What’s next for KGFS?

What’s next in financial access in 2013? Bindu Ananth and Deepti George say a focus on measuring and improving quality.

It has been over four years since we started KGFS, an attempt to provide a complete suite of financial services to financially excluded low-income households in India. Our journey began in the village of Karambayyam in Thanjavur, Tamil Nadu. In that village of 3200 households that has no other formal financial institution, the KGFS branch and its three wealth managers have enrolled 2030 households and created a customised financial well-being report for each of them. Following up on these reports has resulted in the sale of 4966 insurance policies, 300 pension policies and credit disbursements of USD 2mn with no losses for this single branch. Mid-line results from an impact evaluation being conducted by Rohini Pande and Erica Field suggest that the presence of a KGFS branch has a significant impact on reducing the stock of informal, expensive debt. Over the last four years, we have built five independently managed KGFS institutions in five  distinct regions of the country. These institutions together comprise a total network of 170 branches and are now serving about 300,000 households. The first of these institutions, with 68 branches in Thanjavur district of Tamil Nadu, turned profitable within four years of inception.

The fundamental premise of the KGFS model is to build a financial institution that provides tailored financial services based on individual needs and risk profiles, and whose success is judged not on mere sale of products but on the suitability of financial services provided. This is a fundamentally different approach to consumer finance in general and financial services for low-income households in particular. We are at the beginning of this journey but are convinced that this approach holds tremendous promise for unlocking the power of financial services.

There are three important developments in progress this year that we are excited about and hope will further align the KGFS thought process and the execution:

First, we will bring all lending decisions in our branches within the framework of the financial well-being report as has been the case for insurance and pension recommendations. This will be done by computing a Debt Service Capacity number, based on information gathered during enrolment that establishes a household’s total borrowing capacity. All loans, whether secured or unsecured will have to be informed by this number. This will enable us to fully unlock the growth potential of enrolled households while ensuring that an eye is kept on total leverage across multiple credit products.

Second, we will start to formally evaluate the performance of each KGFS branch on the basis of the suitability of services it provides to customers. So far, a KGFS branch has been judged on the basis of enrolment rates and audit scores. The proposed Suitability Audit process is being built around three main pillars: the quality of data collection during enrolment and updates to that data over the lifetime of the customer; effective communication of the recommendations embedded in the financial well-being report, and; persistent follow-up with the customer on action taken. We believe the suitability audit will help improve alignment between the products offered and the households’ needs, and will allow us to recognise and reward branches and wealth managers who are high-performing on this critical dimension.

Finally, from a product completeness perspective, a KGFS customer can today access a very broad range of credit, insurance, payment and investment products through the various partnerships we have with banks, insurance companies and mutual funds. The glaring gap in the product portfolio has been a health insurance product; life, disability, livestock and fire insurance products already exist. Developing a health insurance product has been challenging largely because of the need for effective linkages to the healthcare infrastructure in the villages where KGFS operates. We have product development in progress in partnership with an insurance company, a hospital and a primary healthcare specialist, to design and deliver a managed care product to customers. Briefly, the customer will be able to access primary, secondary and tertiary healthcare in return for a fixed contribution per household per year. Variation in health spending due to shocks is an important source of risk for households and requires the best of our design thinking. Having this health insurance product will improve our ability to impact financial well-being of clients.