Why is complete financial inclusion such a big challenge? Why cannot financial products that are designed for one set of people be taken to another? Search for answers and you might come up with reasons like, among others, lack of capability of the financial service provider, unviable commercial exercise or even market failure. But there is another perspective to the issue. How many financial service providers have tried to understand what the financially excluded, especially in the rural areas, really want?

“Conducting surveys to identify needs of the target customer is one thing, but seeing the world through the eyes of a rural person throws up some really interesting perspectives”, says K Preethi of InnerWorlds, a design consultancy within the IFMR ecosystem that is helping to design processes, products, organisation and strategies that connect to the experiencesof the rural people by living with them. “When you go to their homes, live with them and see why they take certain decisions that they do, it all falls into place. Any financial inclusion organisation that tries to provide services to the rural people should first understand what they go through in their daily lilves. We bring the context into picture and so help service providers make informed decisions. What works in one place may not work in another. Simple pushing of products in places where it is not accepted will not make sense” she adds.

What is your customer telling you?

“Its completely true!” says Anu Valli of Rural Energy Network Enterprise (RENE), an enterprise that tries to fill supply chain gaps in the rural energy space. “We were establishing a distribution channel to sell energy efficient products in Thanjavur and we started with household cook stoves. People were buying the stoves in Karnataka. When we met them for feedback, they were positive and said that it was good for making rotis. We later realised that what they were actually telling us was that it was good for rotis but not good enough for making rice!” she explains. “This fact was brought out by InnerWorlds who went to live with our customers in Tamilnadu and understand what our stoves meant to them” she adds. Simple things like these miss the eye, but often make a big difference in the impact.

Work by organisations like InnerWorlds can help create access to finance to small businesses in rural India. Several small businesses in rural India face tremendous volatility in revenues due to an uncertain market. This creates enormous constraints for them to access debt, as lenders dislike volatility and seek predictability of cash flows. Understanding the dynamics of the ‘people’ behind the business can address these constraints.

“The Network Enterprises, incubated by IFMR Ventures, are focused on minimising the root cause of revenue volatility for these enterprises. In RENE’s case, the enterprise we are currently serving is the distributor/dealer of energy efficient products. The uncertainty whether the product will sell or not makes the distributor or dealer not “financeable”. We have taken several initiatives to reduce this uncertainty and our tie-up with InnerWorlds is one such effort”, Anu explains.

InnerWorlds is helping RENE evaluate the distributor’s natural capabilities i.e. what they are good at and what they lack. This helps RENE better leverage the distributor’s strengths and provide support wherever he or she lacks. Collectively they are able to serve the market better.

InnerWorlds, through its comprehensive research in rural India, has spent a lot of time with more than 700 households and understood their way of life over several months. It has documented this experience extensively and this database can go a long way in designing products for these households.

Relevance is the key

It is important to understand if a product is relevant and appropriate to the customers. Prof. C. Vijayalakshmi, Research Director, InnerWorlds shares an example. “Loans is a product introduced by many financial service providers. But this service is already being provided to the villagers by the existing social networks and informal lenders. Agreed, they are inefficient but nevertheless, they continue to exist. To compete with this strong informal network, service providers have to understand the psyche of the villagers. Unless we understand “why” a person takes a decision that he has, we will not be able to impact his decision making”.

Financial inclusion is extremely challenging and creating access to finance in rural areas is no mean task. Every institution that works towards this cause is making a laudable effort. But what separates the successful from the unsuccessul ones is the effort taken to understand the wants and needs of the customer and not just focus on dreams of the promoter. Without this understanding of customer perception, no amount of effort put in product designing is justified.

Should it then be beyond ‘Know Your Customer’ – Understand Your Customer?

Field Visits

A ‘Tappawala’ story

An article in The Hindu a few months back by P. Sainath stated that migrants from Ganjam staying in Surat send home Rs.400 crore a year. A fourth of that is sent through ‘tappawalas’, an informal courier system. On our recent trip to Orissa we had a two-hour long interview with a tappawala to understand his remittance business.

Aakash Swain (name changed) was 26 when he landed in the Bombay docks to work as a wage labourer with dreams of making it big in the city. But he soon became frustrated with the meager wages and in spite of opposition from his family, started this business in 2002. The first sum of money he collected was Rs. 4000 which was sent through a demand draft and which he personally encashed and disbursed in Ganjam. It took him a month to do this.

Today, he has 5000 customers spread across Mumbai, Surat and Bhavnagar. They are engaged in occupations as diverse as ship breaking, textile weaving, construction and iron ore loading. On an average, each sends Rs. 5000 per month for which he charges Rs 30-35 and the money is delivered within 24 hours. Two of his own relatives in Ganjam withdraw cash and disburse it to the recipients, so trust is not an issue. They verify details such as the sender’s and recipient’s name and address and hand over the money in the presence of two witnesses who sign the receipt along with the recipient.

Swain is also an LIC agent and has sold life insurance policies to all his customers. He makes around Rs. 20000-30000 from courier charges in a month and around Rs. 10000 from his job as an LIC agent. He spends 15 days in Surat and Bombay and 15 days in Berhampur. His customers are informed about his travel plans and tickets are booked well in advance. They let him stay with them and take good care of him, providing him with a comfortable place to stay and also arranging for his food. When he disburses money, families are happy to welcome him and sometimes offer him cold drinks and snacks.

He claims to have more than 25 accounts in various banks in Mumbai, Surat and Bhavnagar, all in his name. When questioned on how he managed to do that, he says that he just needed to produce a ration card or an address proof to open these accounts. He deposits money collected from customers in them and usually maintains enough balance to withdraw cash for disbursement. He said that he did not maintain any record of his accounts or transactions and remembered each one by memory.

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Focus group discussion with migrant labourers and their families in Jakarapalli village of Ganjam district.

Most workers he served belonged to either backward castes or scheduled castes while most tappawalas belong to Other Backward Castes (OBC’s) such as Jena, Swain and Gouda. According to him, the reason why people find it convenient to send money through him is because they work in shifts and find it difficult to deposit money during bank working hours. Also, many of them are illiterate and are afraid of going to the banks to open an account and to deposit money. They can barely sign their names. The family members back in the village are worse off as they are illiterate as well and are afraid to go to the banks to withdraw cash. Bank branches are also located far away from their villages.

Another one of his USP’s is that he extends a special facility to clients who need money urgently. He gives a maximum of Rs 10,000 as advance payment to a customer and no interest is charged for this. The money is collected from the sender during the next cycle. The only charges are his courier charges. He admits that it is a risky business due to the large amounts of cash he has to handle and he faces the risk of losing money due to theft or dacoity. But so far he does not seem to have faced any such incident.

For a villager who just studied till the 12th grade, he has come a long way. He owns a house, is married and a father of 2 sons. He is happy that today he is wealthy, respected and better off than his brothers. He wants his sons to be educated and not follow him in his business as the competition now is too intense. Also, more and more people have bank accounts today and prefer to send money through banks. He knows that his business is shrinking and soon he will have to think of other opportunities to make money. But for the time being he is not worried and enjoys the risk he faces every day and every minute.

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Vijayalakshmi C and Shilpa Sathe of InnerWorlds contributed to this post.