BASIX Case Study1 Ashley Hubka 25 August 2004 v2 BASIX: A new generation rural livelihood promotion institution in India

Risk Mitigation Customer selection and lending methodologies Partnerships with other institutions Helping customers to reduce their own risks Insurance including li!e livestock and weather Cost Reduction "ta!! productivity enhancements I# initiatives including an $%P system data mining and a mobile computing solution Culture &ew hire training program 'earning and sharing mechanisms Per!ormance pay

$(ecutive "ummary $stablished in )**+ ,A"I- has emerged as one o! the leading micro!inance institutions in India. It is cited !or its scale creativity commercial orientation and collaborative philosophy in a sector o!ten marked by limited operations routine approaches donor dependence and territoriality. /ore speci!ically ,A"I- has systematically addressed the twin issues o! risk mitigation and cost reduction with an eye to attracting investment !rom the mainstream capital markets. At the same time these actions have enabled the organi0ation to maintain and e(pand its lending in rural areas including lending !or agriculture in drought1prone geographies. Conte(t ,A"I- is the name used to denote a group o! companies related to each other through the !ollowing corporate structure2 Bhartiya Samruddhi Investments and Consulting Services !td" #BASICS !td$ 2 3the holding company through which e4uity and debit investments are made in the group companies562

#his case study is based on a 7uly 2004 visit to ,A"I- that included meetings with 8i9ay /aha9an /anaging :irector6 :. "attaiah Associate 8ice President6 8.Chandar %ao /anager I# Initiatives6 and P. &arsaiah /anager 'ivelihood Initiatives6 as well as !ield visits to three villages in /ahaboobnagar :istrict Andhra Pradesh and attendance at ,A"I-; <uarterly %eview /eeting. #he author is grate!ul to ,A"I- !or their collaboration and guidance6 any errors remain the !ault o! the author. 2 www.basi(india.com.

Bhartiya Samruddhi %inance !td" #Samruddhi$2 'aunched in )**= "amruddhi is the the 3!lagship5 company o! the group. It is 3an %,I >%eserve ,ank o! India? registered &,@C >non1bank !inancial company? owned by ma9or !inancial institutions and engaged in microcredit and retailing insurance and providing technical assistance56A &rishna Bhima Samruddhi !ocal Area Bank !td" #&BS !AB$2 3an %,I licensed bank providing microcredit and savings services in three districts54 in the Indian states o! Andhra Pradesh and Barnataka. B," 'A, has been operating since 200) and 3is the only entity in the group that is able to provide all o! the service components acknowledged as being vital to micro!inance vi0. credit savings insurance and more recently money trans!er services565 Indian 'rameen Services #I'S$2 3a section 25 not1!or1pro!it company engaged in research and development and training related to livelihoods.5+ IC" makes investments that cannot be recouped in the short1term and receives separate !unding !rom !oundations including the "wiss Agency !or :evelopment Cooperation the @ord @oundation the "ir %atan #ata #rust and others. 3IC" is !ocusing on building the knowledge base re4uired !or supporting livelihoods and disseminating the knowledge so generated !or building the implementation capabilities o! various organi0ations playing a critical role in supporting livelihoods. IC" also carries out human resource and institutional development !or the ,A"I- group as well as !or other ruralDmicro!inance and communityDproducer institutions. It also designed and developed !inancial products !or e(tending credit evolving distribution channels !or delivery o! its services and developing necessary systems !or service delivery such as accounting and /I"56E and Sarvodaya (ano %inance !td" #Sarvodaya$2 3an %,I registered &,@C owned by women;s sel!1help groups and managed by ,A"IC" 'td.5= 3In 7uly 200) ,A"IC" 'td disposed o!! "arvodaya &ano @inance 'td to a group o! community1based mutual bene!it trusts whose members comprise over 5 000F >sel!1help groups? "HCs o! poor women in #amil &adu. #he new owners signed a management agreement with ,A"IC" 'td. >to? provide a wide1range o! management services and assistance to "arvodaya.5*

#oday ,A"I- has appro(imately )50 000 borrowers and = +00 savers in E =00 villages in )0 states. ,A"I- has disbursed GAE million in loans since )**+6 currently 45H o! loans are made to women and 4*H !or non1!arm activities. However ,A"I- conceives o! itsel! not as a micro!inance institution but as 3a new generation livelihood promotion institution.5)0 In other words credit alone is not a complete solution. ,A"I-;s goal is to impact ) million livelihoods by 20)0I500 000 directly through !inancial services and another 500 000 through indirect
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www.basi(india.com. www.basi(india.com. 5 ,A"I- Annual %eport 200A104. + www.basi(india.com. E www.basi(india.comDigs.asp. = www.basi(inda.com. * www.basi(india.comDsarvodaya.asp. )0 www.basi(india.com.

means. 3#he rationale behind this is as !ollows2 /icrocredit in particular and micro!inance Jincluding savings and insuranceK in general is help!ul !or the more enterprising poor people in economically dynamic areas. However !or poorer people in backward regions a whole range o! other livelihood promotion services Jinput supply training technical assistance market linkagesK need to be provided. 'ikewise it is not possible to work with poor households individually and they need to be organi0ed into groups in!ormal associations and sometimes cooperatives or producer companies all o! which re4uires institutional development services.5)) #o that end ,A"I- works to deliver what the organi0ation terms 3#he 'ivelihood #riad52 J)K !ivelihood %inancial Services #!%S$2 Currently ,A"I- o!!ers credit and insurance though "amruddhi and B," 'A,. 'oan products include crop loans !or seasonal input !inancing agri term loans to purchase !i(ed assets agri1allied loans !or livestock !arming non1!arm microenterprise loans and general purpose loans given to sel!1help groups J"HCsK !or on1lending. /ost credit is o!!ered at a 24H interest rate though the tenures vary !rom 21A months !or poultry agri1allied loans to A years !or agri term loans6 loans to "HCs are the e(ception at )2H. :aily and monthly recurring and term deposit savings products are o!!ered through B," 'A, paying interest rates o! 51=H typically 0.5H higher than the market rate.)2 #his area is the !urthest ahead in ,A"I-;s development o! the 'ivelihood #riad6 J2K )R and Institutional *evelopment Services #)R+I*S$2 In this area ,A"I- works to develop the institutional capabilities o! other actors in the rural livelihoods !ield. #he partner organi0ations range !rom producer organi0ations to &CLs6 and the activities !rom capacity building to policy analysis and sector work. ,A"I- is !airly com!ortable with this set o! services as well. H%MI:" is currently being o!!ered to appro(imately 45 &CLsD/@Is and )5 producer cooperatives. ,A"I-;s trans!er o! its I# knowledge to multiple /@I"D&CLs in India and abroad is also included in this area6 and JAK Agricultural and Business *evelopment Services #Ag,B*S$2 #he main activities grouped under this rubric are productivity enhancement non1!inancial risk mitigation market linkages and local value addition through agroprocessing. #his is the newest area !or ,A"I- and the most challenging in terms o! its comple(ity. In order to develop 3vertical5 crop solutions ,A"I- must !acilitate the interaction o! a number o! partners. @or e(ample to provide a complete AgD,:" o!!ering !or groundnut !armers in Andhra Pradesh JA.P.K ,A"I- brought in input supply companies to sell higher 4uality seeds made available research and technical advice !rom institutions such as the International Center !or %esearch in the "emi1Arid #ropics JIC%I"A#K partnered with &CLs to provide on1!arm e(tension services !acilitated the !ormation o! organi0ations o! groundnut producers and developed market linkages with traders. ,A"I-;s only direct role is in the provision o! credit in combination with ICICI ,ank. In addition to groundnut ,A"I- has been active in cotton vegetables dairy non1timber !orest products Jlac and tasarK pulses soya te(tiles power water and retailing. #o the
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www.basi(india.comDde!ault).asp. ,A"I- has obtained regulatory permission to accept deposits through "amruddhi given its unusual access to !unds but has not yet begun doing so.

degree possible and as the models mature ,A"I- is charging !or these servicesI!or e(ample a registration !ee and a service !ee o! appro(imately %s. A00 Jroughly G+K per acre !or cotton !armers !or access to improved inputs assistance with integrated pest management JIP/K and market linkages. ,A"I- currently has appro(imately 20 000 paying customers !or its various AgD,:" o!!erings. Clearly ,A"I-;s e(pansion into rural livelihoods promotion increases the need !or collaboration with multiple complementary organi0ations and places a premium on ,A"I-;s ability to !acilitate the comple( webs o! relationships re4uired to deliver a complete solution to the customer. In line with the demand !or these capabilities and activities ,A"I- has established a new area1level position2 Area $(ecutive JA$K !or 'ivelihoods who is intended to be a sub9ect matter e(pert in particular vertical solutions.)A IC" !unctions only as a 3laboratory5 with products at a slightly more advanced stage migrated to "amruddhi or B," 'A,. Products are 3switched over5 to commercial status and rolled out more broadly when !ully developed not necessarily when ,A"I- can charge !or them. AgD,:" will be delivered by the e(isting Customer "ervice Agents JC"AsK who handle the 'ivelihood @inancial "ervices J'@"K currently o!!ered by "amruddhi and B," 'A,. #here is and will remain a separate team !or H%DI:" given the very di!!erent 3customer set5 !or these services. ,A"I- states that it 3will strive to yield a competitive rate o! return to its investors so as to be able to access mainstream capital markets.5)4 In 7uly 2004 8i9ay /aha9an /anaging :irector elaborated on this point2 acknowledging that he can probably go back to donors and institutions Jlike the I@C which along with "horebank JN"AK Hivos #riodos @und J&etherlandsK ICICI ,ank JIndiaK and H:@C JHousing :evelopment @inance Corp IndiaK provided an e4uity in!usion in 200)K !or one more round o! !unding /r. /aha9an pointed to a !uture in which ,A"I- will have to attract capital on a purely commercial basis. ,A"I- has already begun to operate in this manner. @or e(ample in 200A ,A"I- sold a portion o! its high 4uality outstanding loan port!olio to ICICI ,ank. Nnder this arrangement ICICI ,ank bought out "amruddhi;s crop loans to 7'Cs in )) units in A.P. worth %s. 42.) million Jroughly G) millionK.)5 In /r. /aha9an;s point o! view moving !rom a single micro!inance securiti0ation transaction to sustainable access to commercial capital means2 decreasing risk and enhancing returns Jdecreasing costsK. %isk /itigation Innovation ,A"I- manages its risk at two levels. @irst by managing its own institutional1level risk. And second by helping its borrowing customers to reduce their own risks Jand hence the risk o! de!ault on their loansK. At the institutional level ,A"I- has taken a number o! steps to reduce its risk pro!ile. #hese risk mitigation techni4ues are embedded in the most !undamental business decisions made to
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#here are appro(imately E Areas within ,A"I- with each Area overseeing 4 Nnit L!!ices JNLsK. www.basi(india.com. )5 www.basi(india.comDcontentdisplay.aspOcontidP22.

date and standardi0ed in the organi0ation;s lending practices. #o begin with ,A"I-;s customer selection helps to mitigate risk by lending to groups other than the poorest o! the poor and serving di!!erent customer groups with di!!erent lending methodologies. /ore speci!ically ,A"I- has three main customer groups and three lending methodologies. #he !irst customer group is the 3poor5 who are mostly wage laborers owning perhaps 0.51).0 acres o! land and earning on average %s. )4 000 per year Jroughly G2=0 per year with %s. )2 000 !rom labor at %s. +01)00 per day !or a male and %s. 2 000 !rom landK. ,A"I- serves these customers through the "HC methodology making loans o! %s. 20 000 Jroughly G400K to the group which then on1lends to its roughly 20 members. Croup !ormation and ongoing meetings savings discipline and peer pressure play key roles in repayment. #he second customer group are the 3marginal poor5 who own )1A acres o! land and have an average annual income o! %s. 24 0001A+ 000 Jroughly G4=01 E20K. Here ,A"I- relies on 9oint liability groups or 7'Cs. #he loan Jtypically %s. 5 0001 25 000 or G)001500K is given to an individual but all 415 members o! the borrower1!ormed 7'C are 9ointly liable !or its repayment. #he third customer group are the 3not so poor5 who typically own A1+ acres o! land and earn %s. A+ 0001+0 000 per year Jroughly GE201) 200K. ,A"Imakes individual loans o! %s. 20 000150 000 Jroughly G4001)000K to these customers o!ten re4uiring collateral in the !orm o! land title. ,A"I- does not lend to the 3destitute5 nor to the 3better o!!56 it claims that within the middle segments o! the socio1economic landscape its customer set roughly mirrors the percentages o! the populationI40H poor A5H marginal poor and )5H not so poor. @or "amruddhi average loan si0e is %s. = =4A Jroughly G)=0K with E=H o! loans below %s. )0 000 Jroughly G200K.)+ Company1wide port!olio limits and standard operating procedures also help to mitigate ,A"I-;s aggregate risk. @or e(ample crop loans agri term loans and agri1allied loans cannot account !or more than 25H )0H and 20H o! the outstanding loan port!olio respectively. Conversely non1 !arm loans and loans to "HCs must make up at least 40H and )5H o! the port!olio value respectively. Lperating procedures are well1de!ined and highly institutionali0ed. All customers must start with a small loan and 3graduate5 to larger amounts. Qhile !ield1based Customer "ervice Agents JC"AsK input loan application in!ormation decisions about loan approval are made by a Nnit L!!ice1level committee Jthere are 2= Nnit L!!ices JNLsK within ,A"I-K. Products and associated terms and conditions are well1de!ined6 !or e(ample crop loans have a ma(imum tenure o! * months. Qhen loans become overdue NLs must immediately report the reason !or the delay and the actions they are taking on the ground. /oreover ,A"I- does not reschedule loans and routinely seeks legal recourse to en!orce repayment with a 50H success rate in court. #ie1ups with other institutions also help to mitigate ,A"I-;s own risk. @or e(ample creating complete vertical solutions through AgD,:" services brings in a number o! institutions whose interventions should improve customers; livelihood prospects and thus their ability to repay loans. ,A"I- calls these arrangements like the one !or groundnut described earlier 3Collaborative Polygons.5 @inally ,A"I- reduces its own risk by reducing its customers; risk. ,y reaching down to mitigate the risks o! its customers ,A"I- protects the 4uality o! its own port!olio. @or e(ample when lending !or livestock ,A"I- re4uires that borrowers have the animals vaccinated. ,A"I)+

,A"I- Annual %eport 200A104.

also encourages !armers to take a loan to create an on1!arm pond !or 3protective irrigation5 in times o! drought or to adopt integrated pest management JIP/K techni4ues to lower their costs o! pest management. ,A"I-;s practical approach !its well with 7.:. von Pischke;s theory o! structuring credit to manage risk. 8on Pischke notes that 3the !ortunes o! borrowers and lenders are tied giving both a stake in success!ul risk management5 and that 3risk management by either party can bene!it the other.5 )E He elaborates on this theme2 3@armers also have e(pectations and e(perience that they are very clear about when they are 4uestioned about bad years reversals an losses >such as death o! a cow or !ailure o! a crop?. ,ut they have not been su!!iciently consulted in credit pro9ect design. Lnce they are consulted real risk and measures to deal with real risk in addition to the possibility o! providing more credit should become apparent and accepted a a priority and ob9ective o! development intervention. In this way developers and lenders; interest in providing credit can open windows on problems de!ined here as risk !acing borrowers and potential borrowers. #he result should be more mutually satis!ying relationships between lenders and their rural borrowers. A lender or development agency that viewed risk identi!ication and management as a ma9or element in development strategy would accumulate much in!ormation and e(perience. -his could provide a power.ul plat.orm .or helping intended /ene.iciaries around or over the things that limit their progress and that are within their control or the lender0s control.5)= "imilarly as von Pischke hypothesi0es establishing this kind o! partnership with borrowers enables a lender to 3lever their way up the borrower;s ladder o! claims.5)* In !act their a numerous stories o! ,A"I-;s customers borrowing !rom other !ormal and in!ormal sources to repay ,A"I- on time and maintain that !inancial relationship. Lne o! the most compelling and most elaborate e(amples o! risk mitigation undertaken by ,A"I- is insurance. It is also an e(ample which illustrates clearly ,A"I-;s strategy o! addressing both its own and its customers; risks. ,A"I- established a separate Insurance :ept. at its Head L!!ice to support all units. #o date nearly )00 sta!! have been trained in insurance products and passed the Insurance %egulatory and :evelopment Authority o! India JI%:AK e(am.20 3In Lctober 2002 ,A"I- introduced a pilot group term li!e insurance product !or its rural customers in Andhra Pradesh in cooperation with Aviva 'i!eDCCN JNBK. #he scheme CreditPlus provides death cover on a group basis to ,A"I- borrowers. "urviving !amilies o! insured borrowers receive a payment e4uivalent to )50H o! loan principal. ,A"I- has success!ully rolled out this product to all its new customers in 200A6 insurance is now mandatory !or all direct loans. #he company by /arch 2004 had insured nearly 5+ 000 borrowers.52) In :ecember 200A ,A"I- become a Corporate Agent o! Aviva and now sells three rural1speci!ic
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7.:. von Pischke 3"tructuring Credit to /anage %eal %isks 5 in @.7.A. ,ouman and L. Hospes J$ds.K Financial Landscapes Reconstructed: The Fine Art of Mapping Development ,oulder2 Qestview Press J)**4K 4*1E0. )= 7.:. von Pischke 3"tructuring Credit to /anage %eal %isks 5 in @.7.A. ,ouman and L. Hospes J$ds.K Financial Landscapes Reconstructed: The Fine Art of Mapping Development ,oulder2 Qestview Press J)**4K 4*1E0 emphasis added. )* 7.:. von Pischke 3"tructuring Credit to /anage %eal %isks 5 in @.7.A. ,ouman and L. Hospes J$ds.K Financial Landscapes Reconstructed: The Fine Art of Mapping Development ,oulder2 Qestview Press J)**4K 4*1E0. 20 ,A"I- Annual %eport 200A104. 2) 3,A"I- Credit %isk %ating 5 I@C 2E 7une 2004.

li!e insurance policies.22 ,A"I- also signed an /oN with %oyal "undaram Alliance Ceneral Insurance Company 'td. !or distribution o! insurance products including a cattle insurance product.2A #hese policies provide death coverage !or livestock with the animals insured !or !ull market value !or )2 )= or 24 months6 3,A"I- pays the premium and collects the same along with the client;s loan installments.524 In 200A ,A"I- 9oined hands with ICICI 'ombard an Indian insurance company and subsidiary o! ICICI ,ank and the Commodity %isk /anagement Croup JC%/CK o! the Qorld ,ank to design develop and pilot a weather insurance product !or small and medium !armers in Andhra Pradesh JA.P.K. %ecogni0ing that in many areas o! the country !armers; yields depend critically on rain!all that de!ault rates were highly correlated with drought that e(isting government1 sponsored multi1peril crop insurance schemes were sub9ect to high administrative costs and moral ha0ard and that there e(ists an international weather JreKinsurance market driven primarily by developed country energy companies the idea was to design a weather insurance contract with clear trigger levels and prompt payouts. #he result was a simple rain!all1inde(ed structure !or the kharif or monsoon season roughly 7une1"eptember. %ain!all below a certain level triggered a payout with the amount o! the payout inversely proportional to the amount o! rain!all up to a pre1determined ma(imum sum. #he trigger levels and payment amounts were crop1 speci!ic and determined by talking with agricultural e(perts and !armers. "ums insured were calibrated to cover !armers; seasonal input costs and premium amounts were roughly )0H o! sums insured. In the !irst season J200AK 2A0 castor and groundnut !armers and "HC women in /ahaboobnager district o! A.P. purchased weather insurance. In the a!termath o! the !irst pilot ,A"I- ICICI 'ombard and C%/C met again with the !armer1buyers o! the insurance and solicited their reactions6 this resulted in some signi!icant changes to the groundnut structure to make it easier to understand and calculateIincluding a shi!t !rom measuring rain!all as percent deviation !rom the mean to measuring it in absolute terms JmmsK a shi!t !rom a single weighted rain!all inde( to a three1phased contract and a shi!t !rom non1linear to linear relationships between rain!all levels and payout amounts. In addition the three partners worked to develop additional structures !or castor and cotton crops and a generic e(cess rain!all contract to cover the harvest period. In the second season J2004K A40 groundnut castor and cotton !armers in /ahaboobnagar Ananthapur and Bhammam districts o! A.P. bought rain!all1inde(ed policies. In addition the 3proo!5 provided by the 200A ,A"I-1ICICI 'ombard1C%/C pilot seemed to spark much broader interest in weather1inde(ed insurance. #his risk management vehicle was e(plicitly mentioned in the 2004105 Covernment o! India budget and o!!ered during the 2004 monsoon season by a number o! companies including the government1owned Agricultural Insurance Company JAICK and I@@CL1#LBIL Ceneral Insurance Company an Indian17apanese 9oint venture. In total appro(imately )= 000 Indian !armers in 20 districts nationwide were able to buy weather1 inde(ed insurance !or the 2004 monsoon season. In both 200A and 2004 ICICI 'ombard underwrote the policies and ,A"I-;s e(isting "amruddhi and B," 'A, sta!! marketed distributed and sold them. %ain!all was measured the
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,A"I- Annual %eport 200A104. www.basi(india.comDinsurance).asp and www.basi(india.comDinsurance2.asp. 24 ,A"I- Annual %eport 200A104.

!irst season at district Indian /eteorological :epartment JI/:K weather stations6 and the second season on local mandal level rain gauges. #he !ormer are credible in the international weather market while ICICI 'ombard was unable to reinsure policies written on the !ormer. A real tension e(ists between writing policies on rain gauges close enough to the !armers; plots to reduce basis risk Jthe risk that rain!all at the gauge di!!ers !rom rain!all at the !ield or alternately the risk that rain!all at the gauge is not well correlated with !armers; yieldK and writing policies on rain gauges that will be acceptable to international reinsurance companies. ,A"I- !urther recogni0ed that the small scale o! these 3retail5 e!!orts could not ade4uately protect its lending port!olio. In addition ,A"I- was e(periencing high de!ault rates and signi!icant !inancial pressure in a number o! drought1prone districts and !acing tough decisions about whether to continue lending in these areas. #he senior management o! ,A"I- reali0ed that a weather1inde(ed port!olio hedge could provide the answerIproviding a payout to o!!set high de!ault rates and enabling the institution to continue providing credit in these di!!icult operating areas. #he port!olio hedge developed by ,A"I- and ICICI 'ombard covered three business units in A.P. and the principal at risk JPA%K correlated with monsoon rain!all. 'ike the policies sold to !armers this structure has a trigger level or strike price and rain!all1inde(ed payouts up to a ma(imum amount. #he contract !or a si(1!igure N" dollar sum insured was underwritten by ICICI 'ombard and reinsured by one o! the top international players in the weather market. #he deal marked the !irst time that an agricultural !inance institution has trans!erred the systematic risk o! its crop lending port!olio to the international weather risk market. Nltimately a!ter several years o! e(perience with hedging ,A"I- would like to pass the costs and bene!its on to rural borrowers e.g. charging a slightly higher interest rate !or repayment amounts inde(ed to rain!all conditions. /ore speci!ically given the 3ripple5 e!!ects o! a poor monsoon on the entire rural economy ,A"I- could consider inde(ing all loans !rom crop loans to non1!arm loans at di!!erent levels e.g. a crop loan would re4uire only principal repayment in a drought year whereas a non1!arm loan would receive only a lower interest rate. 1er.ormance Civen the limited scale o! the pilot programs to date it is premature to draw de!initive conclusions. However two indicators illustrate the value o! weather insurance !or agricultural !inance. @irst a number o! !armers who purchased rain!all1inde(ed policies !or the 2004 monsoon seasons were repeat buyers !rom 200A. "econd the availability o! a weather1linked port!olio hedge was an important !actor in ,A"I-;s decision to continue lending !or agricultural purposes in three drought1prone business units in A.P. Cost %eduction Innovation ,A"I- also pays close attention to the cost side o! the capital markets e4uation. Cost reduction is driven by two main levers2 increased productivity and I# initiatives. Cost minimi0ation !ollows the li!e cycle o! a Nnit L!!ice JNLK with the e(pectation that a!ter three years a NL will

meet its costs and begin contributing to the organi0ation. Appro(imately )0 o! ,A"I-;s 2= NLs have already crossed this threshold and another )= should do so this year. 3,A"I- computeri0ed its operations at the Nnit L!!ice level !rom day one.525 In 2002 ,A"Iestablished the In!ormation #echnology "olutions !or 'ivelihoods JI#"'K :ivision 3to provide in!ormation technology solutions to broaden and deepen the outreach reduce the transaction cost enhance the accuracy and !le(ibility o! transactions related to micro!inance and livelihood support servicesF It >has? two teams who cater to group companies JInternalK and othersF J$(ternalK.52+ #here are appro(imately 25 pro!essionals working in the I#"' :ivision.2E Nnder I#"';s leadership the organi0ation is currently in the process o! transitioning !rom a @o(Pro1 and /":L"1based @inancial Accounting and /anagement In!ormation "ystem J@A/I"K to an Lracle1based $%P system !or Lperations @inancial Accounting Human %esource /anagement Payroll and Customer %elationship /anagement called :$'PHI-. In addition ,A"I- relies heavily on a data warehouse J,A"I- :iscovererK and a data warehouse tool JLracle :iscovererK 3to consolidate the !inancial and operational data at company level >and to? analy0e credit port!olio with di!!erent combinations o! parameters.52= Lne o! the most power!ul e(amples o! ,A"I-;s leveraging o! I# technology is the Port!olio /anager system.2* According to ,A"I-2 3#he thought process !or this pro9ect >began? in early 2000 when ,A"I- >was? growing rapidly and contemplating e(pansion into di!!erent geographic locations. Qhen the ball >was? set rolling !or e(pansion ,A"I-F !aced uni4ue challenges like2 JiK increasing the outreach without compromising on the port!olio 4uality6 JiiK maintaining >the? same level o! e!!ective customer service as be!ore6 JiiiK having a !oolproo! system to handle increasing number o! !inancial transactions at the !ield6 JivK introducing di!!erent loan insurance and savings products to address the needs o! di!!erent groups o! people6 and JvK catering to the growing demand o! #echnical Assistance and "upport "ervices in!ormation re4uirement at the !ieldF$ven though ,A"I- has good organi0ation1wide back1end J/I"K and :ecision "upport "ystem J:""K we could not e(tend our in!ormation systems support to the !ield operations. /ore than =0H o! transactions happen at the !ield and there was no automation o! processes at the !ield resulting in the high transaction costs and >inability? to provide re4uired in!ormation to the customers. )ence the mo/ile computing solution was planned to provide /etter service reduce .inancial cost to the customer /y reducing transaction cost and increase the credi/ility o. 2the entire micro.inance3 system in the eyes o. rural people"4A0

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3Introduction to ,A"I-1I#"' 5 available at www.basi(india.comDasp. www.basi(india.comDitsl.asp. 2E 3Introduction to ,A"I-1I#"' 5 available at www.basi(india.comDasp. 2= 3Introduction to ,A"I-1I#"' 5 available at www.basi(india.comDasp. 2* #he e(planation o! Port!olio /anager o!!ered here !ocuses on particular elements o! the design development and implementation including the e(pected cost savings. @or a more comprehensive study o! the pro9ect see 8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK 5 and 3Port!olio /anager Implementation Photographs5 available at www.basi(india.comDitsl.asp. A0 8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK emphasis added.

&early A00 Customer "ervice Agents JC"AsK are the primary customer inter!ace !or ,A"I-. Importantly these individuals are agents not sta!! and compensated on a commission basisI with the conse4uent increased potential !or !raud. #he Port!olio /anager solution consists o! an easy1to1carry kit developed !or use by C"As in the !ield and containing 3a palmtop computer with the re4uired application so!tware mobile printer and modem.5A) It allows the C"A to access and input key in!ormation and to print transaction receipts. @or e(ample be!ore entering a particular village the C"As can generate reports o! loan collection re4uirements and loans approved !or disbursement in that area. #he C"A can also input loan application data real1time while talking with a potential borrower Jactual loan decisions are made at the Nnit L!!ice JNLK levelK. 3,e!ore implementing this pro9ect the C"As used to carry various manual records like collection statements overdue statements di!!erent ledgers receipt books etc56 the relevant reports were typically generated once per week and picked up by the C"As at the NL.A2 &ow the C"A synchroni0es hisDher data with the NL back1end system daily via modem Jwireless or wired including any local public call o!!iceK. Port!olio /anager also incorporates a number o! controls to prevent !raud. @or e(ample the C"A does not have an on1screen choice to print a receipt !or the customer until sDhe has saved the receipt and each receipt printed has a uni4ue number associated with it. In addition i! a C"A makes a mistake in a transaction sDhe must 3block5 the transaction inputting a speci!ic reason !or the change or cancellation which must be approved or 3cleared5 by the NL. @inally te(t !iles transmitted by modem !or integration with the NL database are encrypted and an audit log o! transactions in a mirror database is maintained on the palmtop computer. #he core development e!!ort began in "eptember 200) and took + months6 A ,A"I- sta!! led application design and application development was outsourced to "aven #echnologies a leading I# solutions provider in the mobile computing domain at a subsidi0ed cost o! %s. ) million. @ine tuning and implementation o! the solution re4uired another + months with a team o! A ,A"I- sta!! and several "even #echnologies employees. #he technology itsel! costs anywhere !rom G250 to GE00 per C"A depending on the si0e !unctionality and durability o! the speci!ic computing and printing devices selected. @or e(ample a very basic handheld programmable device with an integrated printer runs G2501A00. #he currently used Lregon "cienti!ic computer JL"A%I"K and Citi0en printer Ji:P1cA)))K cost G2501A50 and G)001G)50 respectively. And a &okia device under consideration !or !uture use combines a computer and a phone Jbut would still need to be attached to a printerK and costs G550. In addition maintenance support and insurance costs are )2H and AH o! the device prices respectively. 3#he palmtop computer works on the normal alkaline pencil batteries or directly with the power. #he mobile printer has rechargeable batteries that generate more than 450 receipts once !ully charged.5AA #he 4uanti!iable cost savings attributable to Port!olio /anager include the !ollowing key items2 %eduction o! the number o! #ransaction Assistants handling the back o!!ice data processing !unctions in each NL !rom two to one a savings o! %s. E5 000 per year per NL Jroughly G)500K6

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8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK. 8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK. AA 8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK.

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%eduction in the amount o! stationary used !or issuing manual receipts in the !ield J!rom %s. 0.E0 !or a carbonless receipt to %s. 0.20 !or computeri0ed receiptK and !or printing the /I" reports !or port!olio monitoring Jnow available on C"As; computersK a combined savings o! %s. A0 000 per year per NL Jroughly G+00K6 and $limination o! revenue loss through the e(isting channel due to non1issuance o! receipts to borrowers by errant C"As J!raudK savings o! %s. A0 000 per year per NL Jroughly G+00K.

In other words ,A"I- predicts a cost savings o! %s. )A5 000 Jroughly G2 E00K per year per NL. Qith a planned investment o! %s. A50 000 per NL Jroughly GE 000K to implement Port!olio /anager ,A"I- anticipates that %LI can be achieved in a two to three1year time!rame. In addition to the 3hard5 savings noted above ,A"I- e(pects that the number o! accounts handled per C"A can be increased by )0H6 this would result in a similar increase !or ,A"Isupervisory sta!! and a conse4uent reduction in the !i(ed sta!! cost per account and per transaction. @inally ,A"I- e(pects a reduction in C"A travel to the NL !rom a minimum o! 4 times per month currently Jand as high as every day or every other day in peak recovery periodsK to perhaps twice per month. #he I@C provided a technical assistance grant o! GA50 000 to cover the initial application development and pilot e!!ort. Port!olio /anager was implementation in one NLIBhammam :istrict APIin @ebruary 2002. ,etween @ebruary 2002 and "eptember 200A 3more than 50 000 transactions worth N"G450 000 >were? processed through these devices and integrity o! the whole system >was? !ound to be very satis!actory.5A4 As o! 7uly 2004 appro(imately )= !ield sta!! were using the mobile computing solution and more than 4 000 members had bene!ited !rom the system.A5 A!ter the concept was proven ,A"I- applied !or and received !rom the "mall Industrial :evelopment ,ank o! India J"I:,IK a grant o! appro(imately %s. 4 000 000 JG*0 000K to !und the roll out o! Port!olio /anager to an additional )0 NLs beginning in August 2004. "aven #echnologies will be conducting the implementation in these operating units overseen by a ,A"I- pro9ect coordinator. #he long delay !rom pilot to broader implementation was due to a number o! !actors including the desire to gain signi!icant !ield e(perience in the !irst NL and the need to complete an organi0ation1wide $%P implementation Jthis was completed !or )0 NLs between 7une 2002 and 7uly 2004K. ,A"I-;s vision is ultimately to e4uip all NLs with the mobile computing solution. 3Lnce the pro9ect is !ully implemented around A00 !ield sta!! spread across 5 000 villages is going to use these palmtop computers. It is aimed to process >E50 000? transactions and N"G)5 million worth o! !inancial services per year will be routed through these palmtop computers.5A+

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8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK. 8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK. A+ 8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK.

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1er.ormance ,A"I- credits the success o! the Port!olio /anager application to a number o! !actors including selection o! the I# partner and non1device speci!ic operating system phase1wise approach to developing and deploying the so!tware good pro9ect management and detailed documentation the deliberate involvement o! end users !rom the beginning o! the pro9ect complete li!e cycle o! pilot pro9ect be!ore broader rollout a robust yet streamlined application design and highly interactive and user1!riendly so!tware.AE Bey challenges !aced during the pilot pro9ect included loss o! data and application so!tware !rom palmtop computers due to power !ailures poor C"A understanding o! the data trans!er protocol di!!iculty identi!ying a mobile printing device poor data security o! the te(t !ile trans!erred !rom the palmtop computer to the back1end system poor device per!ormance lack o! a user1!riendly inter!ace and interruptions o! data trans!er via modem due to power cuts.A= ,A"I- was able to address all o! these issues Je(cept the last oneK by adapting e(isting devices or identi!ying alternate ones upgrading the so!tware application and working collaboratively with !ield sta!!.A* :urability and li!etime o! devices aimed at an urban corporate consumer is an ongoing problem with most lasting no more than ).512.0 years. #he constant churn o! consumer products in the marketplace is also a problem as a device may not be available several short years a!ter its introduction andDor no vendor will continue providing maintenance support !or it. #he Lregon "cienti!ic computer that will be rolled out in the ne(t )0 NLs is in !act no longer being manu!actured. ,A"I- has e(perimented and continues to e(periment with di!!erent hardware with a key part o! the strategy being the development o! so!tware tools that will enable them to convert their application !rom one operating system to another as needed. @or e(ample the Lregon "cienti!ic device uses the "ymbian $PLC operating system but a number o! other devices run PalmL" or QinC. Culture o! Innovation As with other innovative institutions ,A"I- has a culture which encourages and rewards creativity. #his 3culture5 has both intangible and highly structured elements. @or e(ample the senior leadership o! the organi0ation has been more or less in place since ,A"I-;s !ounding eight years ago. #he commitment o! this group o! individuals to ,A"I- to the promotion o! rural livelihoods and to achieving !undamental change is apparent to sta!! and visitors alike. #his 3sets the tone5 !or the entire organi0ation. However ,A"I- has grown rapidly and now has nearly ) 000 sta!! members and an additional A00 C"As. Qith this e(pansion in human terms has come a need and a concerted e!!ort to put in place a robust new hire training program. /ore speci!ically new hires are not only trained !or their speci!ic roles but taken on !ield visits and e(posed to ,A"I- more broadly. Perhaps more importantly these new hires are 4uickly asked to represent ,A"I- in !orums appropriate to their positions and skill levels e.g. presenting on ,A"I- at a con!erence6 this !orces the individuals to internali0e the history o! the

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8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK. 8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK. A* 8. Chandar %ao 3Case "tudy on ,A"I- /obile Computing "olution JPort!olio /anagerK.

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organi0ation and to take ownership o! its current mission strategy products sustainability and impact. #here is also a clear emphasis on learning and sharing both across the ,A"I- group companies and with third1parties. @or e(ample e1groups disseminate key announcements organi0ation1 wide bringing all sta!! up to date on the achievements o! individual groups new products or processes etc. ,A"I- is also e(traordinarily willing to share its ideas systems and processes with third1parties. Any outsider is welcome to spend three days with ,A"I- !our times per year Ivisiting !ield operations and participating in the organi0ation;s introspective <uarterly %eview /eeting. "imilarly ,A"I- has trans!erred its @o(Pro1 and /":L"1based @inancial Accounting and /anagement In!ormation "ystem J@A/I"K to multiple /@I"D&CLs. #he lack o! territoriality and the !ocus on poor people is re!reshing in a !ield where practitioners guard their proprietary I# systems or their academic publications. @inally !or ,A"I- sta!! per!ormance pay can constitute as much as AAH o! their total remuneration. @or !ront1line operational sta!! the per!ormance pay component is based on speci!ic 4uantitative business targets set in advance. @or other sta!! the process is more dynamic and less transparent. #eamwork and the ability to deliver on new pro9ects are key metrics !or this set o! individuals. @inancials40 #he !ollowing summary !inancials provide an overview o! ,A"I-;s group operations on a a consolidated basis over the last three !iscal years. Balance Sheet 5667869 Assets Cash M cash e4uivalents "# assets '# assets -otal !ia/ilities "# liabilities '# liabilities $4uity -otal 5665867 5661865

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@inancial data is drawn !rom Annual %eports and Audited @inancial "tatements available at www.basi(india.comDbasi(ltd.asp. ,A"I-;s !iscal year runs ) April to A) /arch.

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Income Statement 5667869 Revenues 5665867 5661865

-otal Costs

-otal 1ro.its &ey Ratios 5667869 %ecovery rate PA% 'oansDC"A Processing costDloan 5665867 5661865

Conclusion ,A"I- stands out not as a remarkable micro!inance or rural livelihoods promotion institution but as an outstanding institution period. It has strong leadership strong processes and a strong culture. #hat said many o! the innovative elements o! its approach to rural poverty have thus !ar been tested and proven only at a pilot level or on a limited scale. @or e(ample weather insurance and Port!olio /anager represent breakthrough ideas and potential 3game changers5 !or ,A"I- !or its sector !or the rural poor in India. However the real challenges and the proo! o! these concepts will lie in their scalability e.g. the embedding o! weather insurance contracts in all rural loans the rollout o! Port!olio /anager to all 2= NLs or the ability o! each o! ,A"I-;s operating units to break even !inancially.

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