Technology’s Rural Bricks – Aravind G R

If the multi-layered supply chain for food is the reason why we have such high inflation, then the cost of setting up a successful financial supply chain in rural India is an even harder nut to crack because it is expensive to the consumer. We at Viedea believe that a technology based retail franchisee model, which sells multiple products and services of India’s financial institutions, to be the answer. But what kind of technology and distribution model works best? This is a million dollar question for a country where only half of the rural population has bank accounts.

Several industries have evolved several models to reach the elusive villager. We have listed some of them below and have tried to assess them on their ability to become an efficient financial supply chain.

Traditional channels

  • Consumer goods and telecom: These two categories, by far have the highest penetration. However, all ‘products’ pass through a multi ‘point’ distribution system and each ‘point’ needs investment and inventory management. Such a distribution system is too expensive for large scale financial transactions. For example, there is a 5 percent service charge on mobile recharges
  • Banks: Public sector banks, even with government pressures have not been able to reach below the taluk level. The same is the case for regional rural banks and co-operative banks.
  • Banking Correspondents (BCs): The RBI introduced the no-frills account designed specifically for rural masses, it is also mulling the idea of allowing petrol pumps, fair price shops, grocers, PCOs- including the government sanctioned Common Service Centre’s (CSCs)- to function as BCs. There are more than 30 million no-frills accounts that have been opened. However, a recent study found that only 10 percent of such accounts were functioning.
  • Micro Finance Institutions: Even though these institutions and groups have the reach, they are finding it hard to handle cash in remote areas because of theft and mismanagement.

Technology channels

  • Mobile payment: The largest mobile payment company, which has raised tens of millions over several rounds of PE funding, has so for been able to tie up with just one private sector bank. The promise that mobile banking provides is unmatched by any other form of technology used for financial inclusion. The mantra for mobile payment companies seems to be to build the user base (number of subscribers), but users are waiting for mobile companies to provide them access to multiple financial services before biting the bullet.
  • Electronic payment: It has limited takers in rural India owing to a myriad of factors like lack of connectivity and consistent power supply. Nevertheless, this network has been able to integrate multiple service and product vendors.
  • Combination of Brick, Tech and People (BTP): Companies like FINO are taking technology and cash to the door step of the villager. FINO claims to have reached over 15 million unbanked rural, urban savers and borrowers. However, the reliance on the cumbersome banking system seems to be the only negative factor in this model, since the end user still needs to have an ‘account’ with a financial service provider.

The right combination

The BTP model, is the most likely to work even without relying entirely on the banking system. The key is to place technology in the hands of people who reach the ‘unbanked’ rather than hoping that technology will directly reach the masses. This same person can be trained to sell multiple financial products including loans, insurance and mutual funds. The model may involve heavy investment in setting up ‘channels’ across thousands of locations to gain enough scale to attract financial institutions. Such retail franchisee system, where the franchisee shares the commission, has been a model that some companies have adapted. We also expect electronic or mobile payment companies, who have already partnered with several financial service providers to acquire or partner with BC’s or any such company that has setup distribution points in ‘unbanked’ areas. It is time for us to wait and watch whether such models turn out to be winners.

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About Deepak
Venture Capital and M&A advisor, Entrepreneur, Startup enthusiast..

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