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Emerging-Market Loan View Perks Up – WSJ

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By SUDEEP REDDY

Lending conditions are improving in emerging markets for the first time in almost two years, providing a potential boost to economies weighed down by troubles in the euro zone and the U.S.

A survey to be released Wednesday by the Institute of International Finance, a global association of major banks, found that lending conditions in emerging economies perked up in recent months for the first time since the second quarter of 2011. Trade finance also is improving, a hopeful sign for the trade-dependent developing countries hit hard by the euro zone’s recession and financial turmoil.

The results should support expectations for stronger growth in emerging markets this year despite the continued euro-zone recession and slow growth in the U.S. due to tax increases and spending cuts.

“We’re getting a steady, gradual improvement,” said Philip Suttle, the IIF’s chief economist. “It’s another sign of global healing.”

The survey, which drew responses from executives at 141 emerging-market banks between mid-December and mid-January, assesses how financial institutions view their lending environments. It is modeled on surveys by central banks in the U.S., Europe and Japan to evaluate lending conditions in those economies.

The world’s major central banks can take much of the credit for the latest improvement after their moves in the second half of last year to douse financial fires, lower interest rates and push investors toward riskier assets.

Loose monetary policy in advanced economies eased international funding conditions for banks, while low interest rates from emerging-market central banks improved domestic funding conditionssubstantially, the report said. Banks in emerging Europe and Latin America benefited most from the easier access to cheaper funds, the survey found.

Escalation of the euro zone’s financial troubles in 2011 led banks in the currency union to rein in lending on the Continent and around the world. That helped push global trade growth down substantially last year. But efforts by European policy makers to prop up the banking sector appear to be reversing that damage now. The IIF’s survey found conditions for trade finance strengthening in recent months.

“It’s a good indicator for world trade after a very bad year,” Mr. Suttle said. “This would add to the factors for being a bit more optimistic about the emerging world in 2014.”

Despite the improvement in overall lending conditions, the latest findings showed trouble spots around the world. Loan demand continued to weaken in emerging markets, mainly due to lower demand for commercial real-estate loans.

Bad loans increased in most major regions. Nonperforming loans are expected to increase further this year in emerging Europe, Latin America and emerging Asia.

Credit standards continued to tighten as well, particularly in Asia, as banks in China and other faster-growing economies maintain caution after sharp increases in property prices and trouble around the world.

“It’s what you do when you’ve got reasonably strong growth around you, but you’re aware that the world is a risky place,” Mr. Suttle said. “This is the point in the Asian business cycle when you start making poor lending decisions if you’re not careful.”

Write to Sudeep Reddy at sudeep.reddy@wsj.com

Social Impact Investing Will Be the New Venture Capital

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Social Impact Investing Will Be the New Venture Capital
by Sir Ronald Cohen and William A. Sahlman  |   8:00 AM January 17, 2013

During the past century, governments and charitable organizations have mounted massive efforts to address social problems such as poverty, lack of education, and disease. Governments around the world are straining to fund their commitments to solve these problems and are limited by old ways of doing things. Social entrepreneurs are stultified by traditional forms of financing. Donations and grants don’t allow them to innovate and grow. They have virtually no access to capital markets and little flexibility to experiment at various stages of growth. The biggest obstacle to scale for the social sector is this lack of effective funding models.

But the problem is not money, per se. Take a look at the social sector in the U.S. There are $700 billion of foundation assets, and 10 million people working for non-profits. These are huge numbers. Yet there are massive inefficiencies in capital allocation. Too often donors starve organizations and entrepreneurs by refusing to cover overhead. This makes it impossible for social organizations to scale. Interviews conducted in 2000 by the Social Investment Task Force in the United Kingdom, revealed what most nonprofit leaders already know: Almost all social sector organizations are small and perennially underfunded, with barely three months’ worth of working capital at their disposal. And that hasn’t changed in the last 12 years.

Compare that to the world of venture capital. If a business entrepreneur came to us with a plan for growing a new business without spending a penny on overhead, we would show him or her the door. Why should it be any different for a social entrepreneur?

We believe we are on the threshold of a major change not unlike the early days of the modern venture capital industry. In the mid-1960s and early 1970s, a new type of investment vehicle was created: the professionally managed venture capital partnership. This organizational innovation drew investment capital from institutional players like pension funds and endowments and allowed for appropriate time horizons. Soon venture capital became a core part of many economies and those bold moves changed everything. Entrepreneurship has never been the same.

Just as the formation of the venture capital industry ushered a new approach and mindset toward funding innovation within the private sector, impact investment has started to bring opportunities to harness entrepreneurship and capital markets to drive social improvement. This in time will bring much needed change to the social sector.

We’re already beginning to see innovation. People are developing new securities that link social performance to financial returns. There are new experiments — models that use the tools of finance to try things in different ways — sometimes creating income streams from novel concepts, likefunding cancer research. There are also hybrid organizations like the Acumen FundBridges Ventures and Root Capital that channel patient capital to high social return investments around the world. There are even organizations like Endeavor and Social Finance that help entrepreneurs gain access to global capital markets to fuel growth in employment and social impact.

Within the last two years, government agencies in the U.K., U.S., Australia, Canada and Israel at the national, state, or even county levels have begun exploring the potential of social impact bonds. These are financial instruments that pay an investor if the cost or incidence of something (foster care or prisoner recidivism) is reduced, with comparable or better results, than a government program. If so, the investor makes money; if not, they lose money.

As more and more examples emerge from all regions of the world — addressing issues as diverse as recidivism, drug discovery, sleeping sickness, literacy, food deprivation, and poverty — one begins to get the sense that there’s no stopping this idea whose time has come.

Things will change rapidly over the next five to ten years. If investors can find the same courage the early institutional backers of the venture capital industry found, we will see talented social entrepreneurs build large, effective organizations that move the needle on a social issue and deliver acceptable financial returns at the same time.

To get there we need success stories — like the early investments venture capitalists made in companies like DEC, Intel, Scientific Data Systems, Teledyne, Genentech, Apple and Tandem — that build confidence and unlock private capital. When investors believe they can earn acceptable returns, money will flow. And smart people will feel they can succeed because they can attract capital.

We live in a world awash with capital — some $200 trillion in financial assets according to McKinsey & Company. We also live in a world of remarkably low interest rates. If we can create instruments — like social impact bonds — that can deliver a financial return of about 7%, a high social return and limited downside risk, then we can meet two needs. We can provide reasonable returns that are uncorrelated with equity markets and attract capital to entrepreneurs who can develop innovative and effective ways of improving the fabric of our society.

Follow the Scaling Social Impact insight center on Twitter @ScalingSocial and register to stay informed and give us feedback.

$9 Billion To Flow Into Impact Investments In 2013

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JANUARY 22, 2013 • 

According to research from J.P Morgan and The Global Impact Investing Network, $9 billion will be committed to impact investments this year. That would represent a 12.5% boost from the $8 billion that flowed into the space in 2012, the research shows.

Impact investments aim to produce a financial return while providing a positive impact through projects such as alleviating poverty, promoting human rights, engendering fair trade, or improving the environment.

The current research, culled from a survey last year of 99 active impact investors, found that most respondents said the financial and impact performance of their investments are in line with expectations. Nearly two-thirds of the sample said they shoot for market rate financial returns on their impact investments.

Half of those surveyed are fund managers who expect to make 10 impact investment transactions this year.

Most of the investments will be made in the food and agriculture sector, according to the survey, with sub-Saharan Africa receiving the largest share of total capital committed (34%). Latin American and U.S. companies will receive the next largest share (32%).

In developed market economies such as the U.S., healthcare companies will receive the most investment dollars.

Most investments (78%) are being made in growth-stage companies, with less than 20% in seed/startups and just over half in venture-stage organizations. Thirty-three percent of investments are headed for bigger and more established private companies, while nearly 10% of investments will be made in publicly traded stock.

Interestingly, 83% of the respondents said they make impact investments via private equity instruments. Conventional wisdom held that private impact investments made in the developing world were largely credit, or debt-driven because of risk and recourse measures.

After private equity, the next largest investment vehicles of choice among survey respondents were private debt (66%) and equity-like debt (44%).

Despite numbers showing a slow-building momentum in the impact investing space, respondents said the top challenges to growth were “lack of appropriate capital across the risk/return spectrum” and “shortage of high quality investment opportunities with track record.”

To help promulgate impact investing, those surveyed said governments can help grease the skids by providing technical assistance, tax credits, guarantees, better regulation, co-investment opportunities and procurements.

Metrics and standards are also important to fuel industry growth. Seventy percent of those surveyed believe standardized investment metrics are key to the development of the impact investing industry.

As more traditional investors consider impact investments (“many” investors, especially among high-net-worth people and family offices, are starting to consider the impact investment market, according to the survey), standards and risk measurements will become increasingly important.

The overall takeaway from the survey is that impact investing has moved past the “fad” stage and is maturing into a more fully realized segment of the financial services industry. With Goldman Sachs, Morgan Stanley, JP Morgan, Credit Suisse and others launching more robust impact investment programs, and with operators such as TriLinc Global advancing in the independent financial advisor market, mainstream funds and program offerings are sure to follow.

That means even more growth in the coming years.

Chicken Soup for a Davos Soul: Successful companies serve a purpose beyond making money – WSJ.com

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Capitalist guilt is nearly as old as capitalism itself, but it has seen a resurgence since the financial crises of 2007. Bill Gates, history’s most successful capitalist, started it off with his speech in 2008 at that snow-covered confessional of global capitalism, the World Economic Forum in Davos, Switzerland. Troubled by the fact that the pharmaceutical companies were paying more attention to finding a cure for baldness than for malaria, Mr. Gates called for a new system of “creative capitalism.”

Michael Porter, a Harvard Business School professor, pitched the same snow-booted audience three years later with his ideas for “shared-value capitalism.” Business leaders, he argued, were too focused on short-term financial gains and needed to pay more attention to the well-being of customers, the depletion of natural resources, the viability of suppliers, and the concerns of the communities in which they produce and sell.

Now come Whole Foods co-CEO John Mackey and Raj Sisodia, a marketing professor at Bentley College, with yet another take on the subject (and yet another moniker): “Conscious Capitalism: Liberating the Heroic Spirit of Business.” Like other such efforts, it will leave Milton Friedman, scourge of the corporate social-responsibility crowd, spinning in his grave. But even the most determined profit-maximizers may find ideas here that challenge deeply held beliefs.

Mr. Mackey may seem a strange leader for a new capitalist movement. His sojourn started in the counterculture of the 1960s and 1970s, where he practiced Eastern religion, yoga, liberal politics and vegetarian eating (he is a vegan today) on his road to business success. And he earned notoriety from a bizarre episode in 2007 when the Federal Trade Commission uncovered his messages attacking a competitor under an assumed name on a Yahoo message board.

What is refreshing about the Mackey-Sisodia take is that they aren’t advocating some bolt-on solution to the capitalist model. Rather they argue that the mathematical framework of free-market economics—developed by neoclassical economists in the 20th century—fundamentally mischaracterizes the true nature of capitalism.

Conscious Capitalism

By John Mackey and Raj Sisodia
(Harvard Business Review Press, 344 pages, $27)

“With few exceptions,” the authors write, “entrepreneurs who start successful businesses don’t do so to maximize profits. Of course they want to make money, but that is not what drives most of them. They are inspired to do something that they believe needs doing. The heroic story of free-enterprise capitalism is one of entrepreneurs using their dreams and passion as fuel to create extraordinary value for customers, team members, suppliers, society, and investors.”

Unlike commentators who defend capitalism while expressing some doubt or disapproval—think of Irving Kristol’s 1978 neoconservative manifesto, “Two Cheers for Capitalism”—Messrs. Mackey and Sisodia are unapologetic enthusiasts. “This is what we know to be true,” they declare in the first chapter. “Business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it lifts people out of poverty and creates prosperity.” The challenge, they say, is to make capitalism more “conscious” of its heroic nature.

What does that mean? Well, first, the authors say, it means having a clear purpose, beyond just making money. Purpose usually exists when companies are created, they claim, but often gets lost along the way. “When any profession becomes primarily about making money, it starts to lose its true identity and its interests start to diverge from what is good for society as a whole.” The authors cite Google and Southwest Airlines as companies with purpose, pharmaceuticals and financials as industries that have lost theirs.

Second, conscious businesses consider the needs of all their stakeholders—which is to say, everyone touched by the business: employees, suppliers, customers and affected communities, as well as investors. It is that mind-set that, the authors argue, has led Whole Foods to adopt an unusual approach to compensation. The company’s pay policies are transparent: Everyone knows what everyone else is making; the top seven executives make exactly the same pay and bonus; and total cash compensation for those at the top is capped at 19 times the average, a far cry from most companies, where top executives earn more than 100 times the average. Finally, conscious businesses have conscious leaders, who are “primarily motivated by service to the purpose of the business and its stakeholders, and not by the pursuit of power and personal enrichment.”

This all sounds a good bit more idealistic than Adam Smith’s invisible hand, guided by enlightened self-interest. Naysayers will no doubt continue to channel Milton Friedman and argue that conscious capitalism carries the same pitfalls as creative capitalism, shared-value capitalism and corporate social responsibility. In an increasingly Darwinian global business environment, it threatens to seduce business leaders into taking their eyes off the profit ball. Pepsi CEO Indra Nooyi, a favorite of Messrs. Mackey and Sisodia, is often cited as the latest example of the danger. Her efforts to sell healthy snacks to the world, critics say, have caused her to stumble in the sugar-water war.

But at a time when the public reputation of big business has hit a dangerous low, surely the efforts of Messrs. Gates, Porter and Mackey—and even Ms. Nooyi—to make capitalism better can’t be all bad. As the authors put it: “Free market capitalism is one of the most powerful ideas we humans have ever had. But we can aspire to even more. Let’s not be afraid to climb higher.”

Mr. Murray, a former deputy managing editor of The Wall Street Journal, is president of the Pew Research Center in Washington.

Social Impact Investing Will Be the New Venture Capital – HBR

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by Sir Ronald Cohen and William A. Sahlman  |   8:00 AM January 17, 2013 Harvard Business Review

During the past century, governments and charitable organizations have mounted massive efforts to address social problems such as poverty, lack of education, and disease. Governments around the world are straining to fund their commitments to solve these problems and are limited by old ways of doing things. Social entrepreneurs are stultified by traditional forms of financing. Donations and grants don’t allow them to innovate and grow. They have virtually no access to capital markets and little flexibility to experiment at various stages of growth. The biggest obstacle to scale for the social sector is this lack of effective funding models.

But the problem is not money, per se. Take a look at the social sector in the U.S. There are $700 billion of foundation assets, and 10 million people working for non-profits. These are huge numbers. Yet there are massive inefficiencies in capital allocation. Too often donors starve organizations and entrepreneurs by refusing to cover overhead. This makes it impossible for social organizations to scale. Interviews conducted in 2000 by the Social Investment Task Force in the United Kingdom, revealed what most nonprofit leaders already know: Almost all social sector organizations are small and perennially underfunded, with barely three months’ worth of working capital at their disposal. And that hasn’t changed in the last 12 years.

Compare that to the world of venture capital. If a business entrepreneur came to us with a plan for growing a new business without spending a penny on overhead, we would show him or her the door. Why should it be any different for a social entrepreneur?

We believe we are on the threshold of a major change not unlike the early days of the modern venture capital industry. In the mid-1960s and early 1970s, a new type of investment vehicle was created: the professionally managed venture capital partnership. This organizational innovation drew investment capital from institutional players like pension funds and endowments and allowed for appropriate time horizons. Soon venture capital became a core part of many economies and those bold moves changed everything. Entrepreneurship has never been the same.

Just as the formation of the venture capital industry ushered a new approach and mindset toward funding innovation within the private sector, impact investment has started to bring opportunities to harness entrepreneurship and capital markets to drive social improvement. This in time will bring much needed change to the social sector.

We’re already beginning to see innovation. People are developing new securities that link social performance to financial returns. There are new experiments — models that use the tools of finance to try things in different ways — sometimes creating income streams from novel concepts, likefunding cancer research. There are also hybrid organizations like the Acumen FundBridges Ventures and Root Capital that channel patient capital to high social return investments around the world. There are even organizations like Endeavor and Social Finance that help entrepreneurs gain access to global capital markets to fuel growth in employment and social impact.

Within the last two years, government agencies in the U.K., U.S., Australia, Canada and Israel at the national, state, or even county levels have begun exploring the potential of social impact bonds. These are financial instruments that pay an investor if the cost or incidence of something (foster care or prisoner recidivism) is reduced, with comparable or better results, than a government program. If so, the investor makes money; if not, they lose money.

As more and more examples emerge from all regions of the world — addressing issues as diverse as recidivism, drug discovery, sleeping sickness, literacy, food deprivation, and poverty — one begins to get the sense that there’s no stopping this idea whose time has come.

Things will change rapidly over the next five to ten years. If investors can find the same courage the early institutional backers of the venture capital industry found, we will see talented social entrepreneurs build large, effective organizations that move the needle on a social issue and deliver acceptable financial returns at the same time.

To get there we need success stories — like the early investments venture capitalists made in companies like DEC, Intel, Scientific Data Systems, Teledyne, Genentech, Apple and Tandem — that build confidence and unlock private capital. When investors believe they can earn acceptable returns, money will flow. And smart people will feel they can succeed because they can attract capital.

We live in a world awash with capital — some $200 trillion in financial assets according to McKinsey & Company. We also live in a world of remarkably low interest rates. If we can create instruments — like social impact bonds — that can deliver a financial return of about 7%, a high social return and limited downside risk, then we can meet two needs. We can provide reasonable returns that are uncorrelated with equity markets and attract capital to entrepreneurs who can develop innovative and effective ways of improving the fabric of our society.

Follow the Scaling Social Impact insight center on Twitter @ScalingSocial and register to stay informed and give us feedback.

2013 Will Offer Impact Investors New Opportunities

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POSTED BY IMPACTSERIES
ON DECEMBER 13, 2012

By Luther M. Ragin, Jr., CEO of Global Impact Investing Network

Today, the market for impact investment is at an inflection point. Investors are beginning to shift the way they think about financing social and environmental solutions. Whereas historically, impact has been achieved primarily through grants and other charitable contributions, the emerging impact investing market offers a path for investments that generate social and environmental good as well as financial return.

Impact investing is particularly attractive because of the diversity of opportunities within this field. Because impact investments can be made in developed and emerging markets, across the asset classes in a traditional portfolio allocation, and targeting financial returns ranging from below-market to market rate, there are opportunities for all types of investors. Unifying these investments is a fundamental commitment to transparency and the accountability of investors to measure and report the social and environmental benefits they seek.

Indeed, in recent years, diversified financial institutions, pension funds, and family offices have allocated funds for impact investing. Today, more than $13 billion in impact investment capital is committed to over 200 funds and products listed onImpactBase, the online global directory of impact investment vehicles.

In 2013 and beyond, as even more capital is committed to impact investment, we expect to see significant growth in the development of investment products that aggregate these dollars and distribute them to mission-driven projects addressing social and environmental challenges around the world, not unlike the technology startup boom that arose in response to the rising popularity of venture capital over the past thirty years.

There are opportunities in this market across asset classes, financial return hurdles, and in diverse regions of the world. For investors who have thought about impact investment but remained on the sidelines so far, this is the time to get engaged.

Luther M. Ragin, Jr. is the chief executive officer of the Global Impact Investing Network (GIIN), a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. Prior to joining the GIIN, he served from 1999 to 2011 as vice president for investments at the F.B. Heron Foundation, where he oversaw the foundation’s endowment, building a portfolio of more than $260 million and steadily increasing the impact investing allocation to more than 40 percent.

Microfinance in India – Economist

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Microfinance in India

Road to redemption

The industry is starting to revive

Jan 12th 2013 | DELHI | from the print edition

INDIA’S microfinance sector was once touted as a saviour of the poor and a good bet for investors. The high point for the industry came when SKS—then India’s biggest microfinance company with a $1.2 billion loan book, a third of it in the southern state of Andhra Pradesh—went public in July 2010. The $350m offering was more than 13 times oversubscribed.

Things went downhill fast. Many in the industry admit that runaway growth spurred reckless lending to poor Indians. Just months after the SKS listing, Andhra Pradesh’s state government accused the industry of strong-arm collection tactics that drove some farmers to suicide. It issued suffocating rules; almost all loans in the state were written off; business ground to a halt. But the industry is starting to revive, with regulators in a far more central role.

Microlenders are attracting capital again. Grameen Capital India, a social-investment bank, says $144m of equity has been injected into microfinance groups in the past 12 months, more than double the amount in the preceding year. The International Finance Corporation, a multilateral lender, invested $18m in Equitas, a mid-sized group in the southern state of Tamil Nadu. SKS, whose loan book is now worth just $325m, raised $47.5m by issuing shares last year.

Outside Andhra Pradesh microlenders’ loan books rose in value by 33% year on year in the third quarter of 2012, according to the Microfinance Institutions Network (MFIN), an industry body. Southern states and the eastern state of West Bengal are new hotspots. Bandhan, a no-frills company based in West Bengal, now has over 4m borrowers and the largest microfinance loan book in the country. Analysts say the sector’s outstanding loans are now worth $2 billion-3 billion, compared with a peak of around $5 billion during the boom.

India’s central bank is behind the renewed confidence. It released national guidelines for microlenders at the end of 2011 and has set up a licensing system. Although a bill officially appointing the central bank as the industry’s regulator is languishing in parliament, these moves have helped stem what M.R. Rao, the boss of SKS, calls a “fear of contagion”, the worry that other states will copy Andhra Pradesh and suddenly draw up new rules.

The guidelines try to draw a line between profits and profiteering. Microlenders’ annual interest rates are now capped at 10-12 percentage points above their own borrowing costs, leaving most charging 23-27%. Some charged 40% during the boom; dodgy local loan-sharks, the only alternative source of credit in many rural areas, have even higher rates. Microlenders are also barred from lending to anyone with more than one outstanding loan.

But capping profits may end up harming the neediest borrowers, say lenders. Undertaking small transactions in remote areas is not cheap. Chandra Shekhar Ghosh, Bandhan’s managing director, says he keeps costs down with one-room branches containing little more than plastic chairs. Alok Prasad, the head of MFIN, warns that others may ditch the hardest-to-reach villages.

Some microfinance firms are looking beyond small, unsecured loans, which the central bank caps at 50,000 rupees ($910) a pop. Equitas last year set up a subsidiary that sells mortgages to poorer customers. Bandhan has similar plans. P.N. Vasudevan, the managing director of Equitas, says his housing loans, starting at 100,000 rupees, involve lower operating costs, in part because mortgage payments often get transferred via banks and do not require collection. If firms start to gravitate towards these lines of business, that could yet again leave the neediest behind.

Rockstar of Financial Inclusion: Business Correspondent Model of India

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Dec 27, 2012

India is a hot bed of financial exclusion. A country which houses nearly 16% of the global population  has more than 65% of its people outside the formal financial system (Global Findex 2012). The Indian banking system has adopted multiple approaches to make universal financial inclusion a reality right from early days Indian post-independence banking system. Be it bank nationalization in 1969 or formation of Regional Rural Banks. Formation ofNABARD or fostering microfinance through Bank-SHG linkage programme in early 90’s. A shimmering ray hope was rekindled with the growth of JLG based microfinance, however later studies made it clear that the model is credit led, concentrated predominately in the southern region of India thus could not be seen as painting complete financial inclusion canvas.
B.C – The Rockstar
In 2006, based on the recommendations of Khan Commission, the RBI advised Indian banks to make use of banking business correspondents (BC) and business facilitators (BF) to address access & service issue for all un(der)banked masses all across India. Initially only ‘not for profit’ entities were eligible to become B.Cs. However, financial inclusion being the policy agenda for the Government. The central bank went an extra mile to facilitate financial inclusion by easing many existing norms like inclusion of for profit entities to become B.Cs. RBI has played a key role in providing enabling environment for BC to flourish. To remove ambiguity, the central bank defined financial Inclusion as “the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players”
 
Source: RBI Data 2012
The first mover in the Blue Ocean – FINO Pay Tech
The first mover in the blue ocean of financial inclusion business was FINO Pay Tech Ltd – the World’s largest banking agent manager (Slide 3 , CGAP, 2010). Formed in Mumbai in 2006 with the mission to solve problem of financial exclusion , FINO entered into the market riding on the biometric smartcard & hand held devices technology and  has ever since grown exponentially. Today it serves more than 53 million end customers all across India adding net one million (average) new customers to the formal financial system every month. FINO’s uniqueness comes from factors like diversified product offering (which ranges from savings, credit, payment services, remittances, insurance and financial literacy etc), a robust technology and dedicated channel of bandhus (banking agents) and mature processes.
 
 
 
Bank-Led, Regulator facilitated model
B.C is a bank led model where a technology driven banking agent manager (or individual agents) dovetails with a prudentially regulated well capitalized financial entity (bank). A bank brings trust and robustness whereas a BC brings low cost access, technology and new tailor made products to masses at base of the pyramid and makes banking possible at their doorstep.
Today, there are 188028 villages in India (out of 600,000) connected with the mainstream banking system, over 147million basic banking accounts (previously known as No Frills accounts) have been opened and more than 74,000 habitations with a population of over 2000 are connected with formal financial system. BC’s have played a pivotal role in making this possible.
 
BC –  A Channel of Inclusion
Business Correspondent (BC) Model is a very powerful yet sensitive business to deal with – at least in the initial phase due to the nature of end clientele who are poor & most of them live on less than dollar a day with erratic cash-flows. Potential of the model is immense; particularly for on-boarding previously un (der) banked customers and delivery of value in electronic form.
There exists is a rich body of knowledge & experiences from existing market players, based on which the model could be replicated in other emerging countries. The key factors which play a critical role for overall sustainability of the model are:
  • Scale: Scale and Scale is the mantra for sustainability.
  • A right mix of diversified products and not just P2P remittance or bill payments – (which are juicy services and earn quick profit) should be supplied . Suppliers need to keep in mind that end customers have varied needs and they can’t afford to go to ten different outlets for availing ten different services simply because this would increase transaction cost for them and act as barrier to use of accounts.
  • 3Ps: Patience, Perseverance and Passion of the team. Financial inclusion business with poor is different from selling usual airtime or small sachet of shampoos or noodles in rural areas. It has a long term horizon and pivots for success are trust of end customers and investors’ belief in the business model.
The BC model is a successful lever of equitable growth of  society and  a meaty business for BC firms, if run cautiously. Many emerging economies (BRICS & beyond) are reaching directly to end beneficiaries through various channels and India’s DCT is latest in row . In this context, BC seems to be the most viable and natural choice for delivery of social benefits to  end beneficiaries. Today BC is probably the only bank-led branchless banking model which could be used as hardware for digitization (Cash-in, cash-out point) and for the use of e-money (transaction point) at a scale when there is very little doubt about the fate of money – which would ultimately be cashlite (digital). At last, BC model of financial inclusion in India should be seen as the rockstar model of socio-economic inclusion.

About Author:  Jatinder Handoo is a social business enthusiast and a branchless banking practitioner. Currently works at FINO PayTech Ltd and is based out of Mumbai.