> Posted by Julia Arnold, Research Consultant
After two weeks of speaking with bank and microfinance institution staff, entrepreneurs, social investors, policymakers, and tech companies in India, my once clear understanding of how to build financial capability has now been completely scrambled. Building financial capability – that is, helping clients change (knowledge, skills, and ultimately behaviors) to make good financial choices – has taken on many layers of complexity and challenges in the context of, and in the face of, the realities of India’s poorest people.
But that is, of course, the fun of travel.
To briefly put India’s banking services in context – many villages in rural India still do not have a bank. According to the latest World Bank Findex data, half of rural Indians and nearly half of all Indians remain completely unbanked. Even if a bank exists in a village, social constraints often prohibit women from using it due to both limited mobility and lack of knowledge about and decision-making power over household finances. Basic access and usage of mobile phones remains limited. From my own earlier research with Cashpor Microcredit, I know that numeracy and literacy, as well as access, remain barriers for women to save with mobile technology.
One of the organizations I visited with last week was BASIX India. Known for its Livelihood Triad model promoting a comprehensive set of livelihood services, BASIX has shifted away from direct lending to offering financial services as a banking correspondent for 13 banks. In addition to banks, BASIX has partnered with a variety of organizations such as insurance companies, the government, and for-profit businesses, such as Amazon, Panasonic, Schneider Electric, and Essilor.
When I asked how BASIX thought it was helping its clients change to make good financial choices, I was surprised when they told me that offering access to a formal savings account to a client who had been previously unbanked was building her financial capability. For a client who has been saving under her mattress, where the money can be easily lost or spent, gaining access to a safe, reliable, trustworthy place can result in a measurable change in behavior, attitudes, and perception of her financial situation. Indeed, Dr. Manoshi Mitra Das, Senior Advisor at BASIX, argued that the Jan Dhan Yojana accounts offered through India’s national financial inclusion scheme, which allow the government to link its social welfare payments directly to an individual’s bank account, change behavior and potentially help recipients create good financial choices in the short and long term.
Launched just this past April, BASIX now provides its comprehensive financial products and services through BASIX Livelihood Centers (BLCs). Essentially, BASIX builds outlets managed by village-level entrepreneurs (VLEs). These outlets offer many products and employ more than just one entrepreneur. Given that rural village markets are unable to sustain single-product outlets – such as an exclusively credit-driven banking correspondent – because the correspondent simply cannot earn enough money, BASIX has begun delivering a myriad of financial services through one outlet. Bringing together all entities of BASIX, these Centers enable rural villages access to microcredit, savings, insurance, pensions, remittances, government social welfare payments, and utility payments as well as financial counseling, all with the goal of changing clients’ financial, economic, and social lives.
As an example of what these BLCs will do, BASIX described a project to build self-help groups (SHGs) in the slums of Delhi. With limited or no literacy and no forms of ID, these women were excluded from the formal banking services offered in their communities. Partnered with Plan International, BASIX began working in these slums offering three types of services:
- Social mobilization – They formed over 1,000 SHGs with 10-15 women.
- Skill building – They taught knitting, tailoring, catering, garland making, and incense stick rolling. They organized 3,000 women into microenterprises.
- Financial inclusion – They brought in banks to not only provide microcredit to these SHGs but also helped some of these SHGs become banking correspondents. This is the first time that groups of women have become banking agents in India.
Though BASIX no longer works with these SHGs, they pointed to this project as a major success story.
BASIX emphasizes trust building. In India, by and large, the formal financial service sector ignores this key element. By putting down roots in a village and helping create BLCs, BASIX is seen as investing in that community, which is a key element to building a sustainable business model.
When thinking about what is meant by building financial capability, it’s hard to deny that BASIX covers most of the bases. Its services are multi-faceted, meet many needs, build skills, and change behavior to help make good financial choices. But this model hardly fits into a sustainable, scalable package. On my way home, I wondered, does that matter? Reaching the poorest in India, literally traversing the last mile, takes a very long time and a lot of money. While technology is truly promising, any mobile app or SMS service seems like a band-aid solution when the real problem is so much more complex and runs so much deeper. BASIX has been using technology to deliver its services for years.
Anoop Kaul, Director of BASIX, summed up their work nicely by saying, “Eventually this boils down to financial inclusion outlets becoming inclusive growth outlets; outlets today promote not only financial inclusion but also governance inclusion, energy inclusion, digital inclusion, health inclusion, etc. The rural ecosystem in India is thus slowly changing for the better and urban services are now being made available in rural areas. What has helped this development is that technology has enabled on the ground activities to simultaneously touch millions and track thousands of transactions on a real time basis, which so far had not been possible in a vast and underdeveloped country like ours.”
Image credit: Accion
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May 18, 2015 at 3:03 pm
Susy Cheston
Julia, thanks for this post! The BASIX story is a good example of how intertwined financial capability is with financial inclusion, and vice versa. It’s hard to separate the two. I wanted to understand more about your comment that BASIX is no longer working with these SHGs. Can you explain why, and what this means in terms of long-term financial capability?
May 19, 2015 at 4:00 am
N NARASA REDDY
It is ultimately the banks have to achieve this task to be sustainable.The interest rates charged by MFIs to ultimate beneficiaries,are a debatable and a big challenge.Creating more institutions/layers definitely adds to the costs.The technology,group approach,education to bankers and clients,a conducive political climate are the few areas of importance if banks have to sustain the program.I have proved its possibility while working as a Chairman of a Regional Rural Bank,thereby replacing a MFI which ofcourse worked as a pressure builder
May 19, 2015 at 10:48 am
Julia Arnold
Susy – Thanks for your comment! BASIX partnered with Plan International as a technical expert. After two years on the project, they had successfully federated over 1,000 SHGs, meaning they were supported and funded by the government (through NABARD) and could evolve into a microfinance entity or coop bank or become a banking correspondent. Once federated, the SHGs become legal entities allowed to open bank accounts and take loans. BASIX was a partner on the project for a finite amount of time, but the work they did ensured the SHGs were sustainable after they left.
May 26, 2015 at 3:38 am
Jayshree Venkatesan
I find it fascinating when institutions combine skill based training with provision of financial services to the same segment. My hypothesis is that this combination is what makes uptake easier than for a pure play financial service provider, where mere access does not necessarily translate into behaviour change for the client, because it still does not hold relevance in her life. It would be interesting to do a deep dive and understand what is happening at the level of a client: is she able to use the skill based training meetings to talk to her peers and articulate her need for a financial product? Is BASIX picking up on the need to maintain business accounts and including that in the skill based training programme, which in turn leads to higher uptake of other financial products?