Innovative personal finance products
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Contents
Brief
- Identify innovative personal finance products in various countries
- Personal finance products such as loans, credit cards etc. customized and productized in ways to appeal to local markets
Approach
- Trend analysis
- Demographic trends
- Market trends
- Technology trends
- Regional trends
- Sociocultural trends
- Internet and communication trends
- Market analysis
- Quantifying above trends
- Estimating size of markets
- Identify needs based on trends
- Survey of existing products
- Analyze strengths, weaknesses of existing products
- Identify new products
- New product ideas
- Invent new products based on trends
- Qualify new product ideas
- Quantify market size for new ideas
- Identify implementation strategies for new ideas
India: Demographic trends
- Asia is exploding with money
- China, India etc. have a voracious appetite for credit
- People there are very worried about weddings, especially daughters' weddings can be extremely expensive
300 million strong middle class
- The Indian middle class is 300 million people with a purchasing power of US families with $15,000-$35,000 in annual income
- Huge appetite for two-wheelers, telephones and cars
Demographic dividend
- With one of the youngest populations in the world, India is ready to reap the demographic dividend of a large, young workforce over the next several decades.
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Education
- 50% of India's population is below the age of 25 and 2/3rd of the population is below the age of 35
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Employment
- In some areas of knowledge services, salaries in India are coming close to American salaries in Purchase-Power Parity (PPP) terms
India: Financial trends
Overall economy
| GDP growth in FY 2005-06 | 8.1% |
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| GDP growth predicted for FY 2006-07 | 7.5% |
| Savings as percentage of GDP | 29.1% in FY 2004 and 25.9% in FY 2005 |
| Net income of Sensex 30 companies | 36.4% in FY 2005-06 |
- GDP growth is projected at 6% and higher for the coming decades, making India the fastest-growing large economy in the world
Foreign Direct Investments
- Foreign Direct Investment inflows are rapidly growing in India and have reportedly reached an all-time high of $7 billion last year, doubling from just 6 years ago
Credit
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- Booming economy with a growing middle class
- Access to credit is relatively new
| "There is a great investment opportunity opening up in India. We term this investment area as the 'lifestyle segment.'" - Nilesh Shah, President, Kotak Mahindra Asset Management Co. Ltd. |
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- Demand for consumer goods is growing rapidly
Rural credit
- Lack of access to savings mechanisms and credit is one of the biggest challenges for villagers in India.
- According to a World Bank study, in Andhra Pradesh, 59% of rural households lack access to deposit accounts and 79% don’t have borrowing facility from the organised financial sector. Bankers too complain that though the rural potential is huge, they don’t have enough knowledge about the rural customer.
- Innovative concepts, such as a mobile ATM machine are being tried out at the moment.
Microfinance
- 1.4 million microfinance groups in India
- Over 20 million members for microfinance groups
- According to one estimate, 30 million non-agricultural enterprises and 50 million landless households in India collectively need approximately $30 billion credit annually
- Microfinance is growing in South India, which contrasts with the stagnation in Eastern, Central and North Eastern India
- Downside: Microfinance involves very high transaction costs given the small amounts of money involved for each loan, which necessitates high transaction costs
Reimbursements
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Payments
- Cash-on-delivery (COD) remains one of the preferred methods of payment
- Fraud is a major problem, e.g. loans on homes are based on higher valuations by the appraiser
- There is no credit rating system and the judicial system does not allow companies to easily recover their money from the borrowers
- A high amount of undisclosed income
- Hawala
- Cash-on-delivery (COD)
- Airlines, railways and others are now selling tickets online and it is cheaper than buying through an agent or from the airline. You need a credit card to buy these online.
- Pension funds are still big in India. Not clear if India will go the US route of defined contribution plan (as opposed to defined benefit plan)
India: Customer service
- If you want to open an account of if you want a loan, someone comes to your house from the bank to get the papers to you
- If you want to exchange currency, someone comes to your house for that too
India: Sociocultural trends
- Movies get financing from the underworld and other unsavory sources
Dowry
- The custom of dowry is well-entrenched in Indian society and puts extreme financial pressure on brides and their families
- An average of one dowry death is reported every 77 minutes according to the National Crime Record Bureau
Anecdotes
- There was this article about citibank or someone hiring goons to get an executive woman to pay her credit card bill. She defaulted because she was travelling. She created a big stinker.
- A grocery store in India figured out that its cost of capital was much higher than what their customers were earning in a savings account. They came up with a scheme whereby consumers could give them a deposit and they would give them coupons to shop in their store. The effective interest rate that the consumer was getting was higher than what a bank offered them, however the interest rate was however lower than the cost of capital for the grocery store and they got loyal customers.
Needs
- Non-traditional ways of evaluating credit worthiness
- How to give credit to developing markets using different approaches than developed markets
- Short-term loans
- High transaction fees but low interest
- Non-revolving credit card
- Need money to buy groceries this week, pay back next week or end of month (Payday loan?)
- Programs to help fund big events such as daughter's weddings
- Financial advisory services to high net worth individuals
- Financing for movies
- Simplified COD
- Escrow services
- Loans for individuals with lower credit scores (people who don't appear very credit worthy on paper)
- A clearing house that could collect cash from people's houses or stores for airline/railways transactions - that would be convenient for people without credit cards
