Consumer Finance Innovations in India

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Consumer Finance Innovations in India

  1. 1. Consumer Finance Innovations in India Nachiket Mor Bindu Ananth November 13, 2012 Columbia University
  2. 2. Product menu driven approaches dominateconsumer finance  Design and provision of several disaggregated, standalone products available from a variety of “product manufacturers”  The customer facing front-end in this system is typically an agent marketing the products  Agent often not independent of manufacturer but subject to disclosure norms  Low emphasis on expertise of the agent  Products may have overlapping functions  Customer chooses from a menu, absorbs mismatch between her needs and available products 2
  3. 3. This approach has dominated most efforts towards financialinclusion, which is often defined in terms of standardised accessto one or a few “simple products” – 52 week loan or a low-balance savings account 3
  4. 4. Simplicity & complexity in products  Product A: a crop loan to a farmer; equated monthly installments  Product B: a crop loan to a farmer; principal and interest payments contingent on observed rainfall in her neighbourhood Does “simplicity” solve consumer problems? 4
  5. 5. What would good consumer finance look like?  Financial propositions tailored towards individual needs and risk profiles  The back-end could be a variety of product manufacturers but the customer-facing front-end is unified and local  Very high emphasis on provider expertise (analogous to a doctor)  Informed consent by the consumer  Provider liable ex-post for sale of “unsuitable” services 5
  6. 6. Great idea, can it be executed at scale?  The KGFS model for remote rural India  5 local financial institutions, 140 branches, 270,000 clients, 450 wealth managers  The earliest KGFS (4 years) is profitable  Branches provide 18 financial products  No incentives for product sale  Every customer has a personalised financial plan, that forms the basis for product sale 6
  7. 7. Low-cost branches at the village level Thanjavur, Tamil Nadu Tehri, Uttarakhand 7
  8. 8. Wealth Managers often high school graduates 8
  9. 9. The basis for a financial plan  Household data collected and verified during enrollment  We apply an automated framework that optimises:  Liquidity (short and long-term)  Assets and liabilities (eliminate negative carry)  Human capital  Diversification  This suggests a specific portfolio of services  Wealth Manager works with each client to ensure take-up 9
  10. 10. Future work  Auditing for suitability of sale  Development of customer archetypes for acceleration of wealth manager learning  Learning about techniques that aid customer take-up of suitable services  Developing wealth manager incentives linked to financial well-being outcomes 10
  11. 11. www.ifmr.co.in/blog Thank you 11

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