While ‘the poor as a business opportunity’ was something that got firmly embedded in our consciousness only when FMCG firms started selling large volumes of shampoo in sachets, it wasn’t until Muhammad Yunus demonstrated this in Bangladesh that they were also seen as a viable group to lend to. Not surprisingly, while traditional banks weren’t able to crack the market in India, a host of well-funded micro-finance institutions (MFIs) managed to do very well—RBI’s decision to award the leading MFI Bandhan Financial Services a full-fledged banking license is recognition of its unique ability to build a different business model, probably around the poor and the semi-poor. Bandhan, the winner of the FE Best Banks Special Initiative category for 2014-15, accounts for a tenth of the all-India MFI portfolio of around R1.1 lakh crore and, over a period of 15 years, rolled out a pan-India network of more than 2,000 branches, nearly twice as many as its closest competitor. At the other end of the spectrum, HDFC Bank’s managing director Aditya Puri—the winner of FE Best Bank’s Lifetime Achievement award for 2014-15—runs one of the country’s top-notch banks with a capital adequacy ratio of nearly 17%, an advances growth of nearly 21% and a return on net worth of 16.5%, and yet finds time to create a social business touching over 6 million households. Puri, whose target is 10 million by 2019, doesn’t do this as charity or CSR—it is a robust business model where the composite interest charged includes skilling borrowers, training them in accounting, helping them market and expand their businesses.
The newest entrants to this field of social business—Tata Group ex-head Ratan Tata, Aadhaar and Infosys’s founder Nandan Nilekani and former finance secretary Vijay Kelkar—come as a force multiplier since their mission statement is to create a ‘technology-enabled financial inclusion vehicle’. Along with running his empire, Tata has a history of successful social work, Kelkar has a rich history in public policy and applying free-market principles, and Nilekani brings a rich experience in disruptive technology, especially in the financial and education space. The Aadhaar-stack is essentially a bunch of apps built around Aadhaar authentication and NPCIL’s United Payment Interface that has just debuted—around the Aadhaar platform—is slated to change India’s payments landscape significantly. With the costs of acquiring clients for banks or mutual funds declining to just a few rupees, thanks to Aadhaar authentication, lending to the non-rich or designing mutual fund/pension/insurance products for them suddenly becomes viable. Big data, such as that captured for vendors selling on various e-commerce platforms allows lenders to have a look at their transaction history, and by using algorithms which examine credit-worthiness, take quick decisions on whether or not to lend—even traditional banks are now using big data to take decisions on lending, but that is more focused on lending to higher-end customers for now. Once prime minister Narendra Modi is able to complete the transition of all social sector spending to JAM in a few years, and assuming the government moves to cash instead of physical rations/kerosene, that’s a few lakh crore rupees that can come into the Jan Dhan accounts of the poor every year—with a regular inflow of cash and the potential to build a rich transaction history, especially as state governments also follow suit and if wages are given directly to Aadhaar-linked bank accounts, that’s a big area for Tata/Kelkar/Nilekani to work in. With the Bandhans and HDFC Banks increasing their footprint, and others waiting to jump in, social business may just have come of age in the country.