A ‘local’ answer to financial inclusion

Written by Santhosh Thiruthimana

A small ‘local area’ bank and a Business Correspondent (BC) company in India may be showing the way forward in using agent channels to provide savings services to low-income clients.

Around the world, policy makers are talking about financial inclusion and how, through connecting people to the formal banking system, it is a tool to end poPicverty. The G20, World Bank, and UN agencies are all working towards bringing access to finance to low-income populations. However, in our work, we often hear about the lack of a business case for the provision of low value savings, or other services by banks to low-income people – not only in India, but all over the world. Yet, our work has also shown that the path towards financial inclusion can be profitable for those willing to travel it.

Most mobile financial services (MFS)/ branchless banking (BB) service providers make profits on remittances and bill pay products that they facilitate, earning money per transaction. On the other hand, savings products are generally considered as a ‘push’ product, for which a lot of additional investments, in terms of financial education and below the line (BTL) marketing, is required to drive adoption. This has been proven through  many initiatives by banks and mobile network operators (MNOs) and other payments service providers.

However, KBS bank in India, a Local Area Bank that works only in two states of India, Andhra Pradesh and Karnataka, may be proving that with the right mix of agent channel, products, marketing, and customer service, savings products can be successfully delivered to low-income people, while also generating revenue for the bank as well as the payments service provider – in this case, Sub-K, a company that uses mobile technology and agent networks to provide branchless banking services to low-income people.

As can be seen from the chart below, KBS bank’s deposits grew from Rs. 140M ($2.3M) to Rs. 210M ($3.5 M) through the agent channel provided by Sub-K in 2013-2014. This is a huge growth of Rs. 70m ($1.2M) in savings for the bank, which is helping the bank to fund all its assets from its own funds, thereby lowering cost of funds and increasing its profitability. For any agent network or bank, generating Rs. 70m in deposits within a year is a substantial amount, but for a bank that is limited to very few districts and two states, and focusing only on low-income people, as the achievement is quite significant. It is interesting to note that the steady growth in outstanding savings portfolio is not a short term ‘bump’ due to focused marketing activities for a short period, but rather a steady and sustained growth that can be observed over a year-long period. For reference, the total deposits of KBS is at Rs. 1.46 billion. [1]


How did KBS and Sub-K achieve this? Enclude assisted KBS to develop new savings products and expand BB channels through a project from 2009 to 2011 – channels that the bank have been nurturing and further developing after the close of the project. Since the bank has a core focus on providing services to low-income people, it developed savings products that match the cash flows of low-income people, allowing people to save on a daily, weekly, or monthly basis. The bank also made sure that people do not have to travel long distances and spend time to save at the bank by providing field agents (now Sub-k agents) where customers live and work.

To  enable this expansion, the bank had to invest heavily in technology and agent network development using own capital and a grant from Bill and Melinda Gates Foundation, managed by Enclude (formerly ShoreBank International). All those investments in technology, products and channels are generating dividends, in the form of profits and customer satisfaction, and the bank is now able to serve a larger population of low-income clients that are not served by other banks.

The key learning for Enclude and the Sub-K team was that it is possible to provide access to savings and other services profitably to low-income people, and that a DFS or BC company can make money in this business as well. To expand in new markets or customer segments the key ingredients for providers are a long term view, focus, risk appetite and patience.

[1] The bars indicate total amounts, in Lakhs of Rupees. One Lakh is 100,000 Rupees.


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