Frugal innovation to accelerate financial growth in India
According to him Tata Nano, which is accessible for even a lay man, is a perfect example for frugal innovation. Frugal innovation is a new management philosophy, which integrates specific needs of the bottom of the pyramid markets as a starting point and works backward to develop appropriate solutions which may be significantly different from existing solutions designed to address needs of upmarket segments. Indians are natural leaders in frugal innovations, with the 'jugaad system' of developing make-shift but workable solutions from limited resources. For instance, GE MAC 400, a hand-held ECG device, Mahindra Geo, a low-cost fuel-efficient minitruck, Godrej Chottukool, battery powered refrigerator and Tata Swachh, water purifier.
The concept can be effectively extended to the services sector to tackle 'financial exclusion'. Despite having amongst the world's largest network of about 79,000 banking outlets, we still have just 15 crore saving bank accounts for a population of 118 crore. Access to a saving bank account is the very basic indicator of financial inclusion.
The first major step in financial inclusion came through when MYRADA, an NGO based in Karnataka developed the self-help group (SHG) methodology to link the unbanked rural population to the formal financial system through the local bank branches.
The Reserve Bank of India, Nabard, State governments and various civil society organizations have made enough efforts to help the households to have access to banking. Now, there are 61 lakh saving-linked SHGs with Rs 5,545.6 crore aggregate savings and 42 lakh credit-linked SHGs with loan outstanding of Rs 22,679.8 crore as on March 31, 2009.
Equitas, a Chennai based new generation microfinance institution has developed a proprietary system of pre-coded receipt stickers for repayment collections as against 'hand-held device' thereby reducing capital costs and eliminating service issues related to decentralized use of such devices. Moreover, the collections are tracked at the central office on real time basis through SMS reports sent by field workers. This system enables the top management to supervise about one lakh micro transactions conducted by over 2,000 field staff on a daily basis.
The business correspondent (BC) model supported by the RBI is another relevant example of potential frugal innovation in the financial inclusion space. The use of BCs enables banks to extend banking services to the hinterland without setting up a brickand-mortar branch.
The UID project will become another hallmark of frugal innovation once when put in to practice.
In the Indian context, the biggest challenge in financial inclusion is to reduce the transaction cost of micro-transactions such as authentication and cash handling. According to Rana Kapoor, the best way to address this challenge is by riding piggy back on some existing technical and commercial infrastructure.
From processes to procedures and technologies to human intervention, frugal innovations can be extended to every aspect of banking to deliver a holistic range of financial services to the bottom of the pyramid in a cost-effective and efficient manner.
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