Inspired to do much more for the low-income households in rural India, A Ramesh Kumar began an arduous journey of championing new approaches for addressing their issues, through his innovative approaches in finance. He was awarded the Wall Street Journal & Metlife Foundation Award for “The Most Innovative Model in Asia Pacific Region” in 2016, The Government of India’s Award as “Top Social Innovator of the Year in 2017 and The Social Innovator of the Year by Responsible Business Award.
Below are the excerpts of his conversation with Elets News Network (ENN).
What is your view on access to finance for the rural populace in India? Do you see any progressive change in the segment over the years?
Access to finance has always been a big challenge for rural families in India. This problem has been compounded by damage to their credit history from failed agriculture loans. While some amount of access has been provided through microfinance loans, these have been used more as loans to meet the crisis, rather than as loans for planned improvement of livelihoods and economic welfare of the families.
The problems associated with traditional money lenders as well as informal hand loans at exorbitant interest still persist in most parts of rural India. The unmet demands for quality school education for children, vocational training programmes for youth, finance for microenterprises, which are not tapped by the institutional lenders, etc. persist and need to be addressed. While the expansion of microfinancing and lending for two wheelers etc. has improved to some extent in recent years, the unmet demand is still huge in the areas that I have mentioned.
How are microfinance institutions catering to the demands of rural areas in terms of home and other financial needs?
Microfinance institutions have significantly helped in bridging the periodical cash flow deficits of rural families. They have been able to largely address only demands relating to the consumption, family functions, and emergency medical treatment needs apart from adding in a small way to livelihoods enhancement. However, the need of the hour is to channel funds in a segmented manner to address important needs such as improved education for children, obtaining job oriented training for youth, boosting micro enterprises at a scale where they create additional employment beyond the self-employment of the entrepreneur.
While microfinance has frequently addressed the urgent needs of rural families to a certain extent, the imperative need is to address the important needs rather than only the urgent ones. It is this differentiation in meeting the unserved important needs of rural families from a long term quality of life enhancement point of view, rather than only meeting urgent crises and consumption needs is what Laraksha Social Impact Trust is focussing on.
Which segment do you offer your services to? What are your offerings?
Laraksha Social Impact Trust addresses the acute gap in access to finance for Education and Vocational Training of children of rural families, for protection of Rural Livelihoods through Microenterprise and household infrastructure oriented solutions, for providing access to clean water through financing rural Water Purification and Dispensing Plants and improving Habitat through financial access to dedicated Roofing solutions. Laraksha Trust is working to design and deliver Innovative Financial Solutions to address the above unmet needs, particularly for weaker sections of the society in rural areas. Laraksha currently operates in three states viz; Tamil Nadu, Bengal and Manipur and hoping to expand its operations to Karnataka, Odisha, Telangana, Maharashtra, Tripura and Mizoram by 2020.
Laraksha Product Bouquet includes the following financial services in rural areas:
- Education Loan
- MSME Loan
- Roofing Loan
- Water ATMs and Dispensing Units Loans
What new techniques and innovations have you implemented for streamlining your service in your ventures? Did you deploy any technology to digitise your services?
Introduced in Housing Microfinance through the Swarna Pragati Housing Microfinance Model Incremental Housing:
Rural borrowers are psychologically averse to avail a one-time loan with long tenor due to the unpredictability of their income over a longer time horizon. They also prefer house construction in incremental stages due to the financial burden, hence, an appropriate Short Tenor, low EMI financing product was designed for them. Use of Semi-formal Title Documents to create a Para-Legal Mortgage: Using community acceptance of residency rights, creation of Para-legal documents using the Village Panchayat and using these to create workable collateral for housing and a recognition of the mortgage of the property to the Company.
Group Lending: Leveraging time-tested and well-established group lending mechanisms of Microfinance into housing finance, which was traditionally considered an individual loan product. These Best Practices of Microfinance have been co-opted into Housing Finance viz., Peer pressure, social collateral, self-selection, and joint liability
Partnership with Grassroots Institutions Using Community connect of Grassroots institutions like NGOs and MFIs to source clients and collect repayments creating new Institutional Partnerships
Current Innovations in Protecting Livelihoods and futures through Financing by Laraksha Social Impact Trust Pioneering access to Education finance for unserved rural families:
Identifying the need and aspirations of rural families for providing quality education to children at private schools and in vocational institutes and providing the needed finance
- Institution centric model of finance:
Active engagement with private schools and vocational training institutes in rural and semi-urban areas to identify among their students, those needing finance for continuance of education thus preventing dropouts.
- Pioneering Finance to the ‘MISSING MIDDLE’ of Rural Entrepreneurs:
Providing access to Finance to Rural Micro-entrepreneurs in the segment of Rs.50,000 to Rs.500,000 not covered by MFIs or formal Financial Institutions like Banks and NBFCs
- Innovative Financial Solution to provide access to Clean Drinking Water:
Bringing Technology and Finance to villages to provide access to clean drinking water by facilitating the establishment of Water ATMs by Self Help Groups (SHGs) and Rural Microentrepreneurs
Innovative Roofing Finance Solution to provide an opportunity to enhance the quality of Shelter in Rural areas:
Studying the need for dedicated Roofing solutions, including the use of alternative materials, for vulnerable rural families, particularly in coastal areas and high rainfall/wind speed zones and pioneering a specialised Financial Product for them. Innovative Partnership Model with Grassroots institution and Microentrepreneurs for effective Rural Outreach
What are the major challenges and opportunities for the rural finance segment? What do you see in store for 2019?
The major challenges for the rural finance segment is to focus on more important needs such as education, employment, growth of localised enterprises, improving access to quality drinking water, etc, which have not been focussed upon so far. And, at the same time create an innovative business model to overcome the hurdle of high transaction costs in serving scattered rural households.
The opportunities lie in identifying these important needs of rural families and providing targeted and segmented financial solutions, leveraging grassroots institutions which fulfil these important needs and not on amorphous financing which encourages wasteful and nonproductive expenditure.
I expect to address these major challenges through our innovative and perceptive financial products and create new innovative products and greater social impact which translates into tangible long term enhancement in the quality of lives of the rural families. In 2019, we are creating suitable vehicles for executing these plans, thus ensuring the motto of Laraksha of Protecting Livelihoods and Futures.