Fast moving consumer goods companies have long recognized the worth of rural markets. The reach of products like hair oil, shampoos and beverages is close to saturation.
The rural financial sector is still dominated by unorganized players like moneylenders. Rural bank lending has been considered a social obligation, driven by government directives, and not a viable business in itself.
Traditional business models do not allow the creation of small-ticket offerings. But some banks have adjusted their strategy aided by digitization and mobile phones.
Bharat is on a roll; rural financial markets are about to take a leap.
Banks who take the lead to serve towns and villages will get the first-mover advantage.
Appropriate products and fair lending rates will eliminate the moneylender. For this to happen, product design, sales and collection would have to change.
For example, the commission agent pays the wheat farmer by cheque or draft 15 to 20 days after grain is procured. This can be compressed to about 48 hours if the commission or procurement agent were issued smart cards, electronic data machines were installed at mandis and backed by e-payment systems like RuPay, and payments were electronically approved by a procurement agency like the Food Corporation of India.
Point-of-sale terminals at the establishments of small milk procurers would allow data regarding the quantity and quality of milk to be recorded and entered in each farmer’s account. If linked to cash dispensers, farmers would be able to withdraw money for milk sold.
Banks can offer farmers working capital based on estimated cash flows, unsecured personal loans or loans to buy cattle. HDFC Bank’s experience is that small and medium farmers who were given credit increased their savings balances five-fold.
Digitisation is helping tap mobile-phone-enabled rural customers through say, cellphone-to-cellphone payment facilities. This segment is growing at twice the rate of urban India ensuring higher than average growth for banks there.
(Top photo of vegetable mandi in Jalgaon by Vivian Fernandes)