Wednesday, July 8, 2009

Microfinance to Mainstream?

Micro finance methods have captured our imagination, hearts, social conscience and even our technology innovation dollar, but, sadly, never the institutional support that ideas need to go from boutique to mainstream. Till now. Eric Bellman, Wall Street Journal July 6, 2009 headlines "Rural Demand Helps Indian Banks". Bless his WSJ heart, the byline says "once considered a burden, remote branches prosper on aid for farmers". Note: aid, not loans. Other than that quibble (though technically aid is correct, because there are some subsidies involved but given all the baggage associated with the word "aid" I would rather use "stimulus" or something else), the rest of the article is worth every bit of ink. India has been resilient to the global meltdown because of growth in rural India; technology to reach remote areas and as market is growing, traditional for-profit banks are moving in too- completing a virtuous cycle. Key points:

- rural banking growth - from 12% to 20% has offset decline in urban - from 28% to 19% which is more tied to the global economy
- technology helps - remote branches have a finger-print scanner and mobile phone for identification and processing (State Bank of India) - loans and deposits are small amounts
- the benefit is felt by the state owned banks, which were forced to maintain rural branches (at a loss), but as the "market" is growing, multinationals (e.g. HSBC) are entering the market -thus taking it mainstream
-because of low default rates etc. - interest rates are competitive (10%)
- customer profile- "No one in my family has ever had an account"
I generally highlight media coverage of business+technology+social impact - and coming from WSJ - I thought it was especially noteworthy. In fact it made me track down other noteworthy articles (one especially on cell phone growth in India) by the same author.
For emerging markets -if there is a killer app - it is banking - whether it is delivered through cell phones, kiosks or moving vans; think of the potential customer base! I hope this story is an indication that "microfinace" is moving to "finance" - its the kind of change the world needs.

No comments: