The document discusses consumer finance approaches in India and proposes an alternative model. Currently, most efforts focus on standardized access to simple products through a menu-driven approach, but this may not fully address consumer needs. An alternative is proposed where financial propositions are tailored to individual risk profiles through a unified local provider with expertise. A case study of the KGFS model is presented, where local financial institutions provide personalized financial plans across 18 products through high school educated "wealth managers" to 270,000 clients profitably. Future work aims to improve suitability of recommendations and link wealth manager incentives to client well-being outcomes.

1. Consumer Finance Innovations in India
Nachiket Mor
Bindu Ananth
November 13, 2012
Columbia University

2. Product menu driven approaches dominate
consumer 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
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3. This approach has dominated most efforts towards financial
inclusion, which is often defined in terms of standardised access
to one or a few “simple products” – 52 week loan or a low-
balance savings account
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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?
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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
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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
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7. Low-cost branches at the village level
Thanjavur, Tamil Nadu Tehri, Uttarakhand
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8. Wealth Managers often high school graduates
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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
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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
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11. www.ifmr.co.in/blog
Thank you
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