What We Think?
We believe that the approach to origination should be guided by an intention to use financial services to steadily improve the financial well-being of households and enterprises over a period of time. To ensure this, we believe that continuity, flexibility, reliability and convenience of services provided as well as the presence of wealth management support is central to the notion of quality in the context of origination.
A combination of these characteristics ensures that institutions cater to specific needs of clients belonging to geographies where the originator is operational. For instance, a combination of the above mentioned characteristics should ensure that a household is able to transact any amount at a location near their place of dwelling at a suitable time under transparent and rule-bound services, with an institution that is likely to be able to service them in the long run. The wealth management process should help the household make optimal financial decisions after a thorough understanding of its current state and future needs along with the benefits and drawbacks of using available financial products.
In order for originators to serve each household comprehensively, IFF is arguing for localised originators focusing on specific geographies, growing vertically by serving each household. Wealth management is done through localised entities that are embedded in the community and are well-positioned to understand client needs and risks. Irrespective of the legal form, any entity can be a high quality originator given their adherence to certain guidelines.
What is Happening Now?
The existing channels of origination, though contributing to access in their some way, fall short on one or the other criterion. While they do provide more continuity and reliability than, say an informal provider like a moneylender, due to rigid and very limited product options and non village-based branches, in the case of Schedule Commercial Banks (SCBs) and Microfinance Institutions (MFIs), most of these institutions are low on flexibility and convenience for the clients. There are local institutions, like NGOs, providing flexible and convenient mechanisms for saving and insurance, but their continuity and reliability is suspect because their risk management is inadequate, and they usually do not communicate the risks to clients. High quality wealth management advice is absent from almost all financial service delivery models in the country.
Our Work
In order to increase the presence of high quality originators, the existing channels of financial services will have to adopt a more robust framework of providing financial services.
There are two broad themes we address to encourage and ensure high quality origination:
1. Building and Replicating Models of High Quality Origination
IFF is looking to implement and test the ideas of high quality origination in different contexts with a view to understand and demonstrate impact and viability. The knowledge being created serves as the foundation of IFF’s advocacy for replication.
We are currently collaborating with IFMR Rural Finance, Aajeevika Bureau, Department for International Development’s (DFID) Poorest State Inclusive Growth (PSIG) consortium and State Bank Of India (SBI) to ensure the creation of other high quality originators. To learn more, read here…
While the KGFS model embodies all the aspects of high quality origination for stable populations in rural areas, the model, as it is, may not be ideal for migrant populations, especially seasonal migrants, who temporarily move from rural to urban areas in search of livelihood. Motivated by a common interest in delivering financial services to this growing demographic group, IFMR Foundation and Aajeevika Bureau, Udaipur, have co-developed an action research project to assess rural migrants’ need for financial services and develop suitable products and channels to address these needs. As part of this initiative, Aajeevika Bureau launched Rajasthan Shram Sarathi Association (RSSA), an institution that is building models of financial services delivery to migrants.
IFF is collaborating with State Bank of India to work on ideas that can help increase the bank’s rural presence through building viable and sustainable business models like the business correspondent model. The project encompasses work on product development, optimal pricing strategies, channel development, agent network management, technology development, as well as development of market infrastructure like credit bureau.
IFF is part of the Poorest States Inclusive Growth consortium with other institutions (National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), ITC and Access Development Fund), which is working to expand access to finance and markets in four of the poorest states of India. This is a great platform to build high quality origination models with other leading players in the sector.
To ensure that the regulatory space encourages and rewards originators that concentrate on delivering high quality services we constantly engage in dialogue with key policy makers, practitioners and academics.
For the purpose of high quality origination, IFF aims to ensure that a complete product suite is available for clients. IFF has partnered with CIRM (Centre for Risk and Insurance Management) and IFMR Rural Finance to develop an innovative livestock insurance product, using technology to reduce fraudulent claims, thereby making it available to the clients at a low premium. IFF, in partnership with PFRDA (Pension Fund Regulatory Development Authority), worked for the development of the regulatory framework for the aggregators of New Pension Scheme (NPS) -Lite (pension product for low income households). By providing an avenue for saving for retirement, this scheme will address an important gap in the suite of financial services for lifecycle finance.
Among the policy objectives IFF is advocating for, a key objective is to create the regulatory space for “accredited intermediaries” to emerge. At present, there are regulatory restrictions that prevent high quality full-service intermediaries that can deliver financial services at the front-end. This gap at the last-mile has implications for quality, comprehensiveness as well as the efficiency of financial intermediation. IFF is calling for regulatory coordination to ensure that a basic set of institution type-neutral criteria be applied to accredit intermediaries that can efficiently offer a complete range of financial services in a high quality manner.
IFF has hosted and participated in a number of conferences and seminars:
- March, 2011: Behaviourally-informed product innovation (in partnership with Ideas42, Harvard University): The workshop was organised with the purpose of sharing usable conceptual advances in behavioural economics with financial product designers from various institutions.
- January 2011: Conference with College of Agricultural Banking (RBI) and Centre for Micro Finance: In continuation of the 2010 conference, IFF along with the CMF, organized another conference that addressed issues from the AP crisis to Microinsurance and future of financial services for the poor. View the proceedings here…
- October, 2009: Financial Sector Regulation and Reforms in Emerging Markets (Washington DC, in partnership with the Brookings Institution): IFF partnered with Brookings Institution, Washington DC, to organise a conference on “Financial Sector Regulation and Reforms in Emerging Markets” on October 22 & 23, 2009. View the proceedings here…
2. Demand Side Research For High Quality Origination
Some of our research efforts are specifically targeted to understanding the nuances of the customers’ financial services needs and their behaviours with respect to financial service usage. To take this forward we have worked with CIFD, IFMR Rural Finance and academic institutions from around the world. To learn more, read here…
- To increase our understanding of this space we have partnered with Centre of Innovative Financial Design (CIFD) and InnerWorlds. CIFD is a research and product development centre focused on behavioural economics. Its work has given us invaluable insights which have helped design products to cater to specific needs of the household. Inner Worlds is currently creating qualitative understanding of economic lives in rural India through a collection of oral histories from across the country.
- To enhance a customer’s decision making process and provide wealth managers with a guidance tool for financial advice, IFMR Rural Finance has built a Financial Well-Being report that gives a snap shot of the household’s current financial state and structures advice accordingly. IFF has done initial work on developing a Financial Well-Being Index that attempts to understand the state of a household given the availability of such services. Read more about this on our Blog…
- Impact Evaluation Studies: The Trust recognises the need to continually nuance the understanding of impact of access to financial services on households. We know that financial systems can help households or enterprises improve their welfare through inter-temporal consumption smoothing and risk management. However, it is beneficial to learn the extent of impact financial services can have on households and village economy, with the view to use these insights for improving quality of service delivery. IFF has conducted numerous studies to understand the nature and extent of such impact. Some of the studies are:
- KGFS Impact Evaluation Study: This is an ongoing study in partnership with Centre for Micro Finance at IFMR and Harvard University. This is an extensive study that will aim to empirically understand the pathways through which access to finance affects households and the village economy. This will provide insights that would help in enhancing the design of products, channels and services provided to these households.
- Panel Study in Tamil Nadu: Centre for Microfinance at IFMR has initiated a panel study tracking 10,000 households across Tamil Nadu in partnership with Centre for Micro Finance and the Economic Growth Centre at Yale University. The study will include a survey of households and their enterprises; an inventory of the village/neighbourhood infrastructure; and a complete listing of the village/neighbourhood population and their socioeconomic characteristics.
- Impact Evaluation- Spandana Microfinance: A study was conducted in partnership with Centre for Micro Finance and Massachusetts Institute of Technology (MIT) to evaluate the impact that participation in Spandana’s microfinance program in Hyderabad has had on household consumption, business income, health expenditure and empowerment. The results of the study, the first randomised evaluation of its kind in microfinance, indicate that the availability of credit results in a significant increase in new business creation. Household spending patterns shifted towards more durable goods purchases, with reduced expenditure on alcohol, cigarettes, and festivals.
Latest updates
Asian Development Bank Institute, Working Paper No. 256: ‘Universalizing Complete Access to Finance: Key Conceptual Issues’ by Bindu Ananth, Suyash Rai and Nachiket Mor read more
