A foreign bank engaged in urban financial inclusion in India? That’s precisely what South African bank FirstRand Bank is into.
“We have been doing Easy Banking – that is, banking the urban unbanked – for the last two years,” says Ashish Desai, head, Consumer Banking of the bank. “This covered opening transactional accounts for the unbanked and accepting deposits. But, we were notthenin the lending space. The transactional banking activity wasconfined, in terms of the license given by the Reserve Bank of India, to Mumbai and Thane. The account holders were given debit cards and we have also been providing ATMs in the slum areas of places like Dharavi and Govandi and other transactional services. In January 2015, we entered the lending space, offering micro-personal loans of the ticket sizes of Rs15,000 to Rs30,000 . It worked under the Joint Liability Group (JLG) model, which is enabling a group of individuals to take group loans wherein the responsibility of loan recovery is on all members. We have been able to disburse16,000 accounts where the borrowers were provided with loans essentially for productive purposes. We have a total of 65,000 operational bank accounts,” he adds.
Since the whole business worked under the JLG concept, the bank never faced defaults in repayment of the loans so far, says Desai. “The intention has been to assess the credit appetite of the target groups and ensure that they understand the essentials of financial discipline. We have been reaching out to our target audience through some 25 BCs. What we ensured in the loan disbursals was that there is no cash transaction and the borrower gets the loan directly credited to his bank account with us. We have been sanctioning loans essentially for home-based cottage industry – like soft toy manufacturing, leather products, tiffin services, etc,” says Desai.
REPLICATION
FirstRand Bank is a big player in the financial inclusion segment in South Africa. The bank wants to replicate its achievements in India although the Indian model will be totally different from the South African one. For example, the South African model relies mostly on self-service whereas the concept has not taken off in a big way in India. But, the bank intends to impart education to the beneficiaries in India and persuade them adopt digital for it has its own benefits and advantages.
“We have developed an effective due diligence process before the sanctioning of the loan,” says Desai answering how the bank takes care of collateral security for these loans. “Besides, the JLG model ensures that there is hardly any delinquency. Post-sanction of the loan, we maintain a good customer connect and we ensure that there is strict monitoring of the activities of the borrower so that he or she makes use of the funds strictly for the purpose these funds are sanctioned. And for us a loan account is not just an account going by the account number but a relation with an individual. This attitude has really helped us in ensuring that there are no defaults in repayment. We also undertake to impart financial literacy to each of the borrowers – especially the importance of having a clean record as far as borrowings are concerned. We talk to them about credit information bureau scores and how a bad score can impact their borrowing capacity. We believe financial literacy is the supporting edifice in any financial inclusion efforts. We also talk to them on the importance of savings, educating their children and the benefits of enhanced access to capital in case there are no defaults. Besides, the relationship also extends to helping them find markets for their products. The ultimate aim is to ensure that there is economic independence for the beneficiaries,” he elaborates.
FOUR QUADRANTS
“We intend to be in all the four quadrants as far as financial inclusion is concerned – savings, lending, insurance and transactions. Yes, we would offer micro-insurance to our customers through reselling arrangements with insurance companies,” Desai says. He also emphasizes: “Financial inclusion is definitely a line of business for us. We also include certain aspects of financial inclusion in our CSR activities – like health insurance or financial education. That apart, we see it as a source of revenue.”
The bank intends to extend the program to other cities as it secures license to open more branches.
Technology has played a big role in making this project a success. “We have been using mobile banking in an effective manner and this has not only helped in bringing down cash transactions but ensured that instead of the customers coming to the bank for their transactions, the bank goes to them. Technology has also ensured that our operational efficiency has improved and the requirements of KYC are fulfilled,” avers Desai.
TECHNOLOGY BASE
The bank has a major advantage in that its operations in South Africa are well grounded in technology and it is just a question of adapting this technology to Indian conditions. For example, in South Africa, practically most of the transactions are through mobile wallets, but in Indian conditions, cash cannot be totally eliminated. So, the bank has brought in the required changes to suit the Indian requirements. For example, its CBS. It is an in-house developed system and but it has been able to adapt it to Indian requirements. In South Africa, self-service kiosks take care of almost all banking transactions and the technology platform provides for this. However, in India self-service kiosks are yet to take off. So to that extent changes are made in the system.
Desai says the bank has plans to convert the India operations into a wholly owned subsidiary. “When we get the permission, we would function as a new age bank, relying less on a brick and mortar set up. Of course, Indian economy is cash-based and to that extent, we need to have branches to handle tranactions like cheque clearance, cash delivery, etc. But we have a strong technology infrastructure and we will optimally exploit this infrastructure to create an efficient network – not necessarily a physical one – across the country,” says he.
RETAIL BIZ
How will the bank expand the retail business in the country?
At present, the bank has a strong presence in the business-banking segment. For example, it offers high rates of interest on savings accounts – 8.5% for sums above Rs 10 lakh and 7.25% for sums below Rs 10 lakh. “We have very good response to these schemes. As we go forward, we will introduce innovative lending products. We expect NRIs and PIOs to be a big source of our business. We would concentrate on self-service and doorstep customised service so that these people can open accounts, make deposits and do maximum of banking activities from the comfort of their homes. We have technology that can facilitate this,” says Desai.
As a technocrat, how does he visualize the digital banking scenario in the country?
Desai says the world is moving towards self-service and India cannot be an exception. “Look at the plethora or mobile wallets that have come into existence. By looking at the large scale adoption, what is encouraging is that people have a fair amount of faith in the security systems that surround these applications. Of course, RBI has stipulated caps but the adoption rate is quickly going up. I am of the firm view that like in the case of ATMs, where there had been an initial hesitation on the part of users to adapt to it, but which later gave way, use of mobile banking in general will leap-frog in the years to come. There is evidence. The regulator has given payments bank licenses to mobile wallet operators and telcos. The adoption is going to peak even as the regulator is ensuring that the required framework exists,” says he.
INNOVATIONS
As regards innovation in the mobile banking space, he visualizes a scenario where wallet to wallet transaction could be possible in the days to come. Like in the case of SMS messages, it could be platform agnostic. So, one can have OTP and the transaction go through seamlessly.
“All these developments can finally lead to a self-service mechanism in banking as a whole,” he says.
He also points out that mobiles have been a major facilitator in the financial inclusion segment. People have been found to be more adept at handling numericals rather than text, especially when they are not adequately educated. So, an OTP serves well rather than an SMS. “And this is self-service. Likewise, I believe it will be a major factor in universal banking as well because mobiles have become an integral part of human life and it is but natural that its capability as a banking transaction medium will be fully exploited. You can do it anywhere, anytime. For example, in South Africa ATMs are not that ubiquitous as they are in India. But mobile are very much so. So, much of the banking transactions do happen through mobiles there,” says he.
Desai concludes: “I see a distinct benefit for banks. They can make use of the data on customer behavior that is available with the mobile operators to customize product and service offerings to the target audience. For example, FirstRandBank is also a mobile virtual network operator (MVNO) in South Africa and it makes use of the vast database that is available to appropriately target prospective customers without compromising on the confidentiality and privacy aspects of the customers. Such a day is not far off in India.”
