Sirsa, Haryana: In the village of Anandgarh in Sirsa, there was a time before FINO, and Banwari Lal recalls it well. It was, after all, just last January that FINO started a pilot here, taking over from the sarpanch (village chief) the delicate task of distributing pensions and Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS) wages. In Lal’s view—generously shared, as he lounges on a cot—it was unquestionably a move for the better.
Click here to view a slideshow of how FINO delivers mobile payments to NREGS workers
“Earlier, we’d have to hound the sarpanch for our pension and our wages. Sometimes our sons would collect the money on our behalf and head immediately to the theka (country liquor shop) to begin drinking,” Lal, Anandgarh’s most voluble patriarch, says. Then, warily, he clarifies: “Not my sons, you understand. Others’ sons.” He cocks an eye towards Rakesh Kumar, FINO’s young agent in Anandgarh, who is painstakingly disbursing money on a hot afternoon. “I have to say, this is an improvement.”
Unaware of Lal’s approbation, Kumar continues his work. A small band of villagers have gathered at his house to collect pensions and NREGS wages. Kumar collects a smart card from each, swipes it into a reader, scans a fingerprint for verification, counts out money, and issues a receipt. He also has the uncomfortable duty to, occasionally, peer into the reader’s screen and say: “Aapka zero-zero aaya hai (Your account has zero funds).”
Doorstep delivery: A FINO coordinator processes smart cards and distributes dues in Anandgarh village in Sirsa, Haryana.
Via agents such as Kumar, FINO (or, far less conveniently, Financial Information Network and Operations Ltd) has delivered NREGS payments in at least 30 districts since mid-2007, when it first started work in Andhra Pradesh. At present, it delivers wages to four million NREGS workers across India. In this, as in its work with banks to deliver other financial services, FINO acts as a business correspondent (BC), a role created by the Reserve Bank of India (RBI) in 2006.
The logic for the involvement of FINO and other BCs is unshakeable: they offer transparent systems, and they are specialists at last-mile delivery, a costly enterprise that many banks are reluctant to undertake. But FINO’s experience with NREGS also illustrates how difficult it is for BCs to build viable business models—and how urgent it is that those models be built soon. FINO’s losses grew from Rs6.3 crore in 2006-07 to Rs34.55 crore in 2008-09. As Manish Khera, FINO’s chief executive, acknowledges: “We need to do far more and far faster.”
The flow chart for FINO’s work with NREGS is a lengthy one. The government first makes its payments into each beneficiary’s account in the designated bank—in Sirsa’s case, Axis Bank Ltd—which then transfers the money to FINO. When bank branches are too distant from villages, as is often the case, FINO’s coordinators physically lug cash to their agents; in Kumar’s case, he receives transfers into his personal account, at a bank branch 4km away.
Cash trail: Angrej Singh from Anandgarh swiping his smart card.
At the village level, FINO meets the first and most trivial of its hurdles. “It’s hard enough to sell ourselves and our technology to the panchayats (village councils), which is why we use a trusted village resident as our agent,” says Gaurav Chakraverty, who spends much of his working week on the road, managing FINO’s operations in Haryana. “But we are also cutting the sarpanch out, and since he has invariably benefited from handing out money, he offers a lot of resistance.”
In Andhra Pradesh, FINO received a thoroughly digitized database of beneficiaries. “We had a whole ecosystem ready to work in,” says one of FINO’s project managers, who asked to remain anonymous because he wasn’t authorized to speak to the media. In most other states, the data handed to FINO is sketchy and inaccurate. Correcting that data is, strictly speaking, not FINO’s responsibility, but Khera says they do so anyway, incurring further costs. The payment cycle starts to stretch, “and really”, the project manager says wearily, “the purpose of the NREGS is defeated if the money gets to the people 20 days late.”
Another, rather unique problem presents itself with NREGS workers: the whorls and loops of their fingerprints have been scoured off by years of manual labour. Kumar often has to smear Vaseline onto their fingers to bring the prints into sharper relief. FINO’s staff had to be trained to take better impressions, and the fingerprint readers have certainly gotten more sensitive; Khera says their failure rate has dropped from 30% to 0.02%.
For these reasons, close observers of FINO identify its biggest challenge to be watertight cash management, though that remark is often followed by the qualifier: “But it’s definitely getting better.” FINO likes to point to Andhra Pradesh as its showcase project, for instance, but A. Murali, director of that state’s NREGS, professes himself less than satisfied. “We see a lot of delays happening, of even one to three weeks. I feel they don’t yet have the kind of capacities to manage money in this kind of wide canvas,” Murali says. “Somewhere between the bank and the service provider, it’s going wrong.”
M. Raghunandan Rao, the director of Andhra Pradesh’s development of women and children in rural areas programme, is intimately familiar with the mechanics of cash delivery, and he too sees flaws in FINO’s operations. “Moving cash from one point to many villages isn’t easy, and we recognized the problems a long time ago, but it hasn’t improved,” Rao says. “These aren’t insurmountable challenges, mind you. They just need to be ironed out.”
If there is one constant to every conversation about FINO, it is the gulf that persists between BCs and public sector banks. Rao calls these banks “fickle”, and he agrees with a remark that Murali makes: “In the Krishna district, FINO is working with Axis Bank, and that’s going well. But in other districts, with public banks, that’s not happening... The bosses at these banks are enthusiastic, and they want to please RBI in the name of total financial inclusion, but they don’t implement those principles at the ground level.”
The banks’ own view seems to include some circular reasoning. They want entities with proven track records as their BCs, but they aren’t willing to provide the sort of large mandate that can help build those track records. For their role in the grand NREGS scheme of things, banks are paid 2% of the amount they disburse, a cut they insist is too small to pay for wage delivery. But they will pay BCs only 1.75% of the disbursed amount—and sometimes less—knowing full well that this could prove to be fatal to the BC’s survival.
An executive in State Bank of India’s (SBI) rural business unit discussed this situation on the condition of anonymity. He admitted that, in a country with the rural sprawl of India’s, BCs were essential, but he questioned FINO’s decision to survive by simply opening accounts and processing transactions. “The BCs keep crying about not making money, but they need to offer more products on their smart cards,” he says. There’s certainly room; every card carries a 32-bit chip, but FINO uses only 6-8 bits at present. “On a Rs4 lakh housing loan, say, they’d make a commission of Rs4,000. Now, somebody would have to make Rs8 lakh worth of transactions to earn that same commission.”
The banks themselves, he points out, are willing to experiment. In Dantewada in Chhattisgarh, with another BC, SBI is paying each agent “2% or Rs2,500 per month, whichever is higher”. But BCs, he insists, must also recast their models. He mentions a non-governmental organization called Drishtee Development and Communication Ltd, whose agents—impressive multitaskers—conduct their BC activities even as they teach computer science and vocational courses. “That’s a model we like.”
Chakraverty, who worked at Drishtee a few years before he joined FINO, sees the flip side: FINO’s agents focus on doing one thing and doing it well. The words “core competence” seem to tremble on his lips. It sounds like common sense, except that the viability factor may rapidly assume crippling proportions. “[V]iability…has remained the most critical issue, which has led to the model not taking off as envisaged,” an RBI working group report concluded last August. “[T]here is a mismatch between the revenues earned and costs incurred.” Similarly, one otherwise-sunny study of FINO’s work in one Andhra Pradesh district, conducted by a researcher at the Institute for Financial Management and Research in October 2008, turns gloomy in its breakeven estimates. Under present RBI regulations, the study reckons, the average number of working days per NREGS worker would have to rise from eight to 39 for FINO to recover its upfront investment within three years.
FINO’s management admits that gaps exist. “But issues like money management are ones that will improve, and the underlying process is working quite well,” says Nachiket Mor, chairman of FINO’s board of directors. “We definitely need to grow faster, but already, FINO has leapfrogged over what has been done before. If this hasn’t convinced people, I don’t know what will.”
Photographs by Pradeep Gaur / Mint