a different organization today, and we need innovation in systems, processes, products, every which way. Secondly, the regulator expects a change from you and we have seen the scale-based regulations happening. When you are pushed into a lot of regulatory stringency, you have to look at innovation. Because if you continue with the same way you were doing business, it’s very difficult to cope up. Third, because nobody expected the impact of climate change that we are feeling today. We can see heat waves affecting the business of micro-finance institutions. MFI are saying that heat waves have affected their credit costs. That is where we really need to induce innovation. And we have actually done that right now.
We are looking at start-ups and tech companies to come up with newer innovations, to cater to climate resilience in the water and sanitation sector. Without water and sanitation, which are basic needs, again, the financial sector itself cannot sustain. With floods, droughts, cyclones, sea level rising, salination, and all that, we cannot carry on with the same generic solutions we have. We have to innovate. We are supporting it with blended finance.
Dr. Narendra: Whether it is innovation or business transformation, we’ll have to keep in view the customers – the value proposition, the value drivers and customers delight. With customer in mind, there will be a lot of innovation in technology, product, process and even delivery. For all that, there must be ownership. Without ownership of the innovation and the commitment to make it successful, it will not sustain for long. It has to be in line with the short, medium and long-term vision, mission and goal of the organization, as well as core value, core purpose and core enhancement. That is why today you find so many miracles happening due to the innovation.
Jiji: In the microfinance sector, innovations leading to transformation and transformation leading to innovation, both are happening. But more of transformation leading to innovation is what we have been seeing. For example, in 2010, when there was a huge crisis in the sector due to developments in Andhra Pradesh, the sector was in deep doldrums. That was the time to figure out how to know liabilities of a borrower and the high level of credit indebtedness. That’s how when the credit bureau mechanism started. Once the credit bureau mechanism started, it led to a larger business growth in the sector. Second example is from 2016 when demonetization took place. That was another setback to the sector which was entirely cash based. There is a time when the sector thought about how to avoid dealing in cash. So then the digital mode of transfer of money through the banking accounts was introduced. So, since 2016 you find that almost all 100% of the microfinance loans are disbursed by the digital mode only. That further helped in enhancing the business. Again, when came, meetings became a difficult proposition. That is when both disbursement as well as collection was made in digital mode. So, whenever there was a crisis, it was taken as an opportunity for innovations. And that definitely helped the business in microfinance to grow. So, more of transformation leading to innovation is what we have seen.
Ganesh: I look at it at the top of the layer, the top of the pyramid, I would say customers and crisis are the two important criteria that lead to innovation and business transformation. In the last 5 years, it’s both. Under that pyramid is the technology layer, which is the backbone for the innovations and transformation to happen.
Manoj: With talent being a key resource for any organization, is there that rush, blind rush towards adoption of modern tools? What do you see as the risk?
Bonani: I will share an example. We had asked our data analytics team to come up with a peer comparison module which developed was on Python. They had developed and they were actually presenting it with a lot of confidence. When they were asked for an explanation for one of the outcomes, the first answer was, “I don’t know.” When asked who knows, they said Python knows. So, this is the danger of over-dependence that can happen. AI is a great tool and we cannot do without AI. But, there has to be an overlay of the human intelligence. When things are different, where there is a black swan event, AI will not have the answers because it never knows about that as the data does not exist as such.
Dr. Narendra: Whatever question you will ask to the artificial intelligence, that also has to be intelligent. Unless you are intelligent, what the outcome will come, will be wrong.
Ganesh: We deploy our tech architecture on a platform that’s, we ensure that the tech resources that we will utilize are for not just for deploying the current application, but for the next 5-10 years. Today, skills shortage is a major issue and tech is an enabler. The regular, mundane, operative work is being replaced by technology, which is a boon for institutions who are focused on return to shareholders. On the other hand, it creates a huge disappointment for youngsters who want to have a career in financial services, say, in operations. So, there is a boon and a bane and that is the conundrum.
Manoj: How does the microfinance sector see its evolution in terms of the impact of technology?
Jiji: Microfinance is a highly human-intensive sector, employing more than 2.5 lakh people in the country. Most of the operations used to be entirely physically done. So there is a lot of scope as far as technological intervention is concerned. So that the cost of operations can be brought down. If the sector has to really become more operationally efficient, more technology needs to be deployed. Earlier, entire application used to be taken in a physical form, but now most of the microfinance institutions do the borrower on-boarding in digital mode.
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