Karambayam - And Quiet flows the New River

As one enters the Karambayam village, a small habitat in Thanjavur District, through the narrow roads with coconut trees on one side and a few open farms on the other side, the expectation rises to an extent. If banking can traverse through such remote roads and move towards the doorstep, it is certainly a welcome move in a country where less than 40% people in rural areas access the banking services.

“Pudhu Aaru” with the bright orange colours of Kshetriya Grameen Financial Services (KGFS) has unmistakable signs of its origin and denotes the new route taken by the IFMR team (Pudhu Aaru – New River). Since it was almost lunch time, women were in a hurry to conclude the transactions for that day. An affable young person was explaining the payment details due on that day, to a small group which was listening with rapt attention. Some of the members were carrying their ID cards (Fino Card), which is a clear winner because it is easily the best looking one among all the other cards like voter IDs, PAN card etc. (We will have to wait for Nandan Nilekani’s card/design for a while, though he says he would only design the unique nos). Yes … It is pouring PAN cards in this village of 3000 population. Why ? In the model followed by KGFS to bring ‘financial management’ to remote rural areas, savings are done via Money Market Mutual Funds (MMMFs) ( a quiet innovation) and the current rules necessitate PAN cards for the investors. And so, the KGFS team is quite enthusiastically facilitating the same, as it helps them in their KYC norms as well.

The ‘Wealth managers’- young, rural graduates, the front end relationship team will be trained in the nuances of wealth management and their targets will be to manage the overall financial health of rural families, limiting the variability of the funds at disposal rather than chasing loan/disbursement targets. As Dr Nachiket Mor, the mentor and inspiration behind the KGFS team, explained “Finance as Noise Cancellation Model” with his usual enthusiasm later in Chennai, one cannot but admire the first steps on the ground. It certainly works within the current regulatory environment and can only become better with better regulations.

KGFS is neither a co-operative bank nor a NBFC in classic mould, but it does deliver both services, itself being a Section 25 company. It is an interesting model, but has its limitations on the typical fine print options where the banks normally make their margins – interest rate calculations, charges for transactions, idle cash etc. Manageability of operating costs to have a reasonable return on capital and customer stickiness are going to be the key factors for replication. Operationally, the security and transportation of physical cash at the village might be an issue in future (Imagine the impact of an incident like cash mishandling/loss on the credibility of a new financial model among the customers. In rural settings, with temple hundis being under frequent attacks, one cannot be always sure, in spite of use of safes, insurance etc.). By design, there would be multiple transaction costs for KGFS – conversion of MMMFs, securitization charges (in future), cash management etc. But given that they are agnostic to the profile of the borrower (They are not specifically targeting poor households. Since KGFS operates only in villages where there are no other banks, it is bound to classify the entire village as without access to banking), the strategy of multiple products combining savings, loans, insurance targeted at the same family/household may payoff, as KGFS would be in a better position to assess the risks based on the gold mine of data. However, there could be a case for tie-ups with local post-offices, NREGA implementation agencies etc where KGFS can use its platform’s excess capacity for a fee.

Further, access to finance is a means to an end and not an end by itself in the journey of progress. So lets say KGFS is successful, and reaches out to 100% of the households in a village, then it is only an inductive reasoning rather than causative one, which leads us to believe that the economic progress would have happened. Given the mushrooming cases of simple yet logical step of SHGs lending to farmers at higher rates than their own borrowings from banks, real asset creation has to be matched at some point with financial asset growth/access. Cash-in-the-hands-of-poor schemes like Brazil and Mexico are probably evolution in developmental policies, but what will cash buy in a rural remote village, if there is no reliable service provider ? For example, Electricity ? Pure drinking water ?