Reimagining the Banking Business Model

Abstract

The current microfinance policy in India needs to be reconsidered due to issues like lop-sided growth, regional imbalances and ‘mission drift’. A clear-cut elaboration of a new business model is provided as a roadmap for the inclusive banking policy in India. For adopting the new business model, the narrative of financial inclusion should be changed. The low-income customers should be treated as the ‘bulk’ of the population and not as the ‘bottom’ of the pyramid.

Annexure

Three Case Studies of Banks with Successful Implementation of Microlending–Microdeposit Model

• 1. Canara Bank, India

  Canara Bank is successfully implementing financial inclusion, and it received the Skoch Award in Order-of-Merit Category. It took up the implementation of the financial inclusion plan and has a great opportunity to garner the untapped rural potential. According to the Skotch report,³ ‘for the bank, FI is no more a social banking, it is a huge business opportunity’. In 2014 when it received the award, it provided Basic Savings Deposit Accounts to 54.55 lakh people and 142.89 lakh persons since the beginning of the scheme.

• 2. Capitec,⁴ South Africa

  In March 2001, its business model included the financially excluded population in banking and maintains the profitability. It has designed specialized products and has a large number of customers satisfied with its customer engagement, low cost fast transactions and helpful staff. It has enabled illiterate rural and financially weaker sections through local access points and use of telecom banking. This case highlights how banks need to start looking at inclusive markets as a growth opportunity rather than a cost to business as they can build a profitable business serving a large market of about 500 million people in India.

• 3. Standard Bank, South Africa

  Standard Bank Group has provided banking to the low-income groups. This expansion has been undertaken as a response to increasing competition in the banking sector in South Africa. It has adopted the strategy of mobile banking products, high end technology to reduce costs and partnerships across the sector to benefit from linkages and economies of scale. Through access points and branchless banking along with locally appointed community agents, it has succeeded in enhancing financial inclusion of the poor while at the same time retaining its financial profitability.