PMJDY: Assessing the quality of agents

Posted on February 27, 2015 by Sumita Kale

As the PMJDY mission rolls past its target of 100% coverage of households, it is looking to focus on delivery of financial servicesOne of the issues that has plagued delivery at the last mile is the quality and commercial viability of agents in the field and the DFS is now actively tracking the numbers hereA DFS presentation at a recent CGAP seminar included data to show that 76% of the agents were active, but just 29% had received more than the minimum Rs5000 per monthTracking this metric is the first step in ensuring improvements on the ground and going beyond mere coverage numbers.

The DFS has also initiated a regular survey, conducted by MicroSave and the Gates Foundation, and the first results can be read hereThe study was conducted in November and December 2014 across 41 districts in 9 statesA total of 2,039 BM locations and 8,789 beneficiaries were surveyedThe results are not intended to reveal a national picture, but are to be taken as a dip-stick across the sample districts.

While it was heartening to learn that 86% of PMJDY account holders reported that this was their first bank account, just 18 % had received their Rupay cardThe DFS is aware of the deficiencies in bank readiness and is working to push the coverage up on the disbursal of cardsHaving done that, the next step would be to ensure a wider coverage of access points - either agents, ATMs, PoS terminals etc- where these cards can be used.

The MicroSave survey reported that 69% of Bank Mitrs (BMs) were physically present at the stated location, 48% were transaction ready and 11% were untraceable.The 52% of BMs who were not transaction ready cited several factors, including the recentness of their appointment as a BM, lack of a transaction device, technology issues (e.gdowntime) and BM dormancy (often due to inadequate remuneration).  Clearly, a lot more must be achieved here this year to fix the glitches at the customer end of the programme.

The authors of the report, Aishwarya Singh, Manoj Sharma and Mukesh Sadana have put forth the following recommendations:

a) Stipulating a clear process and maximum turn-around time for paying BMs their commissions

b) Using of a standard format for reporting BM data, such as location, address etc.

c) Rationalising BM and SSA mapping methods to ensure BMs are not assigned multiple SSAs

d) Establishing clear operational guidelines for BMs

e) Conducting monthly on-site training and monitoring of BMs by banks and BCNMs

f) Stipulating a maximum turn-around time for issuing passbooks

g) Establishing a helpline facility for BMs and beneficiaries


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PMJDY: Three questions

Posted on February 27, 2015 by Sumita Kale

The PMJDY is an ambitious programme, where the DFS seems to be clear on getting the details right and aim for meaningful inclusionThe PMJDY website gives a lot of data and is updated more regularly than the earlier DFS financial inclusion page, this is a positive move towards transparencyWhile the website provides much fodder for analysts to chew on, some additional data would help answer three queries that seem to be appearing more frequently in general conversations and would also guide the programme on the right path.

The first question is around the actual number of accounts opened While it is true that urban consumers also have multiple accounts, inclusion calls for people to use the accounts, not just open themThe DFS admits that there is some amount of duplication and given that the programme is aimed at first time account holders, this definitely needs to be clarified at the earliest to get a sense of the actual impact on the ground. It is of course possible that this situation will clear over time as the DBT payments will flow only through one account.

The second question pertains to the usage of the accounts, here the DFS should begin giving data on transactions per account, preferably at an agent and district level In a blog post Sakshi Chadha of MicroSave had looked at the difficulties the poor were facing in using the accounts, opening the account was not the problem. Here the DFS has already moved, initiating a survey through MicroSave that will regularly track agent quality and usage, corresponding data from the banks will help provide a complete picture.

The third question pertains to the average balance in the accountsSome calculations using the data from the PMJDY website show that as of  31st January 2015, 655.41 lakh accounts opened by SCBs had no balance in them, leaving a total of 329.08 lakh accounts with balances or 'live' accountsTaking the data of balances in SCBs as given on that date, the average balance in the 'live' accounts works out to Rs2484 per accountGiven that the inclusion agenda is aimed at the unbanked, poor, this figure seemed rather high and raised some eyebrows in the fieldWhile the PMJDY website clearly marks a Disclaimer that the information is based on data provided by the banks/SLBCs, it would be a worthwhile exercise to distinguish the segments of population that the programme has tapped into In fact, disaggregated analysis shows that three banks have an average balance exceeding Rs6000 per account, and four banks have reported average balances between Rs3000 and Rs5000 per accountWhile 6 banks have reported balances between Rs2000 and Rs3000 per account, 11 banks have reported average balances between Rs1000 and Rs2000 and just three have balances of less than Rs1000 Clearer segmentation will also help the DFS and the banks determine the types of financial services that are appropriate for these account holders.

These questions have been raised, not as a criticism of the PMJDY, but for the DFS to undertake detailed analysis of its own data, determine the reasons behind the numbers and take corrective action where needed.The programme has begun on a good note and going ahead, it should work for meaningful inclusion, where banks truly serve the needs of the hitherto unbanked.

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Payments Banks, another step forward

Posted on February 02, 2015 by Sumita Kale

The deadline for applications for Payments Banks licenses has seen a flurry of activity from players from across the industry spectrum.

Kotak Mahindra Bank and Airtel MCommerce were among the first to announce their partnership for the licenseOthers who have announced their intentions are Fino Paytech ( a large BC firm), Dewan Housing Finance Ltd., Aditya Birla Nuvo in partnership with Idea Cellular, Future Group, while more names will be revealed once the deadline of 2nd February is over Reliance Industries, the leader in energy, telecom and retail, is partnering with the country's largest bank, State Bank of India, for a permit.

Though there are some who continue to harbour doubts about the business model of the new niche banks, that has kept some players out for now, there is considerable interest already in the businessAs the new entrants begin their operations, others will definitely take to the field, as the RBI has promised to open licenses on the tap this year.

As Kabir Kumar of CGAP and Daniel Radcliffe of BMGF have noted in their piece in Business Standard, there are five challenges to be overcome in India for the payments proposition to strike gold.

  • To begin with, with India's cash addiction, transaction fees for digital payments must be kept as low as possible, to ensure adoption of new payment modes.
  • Secondly, to avoid the Over the Counter Trap, where agents conduct business for customers bypassing the bank accounts, cash based transactions should be discouraged by Payments Banks, even if it means reduced business in the early phase.
  • The new banks must keep the charges for remittances very competitive and as convenient as possible, to attract customersIndia has a very competitive remittance market and this must be factored into the business model.
  • International experience shows that this business will prove itself only in the long term and calls for significant investment upfront Even assuming a high growth deployment with an active customer base and increasing transaction volumes, businesses should expect positive EBITDA margins of only 2-5%Indeed, it is likely to be closer to seven years before EBITDA margins reach 20% The road to profitability therefore is a long and challenging one.
  • Lastly, while Payments Banks cannot issue credit, they can do so for other full service banks, and partnerships here would be extremely valuable to banks and the inclusion missionThe case of MShwari in Kenya shows how banks can leverage the strengths of non-banks to raise their own customer base.

Clearly, this new business will take time to prove itself, yet it promises to be an exciting opportunity for banks and non-banks to work together in new partnerships for inclusion.

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