Pension-ables

Invest India aims to enable and assist India?s rural and urban working poor to achieve a dignified retirement through the micro pension model

Gautam Bhardwaj has no time to waste. With a Bluetooth device fixed on his left ear and a huge Victorinox backpack on him, he is busy trying to win over customers for his micro pension product. So, even when he hires an auto or a cab, he instantly engages in an discussion with the driver. ?Bhaiyya, kab tak auto chalaoge….? And, over the next half an hour or so, he convinces the driver to start saving for his retirement. On most occasions, he knows he has earned a customer.

Bhardwaj, the co-founder of Invest India Micro Pension Services (IIMPS), explains why he chose this calling in life: ?In most developed countries, people have some form of social security. But in India pension has never been an issue because it is available to people who matter or who have a voice?typically the government. So, those who make policy have access to a very attractive pension, for which you and I pay taxes. As many as 90% people in India are not thinking about pensions; it?s never been on their radar. The normal presumption for all of us is that we will continue to work till we can afford to stop working. But there are those who can?t afford to stop working till they die.? The latter group is what Bhardwaj is trying to tap?essentially the working poor, who are highly vulnerable to old-age poverty. Given that they have no access to formal pension provisions and are unable to access regulated retirement savings products due to high transaction costs, not even 5% of this group is presently saving for retirement. Even for the 5% who are already saving for their old age, the average savings corpus for those above 45 years is less than Rs 25,000, which will serve them for no more than two years after they stop working. The task at hand, therefore, is herculean because estimates suggest that they must accumulate enough savings to support themselves for about 20 years during the sunset of their lives.

?There is a latent need and that needs to be converted from the subconscious to the conscious. Unfortunately, it becomes a conscious need only when you start getting old. The maid, the vegetable seller, the driver…most such people will never be able to accumulate enough for their old age,? he says.

But how exactly did the idea of micro pensions strike him? ?I began working with Invest India Economic Foundation, a pension policy thinktank,? he says. Soon he was working with the social justice ministry and helping design the new pension system and to set up Pension Fund Regulatory and Development Authority. In the interim, a successful pilot project with Sewa happened. ?We wanted to test whether the poor are pensionable. Do they have the capacity to save and whether they are interested in saving for old age. And guess what, a whopping 25,000 women joined the scheme. Suddenly it appeared that our assumptions were correct,? he says.

The challenge then was to scale up the project. So in 2006, the IIMPS took shape. Six individual promoters pitched together and UTI and Sewa Bank came in as the institutional investors. Rs 2 crore was raised to get micro pension rolling. ?This was the time when the micro finance movement was gaining traction and a lot was happening in the name of financial inclusion. Incidentally, all dialogue was about credit and insurance, something which in my opinion is easily crackable. Pension was the only thing that did not have a magic wand solution,? says Bhardwaj.

So, how did he weigh the magnitude of opportunity with the margin of risk? ?The core question that faced us was whether we wanted it to be non-profit? And we consciously decided that we did not want to depend on grants. We wanted to make it a financially viable entity. The only risk involved was that it might not become viable for many years The risk wasn?t on the demand side. India is a large enough country and even if we manage to get 2% of this pension coverage gap, it becomes a very attractive business proposition.? And IIMPS did crunch the numbers well to estimate that the aggregate annual retirement saving capacity of the working poor who are interested in saving for their old age exceeds Rs 20,000 crore.

The risk has paid off well. A core team of 25-odd people at IIMPS have been able to cover 70 districts in nine states since. With the help of microfinance firms, unions, NGOs and cooperatives, it has managed to reach out to over two lakh customers already. The next target is to break even (operationally) by 2011 and cover five million people in the next three years?something Bhardwaj is very hopeful about.

A large part of the credit goes to the fact that they have been able to innovate. For instance, milk men in Bihar barter a portion of milk as savings into micro pension! Bank saathis are selling it through Sewa Bank. The state governments of Rajasthan, Madhya Pradesh and Andhra Pradesh have also been convinced to launch co-contributory pensions schemes for the low-income unorganised sector workers. The auto owners in Delhi have also started buying the idea. ?It?s a portable scheme and we are already talking to Bangladesh and Nepal. In fact, we have already helped Nepal design its National Pension Policy,? says Bhardwaj.

ATMs made easy

Gramateller, an ATM that consumes just 72 units of power a month, costing up to Rs 3 lakh, also does away with the need for a PIN. Thumb impressions are enough to register

It must be difficult for someone living in Delhi or Mumbai, where several ATMs jostle for space, to fathom inaccessibility to instant cash. But it?s not a luxury most towns in India have. ?While the top 10 cities in India have almost 38,000 ATMs, the rest of India makes do with just 8,000. Even tier-II towns don?t have sufficient access to ATMs, with rural India a far cry,? says V Vijay Babu, CEO of Chennai-based Vortex Engineering Pvt Ltd.

However, there is more to it than meets the eye. To begin with, installing ATMs is an expensive proposition. A regular ATM costs about Rs 5 lakh, apart from the additional Rs 2-3 lakh that is required to set it up. It needs an air-conditioner, complete power back-up and, above all, can dispense only crisp notes.

So when Vortex joined hands with IIT Madras in 2004, it knew what exactly were the issues to be taken care of. Three years of intensive R&D yielded the Gramateller?an ATM with ?sheet separation apparatus technology? to make it capable of dispensing soiled notes, a built-in UPS that allows it to function despite power cuts and a structure that can function even at a temperature of 50 degrees. Little wonder that the innovation has won six patents.

Interestingly, unlike the conventional ATM, its cash dispensing mechanism does not use any conveyor belt and its cassette (where the money is stored) is mounted vertically in the top half of the ATM. This makes the notes dispensed from the cassette to travel only a short distance to the cash counter of the ATM. The power consumed, therefore, is less. The advanced version of the Gramateller, which can viably run on solar power, consumes less than 100 watt of power, which aggregates to just 72 units a month and costs up to Rs 3 lakh.

?ATMs were essentially devices designed in the developed world where there?s no power shortage. But the requirement at the grassroots is completely different. So, the Gramateller had to be essentially developed from scratch. For example, here the user needs to put in the ATM card and scan his fingerprint for biometric identification. Not every user is literate…they may not understand the importance of keeping the PIN number protected. It might lead to rampant fraud and theft, so we decided to do away with the concept of PIN,? says Babu. The machine was launched commercially in 2008. Simultaneously, a pilot project with State Bank of India, deploying five ATMs to disburse NREGA wages in Tamil Nadu, kicked off.

?A huge milestone of success came last year when we bagged a Rs 18-crore SBI contract of supplying 600 ATMs for semi-urban and rural markets. Close to 100 of them have already been deployed and the rest should be done in the next four-five months,? shares Babu. This is the project that also promises to change the balancesheet of Vortex, which has largely relied on investments by venture capital firms like Oasis Fund, Aavishkaar, Ventureast and Esops. ?Till date we have raised Rs 30,000 crore… our turnover for last year was about Rs 1 crore. But this year we expect to touch Rs 40 crore. And, hopefully, we will be able to break even either later this year or early next year,? he says.

Babu is also hopeful that Vortex will be able to reach its target of setting up 10,000 ATMs by 2011. ?When I started talking about rural ATMs in 2008, there weren?t many takers, but today the concept is gaining traction from almost all the banks,? says Babu, who was aware of the challenges that would accrue when he joined L Kannan, the founder and the chief technology officer of Vortex. An entrepreneur himself, the promise of serving a social cause beckoned Babu. He had earlier built iSoftTech, a company to provide product development outsourcing services, from scratch to about $2.5 million in annual revenues.

Babu is sure that the government will be able to achieve its target of financial inclusion by 2015, and believes that mobile banking has the potential to provide financial inclusion in a very effective way. ?However, it has its own challenges.

For instance, you still can?t withdraw cash through the mobile. To do that the beneficiary still needs an ATM. So, we did a pilot with a mobile service provider and a cooperative bank. A transaction on the mobile generated an ATM Pin with which you go to our ATM machine?punch in your cell number and the Pin to withdraw cash. It also provides us opportunity as ATM vendor,? he says.

Vortex is also trying to develop a cash acceptor technology through which the customer can deposit cash at an ATM and the amount gets credited to his account instantly. ?It may take us 18 months or so to get to the prototype phase,? says Babu.

Banking on the phone

Eko is SBI?s business correspondent and offers banking services to thousands via the mobile phone, without a need for bank branches

Jack Welch?s Straight from the Cut, Bill Gates? Business @ the Speed of Thought, APJ Abdul Kalam?s India 2020, a book on rural marketing…the titles stocked on Abhishek Sinha?s book shelf seem to be there for a purpose. Sinha seems to be drawing inspiration from a lot of great minds to reach the financially excluded. With the State Bank of India backing Eko, Sinha is netting an average of 500 customers each day through common service points that are usually neighbourhood stores. It takes less than 10 minutes to open a no-frills account and just 20 seconds to transfer money, say to Bihar! ?I find Steve Jobs fairly inspirational,? he says after pausing for a brief moment, collecting his attention from the flurry of activity in his office on a Saturday afternoon. Given the air of energy in the office, clearly no one seems to mind working over the weekend. ?In start-ups you don?t have a choice, do you? One has to defy a lot of perceived logic in life to work in a start-up,? he says candidly, adding that the team had come in over the weekend to finish its monthly review. Sinha?s meeting with Sachin Pilot, minister of state for communications and IT, has got everyone enthused. ?I have had some experience with the government and it wasn?t very pleasant, but this one was really different. He gave us a very good response and suggested that we must pitch our ideas to India Post.? The team definitely has a reason to get excited. Given the vast network of post offices in India, the ?challenge now for them is to figure out how to integrate it into their scheme of things?.

That shouldn?t be a problem considering that Eko can well take the credit for bringing into the fold over 70,000 financially excluded customers through 470 outlets across Delhi, Bihar and Jharkhand. On an average, transactions worth Rs 15 lakh take place each day.

Last week was particularly eventful. On one hand the Bihar government collaborated with United Nations Office for Project Services and Norway-India Partnership Initiative to launch ?mobile money transfer system? under which accredited social health activists (ASHA) workers would get their pay in a mobile bank account linked to their cellphones. Eko has also partnered with Bharti Axa to collect insurance premium for micro insurance products. Branchless banking is where the future of financial inclusion lies. Consultative Group to Assist the Poor (CGAP) compared 26 branchless banking pioneers and traditional banks with products aimed at the same kind of customers and found, on average, branchless banking to be 19% cheaper.

The journey for Sinha or for Eko hasn?t been smooth throughout. Sinha quit his career with Satyam Computers and co-founded Six DEE Telecom Solutions, a telecom value-added services company in 2002. ?I had the blueprint with me. I had written a white paper that had won a business plan competition. But I couldn?t raise any money to finance the project,? says Sinha. Somehow, circumstances led him to exit Six Dee and Sinha got some money in the bargain. And in September 2007, Eko took off. In 2008, Eko tied up with Centurion Bank of Punjab to open no-frill accounts for financially excluded people. ?However, after Centurion merged with HDFC, the deal fell through and we hit a rough patch. Last year was good though. We got two grants from CGAP and the Eko Aspire Foundation was appointed as the official business correspondent for SBI,? shares Sinha. So, while Eko Aspire Foundation worked actively in the field, Eko India Financial Services provided technological and non-technological support to the former. ?A for-profit enterprise was essential because otherwise we would not have been able to attract institutional investors. We are there for huge wealth creation. Business has to be done with the rules of a business, it?s not done for charity,? he says. So has the chase ended? ?Not really, but we are hopeful some institutional investors should come on board soon. We haven?t been able to break even yet. And honestly, I never thought the gestation period would be so long.?

All this while, Sinha has drawn inspiration from the M-Pesa model in Kenya where Vodafone-enabled subscribers send cash to other phone users by SMS. And also Globe Telecom and Smart Communications, who pioneered the concept of mobile banking in the Philippines. ?Their success is phenomenal and I continue to track them,? he says. If Eko?s call centre could be considered as a measure of its success, no one would have any doubts. The outsourced call centre gets close to 1,500 calls each day. ?Till last year, the call centre employees complained that they had no work and today their phones don?t stop ringing,? laughs Sinha.

But what really bowled him over was when he himself became an Eko customer last year, something he describes as his ?wow factor?. ?It was quick and convenient,? he says. Coming from a person who is used to internet banking and online transactions, that?s a well-deserved self-compliment indeed.

Reaching out

Fino offers technology and operational solutions to institutions trying to reach the unbanked and the under-served

Fifteen million customers and counting. An elaborate network engaging 21 banks, 20 MFIs, four insurance and nine government entities?numbers do the speaking for Manish Khera. Coming from someone who has had a 13-year stint with ICICI Bank, that should hardly come as a surprise. However, not many know that apart from an MBA, he also has an M.Phil in environment and development with a specialisation in climate change from Cambridge. ?I started my career with hardcore credit, but my personal interest leaned towards development. That?s when I took a year?s break to study at Cambridge,? says Khera, the CEO of Fino.

He came back and conceptualised Fino in 2006, primarily to provide technology and operational solutions to institutions trying to reach the unbanked and the under-served. ?I still maintain that I did not come back to finance but to work in the development sector where my idea was more aligned to making an impact on people?s lives,? he says, adding, ?Banking is a tightly regulated sector and we wanted to push the envelop that banking will not be done only at licensed locations by well-trained bank staff, but in a distributed manner by low-scale resource. That was a huge risk. But with the company being held by banks, customers were comforted that Fino is aligned more to their interests than its own.?

Fino?s beginning was humble, yet big. Khera got the best of the brains to work for Fino and ICICI pitched in with Rs 10 crore and 12 seats in its office for the company to take off. ?Soon we grew to 40 and could no longer manage to fit in that corner,? laughs Khera. Not long after that, Fino secured equity financing of Rs 80 crore. ?Right from the beginning, our target was to touch 25 million customers in five years. It is an audacious number for a start-up company to think of and only through scale can we prove whether Fino?s approach is viable or not. You can do a million with whatever architecture you come up with, but doing 25 million is a different game altogether. The segment has over 400 million people, but each one of them will yield a very small return, so the only trick is to aggregate your revenues over a very large number of people,? explains Khera.

Again, it?s numbers that Khera finds most gratifying. ?If someone I meet asks me how is Fino doing, I tell them it has 10 million customers. Later, if I happen to meet the same person and answer the same question, I say it has 14 million customers now. The look on their face says it all… no one has reached so many customers in such a short time.?

So, Fino is trying to play in large volumes and hoping that ?it will break even by the end of this year?. Though Fino?s losses steadily increased from Rs 6.3 crore in 2007 to Rs 34.5 crore in 2009, Khera is optimistic, ?Our current turnover is Rs 107 crore and we will surely break even this year. Our remittance product was launched six months back and is doing very well…it will make a big impact. We have also raised another Rs 80 crore from the market.?

And, Khera seems to be on his toes to make it happen. In March, he did a recce covering 3,000 km from Amritsar to Satna in a fortnight, trying to draw lessons from the field to judge if any models could be replicated elsewhere. ?The field presents a lot of challenges. We are targeting to saturate at least 200 districts. Presently, we have been able to saturate only 50 districts?reaching every village there. We also want to increase the number of products each customer has from our system.?

Apart from products and services such as ?Fino Tijori? (savings account), ?Fino Parichay? (financial identification), ?Fino Tatkaal? (payment and remittance), Fino is also working in government-funded schemes such as National Rural Employment Guarantee Scheme, the Rashtriya Swasthya Bima Yojana (RSBY) and the unique identification project. It also has micro ATMs installed across 260 districts in India, with about 3.5 million transactions worth Rs 150 crore taking place each month.

In fact, presently RSBY accounts for the largest share of Fino?s revenue base. Fino conceptualised the biometric smart card-based delivery system for health insurance and took it to the government. ?Now it is being rolled out across India.? Also, In Andhra Pradesh, NREGA workers are now able to access their electronic prepaid account through smart cards issued by Fino. The money can now be withdrawn at the Bandhus in 20 to 60 minutes, including travel and wait time. A study found this to be twice as fast as the time beneficiaries take to make withdrawals from the post office and 10 times faster than making a withdrawal from a bank branch!

?Now we are also prepared to export outside India. We are are already talking to a few countries in south-east Asia and Africa,? says Khera.