By Ramesh Ramanathan
Anyone who has spent time solving problems of financial inclusion will confess that it is hard work.
The gap between the financial services that those of us reading this have access to, and those which are available to the poor around the world, is both disturbingly large and tantalizingly solvable. But the really hard part is moving from the realm of possibilities to the reality of scalable practical ideas – ideally, with the inherent lift-off velocity of market forces.
At Janalakshmi, we have always believed that what truly constrains us is not government regulation – of course, regulations are major sources of unnecessary friction – but rather our own inability to innovate to find powerful solutions that add value to our clients.
Our own journey of building a ‘360-degree financial services company for all the needs of the urban poor’ began in 2000. Over time, we came to understand the enormous process constraints of delivering credit services in small ticket transactions across thousands of slums in cities across India.
Based on these insights, it took us four years between 2006 and 2010 to build an industrial-strength technology platform that provided the backbone of scalable, small-ticket loan disbursals. On this platform, we built a field organization where roles were clearly distinguished between sourcing, collection and cross-selling. Once we got it right, this platform helped us scale. Today, we have a nationwide business spanning 70 cities, serving 2 million clients, and growing at a healthy rate.
But we have barely scratched the surface. The size of the financial inclusion challenge is simply gigantic. Frankly, it is bigger than any of us truly realize. That’s because we have become lulled into thinking that financial inclusion is meant only for those at the very bottom of the pyramid.
In reality, that is only the beginning. There are millions more who aren’t struggling with abject poverty at the very bottom, but just above this threshold, willing to take responsibility for their lives, work hard and play by the rules. Unfortunately, these millions of struggling Indians are not getting access to the range of financial services at the prices or quality that they deserve. Their financial needs span both their personal finances, as well as those of their nano- and micro-enterprises.
In total, the estimated needs, just on the lending side, are approximately $500 billion, or 50% of the formal banking system’s assets. And this is only on the lending side – there are equally massive needs to be met on savings, insurance, pensions, benefits and entitlements, and investments. In a nutshell, what we are beginning to see in India is the emergence of the new frontier of financial inclusion, covering almost 50% of our population.
The formal banking system is constrained from delivering on these needs in many ways: legacy systems, poorly designed products and services, inappropriate human resources, expensive cost structures. Individually, any one of these constraints would be difficult to overcome, collectively, they render the incumbent banks almost incapable of transforming themselves, especially when their regular businesses are themselves growing at a healthy rate. All in all, we need to look beyond our current banks if we want meaningful solutions to India’s financial inclusion problems – to a new generation of financial institutions.
If we have to address the massive challenges of the new frontiers of financial inclusion, we need to address the multiple institutional challenges for financial service providers. One of the cornerstones of the solution is transformative technology, from the front-end of dealing with customers in a distributed field setting, to the back-end platforms and analytical engines that can not only ensure robust risk and control mechanisms, but also cutting-edge analytics and data mining features. As an example imagine data analytics to drive pricing and product offerings depending on the hyper-local spatial neighborhood that a particular customer lives in, within a city.
We are living in a sort of ‘golden age’ of technology that can truly transform the landscape of inclusion – such powerful platforms with enormous functionality, all available on the cloud, at a price point that is critical for low-value transactions would have been unimaginable barely a few years ago.
To harness these possibilities, we need to have not only the ambition to dream big, but also the tenacity to deliver on this vision. The partnership that Janalakshmi has forged with IBM is to do both: to jointly shape a truly transformative approach to address the challenges of the new frontiers of financial inclusion in India, and then to systematically – month on month, year on year – deliver on this vision.