ET: Start-ups bank on financial inclusion: October 29, 2010

Start-ups bank on financial inclusion……Sreekala G & Trushna Udgirkar
Firms See A Multi-Billion Dollar Opportunity In Helping The Unbanked Ensure Safe & Quick Money Transfers To Their Kin In Remote Places

SHYAMKESH is a 36-year-old taxi driver in Mumbai.Back in Jaunpur in eastern Uttar Pradesh,he has six members of his family who wait for him to send money for their living.With no access to a bank,Shyamkesh uses postal money orders that take several days to reach,with the village postman often demanding a bakshish (a small part of the amount transferred) or sends money through friends who borrow a portion with a promise to return it later.It is a scenario that plays itself out countless times across the Indian heartland as the unbanked struggle to ensure safe money transfers.For start-up firms,this gap is proving to be a huge business opportunity as less than tenth of the six lakh villages in the country has a commercial bank.Of 1.2 billion Indians,only 200 million have bank accounts.This is a multi-billion dollar opportunity,but was largely untapped due to regulatory hurdles in the past.The World Bank estimates that the demand for deposits in this market is $10 billion,and credit demand is $30 billion, says Siddhartha Das,general partner at investment firm VenturEast.

M u m b a i – b a s e d firm,FINO,that builds technology for financial services,is helping people like Shyamkesh to transfer money to his family in a much more efficient way.All Shyamkesh has to do is swipe a biometric card given to him by FINO on a handheld device (which a FINO agent brings to his doorstep) for money transfer.Thrice a month he sends his folks amounts up to 2,000 and also maintains a deposit account to save his wages.FINO is part of a wave of start-ups like Co-options Technologies and Neartivity that are building businesses around financial inclusion targeted at those at the bottom of the economic pyramid.

We are looking at doubling our growth every year.This is a major challenge as we need to build systems and capabilities to sustain this growth effectively, says Rishi Gupta,chief financial officer,FINO.The company is looking to increase the user base from 200 million to 500 million in the next five years.

When we started in 2006,our major challenge was to convince customers and investors.After two rounds of fund raising and achieving breakeven this year,we have proven the model.

FINO has raised funding from HSBC Private Equity,Intel Capital and International Finance Corporation (IFC).

We are also doing a pilot project in Uttar Pradesh on pre-paid cards,which can be used for buying various products.We have also tied up with some merchant establishments for this.It involves about 1,000 people, he says.

While FINO had to struggle in its initial years,Neartivity Wireless found angel investors from the US with relative ease.The business model is already tested and proven.With the Reserve Bank of India also coming out with guidelines on financial inclusion,raising growth capital is not a challenge, says Anish Achuthan,founder & CEO of Neartivity Wireless.

The company offers contact-less mobile banking services to mobile phone users,especially in remote areas where banks are not easily accessible.The service will enable users to perform various banking services like opening a bank account,cash withdrawal,money transfer and utility bill payments through neighbouring retail stores.

In India,the service is initially being launched in Maharashtra and will be extended to Andhra Pradesh and Tamil Nadu during the second quarter of 2011.The pilot deployment is scheduled launch in January 2011 with a target base of 5,000 customers.The start-up also has plans to deploy this service globally.

We plan to begin with five operators in 2011 and the target is to have our platform running 50 operators by 2015.The biggest challenge for fi nancial inclusion providers is managing a network of business correspondents and agents in villages and educating the end user, he says.

Neartivity is also planning to raise another round of funding to the tune of about $2 to $5 million next year.According to Y Subramanyam,MD,CoOp tions Technologies,a farmer is the most exploited person in the world.He has to go through a series risks and at the end of it he is not sure whether the produce will get the right price, he said.

Set up a decade ago,CoOptions Technologies provides credit,insurance and market linkages services for farmers.

The Hyderabad-based start-up,which has piloted the project with 100 state-run agri-centres has partnered with banks such as United Bank India and Andhra Bank with a plan to reach 1,000 centres.

Initially funded through the promoters person al savings,the firm has raised seed capital of $1 mil lion from Nadhathur Holdings.The investment firm later joined PE firm Walden International pump in $10.5 million.It now plans to raise an ad ditional $30 million in the coming year.

More investors are backing start-ups in this sec tor.VenturEast,for instance,has invested in Atyati Technologies a Bangalore based start-up that of fers financial inclusion solutions for the rural sec tor.

Industry watchers reckon that start-ups in the financial sector have mopped up nearly 300 crore of risk capital as the market opportunity is large and offers benefits to first movers.

* ON THE FIELD – FINO’S banking correspondents check biometric IDs before villagers can send or receive money