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Eko Mobile-Enabled Savings via the Business Correspondent Model in India

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Posted: July 16th, 2012

By Grameen Foundation

Grameen Foundation

This is a guest post written by Debbie Dean (Project Director, Microsavings Initiative) and Camilla Nestor (Vice President, Financial Services) from Grameen Foundation.


When we launched our microsavings initiative – a three-year project funded by the Bill & Melinda Gates Foundation that aims to reach 1.45 million new savers across three institutions in Ethiopia, India and the Philippines – we set out to answer a range of questions, including:

  • Will the poorest save via a mobile-enabled channel?
  • Can you create a workable savings business model for all parties using a business correspondent approach?

In India, microfinance institutions aren’t permitted to intermediate deposits, and regulators are encouraging the business correspondent model to further financial inclusion.  The Reserve Bank of India (RBI) permitted banks to use the services of intermediaries who act as business correspondents (or agent) to provide banking services.

We saw an opportunity to test the potential of the business correspondent approach as a means of scaling mobile savings services for the poor, working with our long-time partner, Cashpor, an MFI operating in two of India’s poorest states – Bihar and Uttar Pradesh.

Grameen Foundation launched a partnership to test and scale this mobile-enabled business correspondent approach with the following institutions: ICICI (India’s largest private commercial bank, which holds the savings deposits), Cashpor  (the “business correspondent,” which uses its deep field network to originate and service the deposit accounts) and Eko Technologies (the technology partner, which enables a fully mobile-enabled approach as well as coordination among Cashpor’s and ICICI’s back-office systems).

A Mobile-Enabled Savings Product for the Poor

In our initial client-level research, we learned that 20% of Cashpor’s clients owned a mobile phone, 60% had access to a mobile phone and 20% had no access to a phone. With these statistics in mind, we launched the first savings product nine months ago – a no-frills account (NFA). In India, NFAs have limited functionality – they do not require ATM cards, have no opening/minimum deposit required and do not use check books – but they do allow the client to select whether they want a “pay per use” plan (in which they are charged per transaction) or an unlimited annual plan.

Cashpor customers can open their NFA account and make deposits and withdrawals during weekly center meetings using the mobile phone.  Microfinance clients attend weekly meetings ( which occur close to their homes) to repay their loans.  In this meeting, the center manager not only collects the loan repayments, but also collects deposits and makes withdrawals.  Also, they can check their balance at any time via the phone. Customers conduct their banking via SMS, using a unique set of numbers that informs Eko Technologies of the type of transaction (deposit, withdrawal, and balance inquiry) they are performing.  Eko’s solution works with multiple mobile network operators, making it an agnostic network that maximizes outreach to Cashpor’s client base.

Nine months into project launch, the results so far speak for themselves: More than 60,000 savers have opened accounts, with an average of 250 people opening a savings account each day. The average savings balance is 348 rupees (US$7.50), and the average balance has been increasing at a rate of 15% per month.

Key learnings

Though we are starting to see initial successes, there have also been a number of challenges on our path to provide mobile-enabled savings for the poor.  We have identified several key learnings for similar business correspondent model approaches targeting the poor and the poorest:

1)      For an MFI like Cashpor, originating and servicing savings – but not intermediating them, and thus not generating revenue from lending the mobilized funds – there are fundamental business model questions.  Cashpor makes the business correspondent model economically viable by providing a full suite of financial services, including pension schemes, money transfers, credit and savings. Cashpor also utilizes its existing credit infrastructure, meaning that savings are evaluated using marginal costs.

2)      Getting the business model right for all parties – including clients – is a challenge. And once the business model is in place, it can be difficult to make tweaks to the products and/or delivery channel given the tripartite agreements in place.

3)      Working together across three partners (ICICI Bank, Cashpor and Eko) requires strong communication flows, ensuring that all parties agree on the objective and that all believe they have an equal stake in the outcome of building a successful business correspondent model.

4)      Clients are hungry for a safe place to save. We are seeing the volume of transactions and the average savings balance increase month-over-month.   And, the very poor can and do save – 68% of Cashpor’s savings clients live below the $1.25/day poverty line, and the vast majority of Cashpor’s existing clients live below the $2.50/day line.

5)      Just because the poor own a mobile phone, it doesn’t mean they know how to use it. ”Mobile phone literacy” is just as important as financial literacy. Initial market research showed that some customers knew only how to press the “green” button to answer and the “red” button to hang up. We needed to place a strong emphasis on educating the customer beyond just why and how to save, but how to use the phone to perform transactions, what to look for in the English-based SMS confirmations and how to ensure that their money is safely in the bank (so if they lose their phone, they don’t lose their hard-earned savings).

6)      Training Cashpor’s field staff to be agents meant that they had to change their interactions with the customer.  It’s not just training on the savings product; other critical elements include training on the change in processes, how to interact and engage with their clients, and how to continue to provide good customer service in this new model.

Though there is still much to be learned from our work with Cashpor, there is promise in this business model.  We are looking forward to the challenges ahead of us, creating solutions to resolve them and ensuring that we have created a business model where all three partners can continue to provide savings services to the poor and poorest.

Under-banked willing to pay for BC services in India – MicroSave Report

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Under-banked willing to pay for BC services – MicroSave Report

Microfinance Focus, May 24, 2011: According to a recent study undertaken by MicroSave, there is a significant demand from under-banked clients for more convenient banking facilities and over 70 percent of the study respondents expressed their willingness to pay for Business Correspondent (BC) services.

Sighting various difficulties in bank transactions which includes travel cost, literacy barriers and unhelpful staff, close to 70% of study participants indicate willingness to pay for the local and more personalised convenience of business correspondents. Almost half seem to prefer a percentage model (1-2% of the transaction total), while close to 30% opt for flat fees.

MicroSave, one of the leading research and technical assistance providers for financial services conducted a study – ‘Cost and Willingness to Pay’ (CWP) in the states of Rajasthan, Tamil Nadu and Uttar Pradesh on the services business correspondents provide in rural areas and the willingness of customers to pay for such services.

The CWP study is the second in a series of research studies that are being conducted by MicroSave and funded by Omidyar Network to support financial inclusion agenda in India. The first report of the series on Dormancy in No Frill Accounts (NFA) has been published.

According to the report, many of the respondents accept the rationale behind charging a small fee for withdrawal and account opening if branch visits are eliminated. Although price sensitivity is high among customers, they are well aware of how banks make money. No one thinks fees are acceptable for savings deposits or “maintenance”, particularly for no frills accounts (NFAs) with no ATM cards and no cheques

The report claims that building customer trust in the BC, in the security of their payments and deposits, in the new system will take time. Adoption will be cautious at first and full use of the various bank services will depend on the efficacy and reliability of initial transactions.

While 27 banks have implemented the BC model and some 14 million new accounts have been opened, many with the assistance of technology service providers, the adoption has been disappointing and the overall viability of the BC model is currently under review, the report says.

A recent multinational CGAP study on the larger issue of agent networks reveals that daily net profits for Indian agents range from $0.69 to $3.99. Costs, including insurance, can be as high as $0.99.

Persuading prospective customers, particularly poor ones, that recurring deposits, insurance premiums, or even mobile loan payments make sense requires time, patience, sophisticated sales skills, and full bank support. However most BCs, have few of the above, says the report.

The report furthers highlights that close to 13 percent of the respondents claimed that they were unwilling to pay for BC services arguing that all deposits and withdrawals at the bank are free, and BC services should be as well.

Customers are of the opinion that since banks will earn some money from their deposits, there should be no charges for their personal capital investment or for new account openings.

Trusting a local business correspondent, even one authorised by a bank is a crucial concern for customers and they also worry that deposits in outstanding credit situations, with the shop owner or the BC, may prove uncomfortable and difficult to negotiate.

Since the major requirement for most rural poor is available credit to help ease difficult agricultural cycles, and to pay for education, health care, marriages, funerals, and emergencies, BCs are expected to have more tailored offerings for villagers’ needs.

The report claims that recurring deposits and the favourable terms of “commitment savings” are becoming more widely known – and appealing. BCs who can offer these and other options that fulfil their customer needs will fare better than those who have only a limited suite of services.

Despite of an unbanked population of over 400 million in India, most bank branches are reluctant in serving this clientele. A recent report by the Confederation of Indian Industry and Boston Consulting Group on efficient, low-cost distribution networks for these marginal customers does not encourage the branch model.

With an estimated cost-income ratio of 10-12, already well above any sustainable norm, Indian banks would need approximately Rs.200 billion to extend their branch networks to include all the currently excluded households. Previously, microfinance institutions (MFIs) have helped share costs and responsibilities for these customers, but their role remains uncertain moving forward.

To help address limited branch networks in rural areas, Reserve Bank of India introduced new guidelines in the year 2006 which included Business Correspondents as bank intermediaries to encourage savings and offset the heavy emphasis at the time on credit and loans. More recently, the RBI has eased restrictions for mobile network operators (MNOs) and other for-profit companies, allowing them to become more directly involved in the BC model and mobile money initiatives.