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A Peek into the Financial Services and Indian AgTech Market: Interview with Emmanuel Murray

Speaking with SatSure, Emmanuel Murray talks about technological disruption in the rural financing sector and agritech in India.


Emmanuel Murray is the Senior Advisor at Caspian Impact Investment Adviser Private Limited. His role in Caspian is in supporting the eco-system development through working with incubators and startups in the food & agri space. He is also a Director on the Board of NABKISAN Finance Limited, a subsidiary of NABARD that funds FPOs and other agrobusiness enterprises.

Q. You have been in the rural financing sector for more than two decades. What would you say are the critical differences in the approach adopted by the public and the private sector banks for operating and competing in this sector?

Emmanuel Murray: India’s Public Sector Banks (PSBs) attract the country’s best talent because of the competitive recruitment & selection processes and attractive compensation packages. Therefore, as compared to private sector banks, public sector banks have abundant and unmatched expertise. Because of employment stability, relatively lower work pressure, and the ability to preserve work-life balance, applicants from even notable corporations (Infosys, Goldman Sachs) choose to work for public sector banks. 

This human resource can do miracles and provide results like no one else can, because of their talent, understanding of the market, domain expertise and rich experience. The ability of the leadership to inspire the team and provide clear instructions influences the performance of the public sector. In PSBs, a “push strategy” is required to make things happen, but if successful, exceptional results are seen, often surpassing private banks. The short tenure of the top executives in PSBs and the hierarchical decision making is a concern. In PSBs, after the post of GM, promotions to executive director involve moving to a different bank, and the post is considered a temporary holding area on the way to the chairmanship. Political patronage is part and parcel of the promotion process.

Furthermore, by the time people get to the top, they are left with a tenure of two years, which is too short to do anything significant and create a lasting impression on the organisation, leave alone the sector. Regional Rural Banks (RRBs), established in the 1970s, were an effective vehicle for rural finance. Unfortunately, too much tinkering too often left them without a fair chance to prove themselves and resulted in them becoming irrelevant and today they are no different from commercial banks. It was a short-lived, prematurely ended policy disaster.

Private banks, on the other hand, are visionary in their planning and outstanding in managing possibilities. ICICI Bank and HDFC Bank have been able to grow and achieve substantial results. However, the issue with Private banks is that they are too bottom-line driven and operate in a predatory style. They wish to deliver financial services at a low cost by not deploying their own human resources. So, the private sector can do things, but it requires oversight and supervision to check on what and how they’re doing.

India’s Public Sector Banks are like crown jewels. Nobody can dispute their significance, regardless of what is said about fintech or the private sector, displacing them in the financial services market.

Q. There is a huge disparity between public and private sector bank lending when it comes to agri-finance. Even though rural areas are subject to PSL criteria, do you think the gap will narrow in the future, or what must be done to increase the willingness to lend? There is a substantial numerical disparity between the largest Agri lender among PSBs and private sector banks. How will this disparity manifest itself in the future?

Emmanuel:  The largest Indian private sector bank prefers to skim the market. As a result, they will only look at the high end of the market, such as large farms and simple service clients. So, unless a different model is available, it will remain the same. If there is unmet or unserved demand, and issues such as system delays, overburdening, and inability to service effectively, the private sector has a role. However, everyone does not have to be doing everything, like HDFC Bank has become the market leader in personal loans. ICICI Bank at one time had a strategy to capture a 25% market share in rural credit but realised it was not an easy thing to do. Therefore, it’s a good idea for each bank to specialise in distinct verticals.

The failure to build a specialised cadre of credit officers is the primary reason public sector banks languish. Credit is a function that not every bank officer can perform. If there were a specialised cadre of officers managing rural credit, things would have been a lot better in terms of service delivery than they are today.

The recruitment process of human resources in banks is the main reason why you see people are frustrated while interacting with public-sector banks. For a bank position, proficiency in Mathematics and English abilities are given weightage in the recruitment process, which are not the most essential skills for rural banking. Attention should be placed on skills such as attitude, communication skills, empathy, and patience, which are not tested. Another reality is that middle-aged officers get promoted from the clerical cadre and sent to rural branches, typically for mandatory rural posting, and since by this age, their children are in senior school or college, they end up coming for the postings without family, inconveniencing everyone, including customers. Private banks, on the other hand, may not deliver remarkable results. A few banks are succeeding in this area, but it must be nurtured, grown over time, and requires a serious long-term commitment.

Q. The banking industry is known for being a laggard in terms of technological adoption and the agricultural banking industry is even farther behind in terms of retail banking. Do you believe this will open doors for developing Agritech? Can they compete with banks that spent decades building infrastructure and trust if they are given the missing link – technology?

Emmanuel:  We need to put this in a historical context. India’s financial industry was poorly regulated leading to mushrooming of companies in the countryside that defrauded people of their savings. Therefore, RBI has been selective about who is allowed to provide banking services and has restricted it to a small number of regulated entities.

The other constraint is that for banks, the adoption of technology needs management’s appreciation of the need and its integration into other work processes, which takes time. Computers were introduced in banks in the 1990s, but trade unions forbade the opening of those boxes and so, even the installation of desktop computers took years to materialise.

Public sector banks have been sluggish on the credit side, whereas private banks have responded aggressively and rapidly in the past. I believe that consumer interests may get compromised, so there is a need to open-up with care. There are occasions where the Reserve Bank has had to issue, cease, and desist from operating orders on specific products and certain ways of doing things. Activities, such as KYC and other critical tasks, cannot be outsourced by banks to private parties.

In addition to the generation gap, there are numerous reasons why banks have not integrated these technologies into the financial system. Data security, while integrating these into the bank’s system, is a significant challenge and this appears to be a global issue. For example, SBI may say they will build something in-house or do something similar to what private banks offer, but it takes its own course.

So, they may have someone in charge of IT, but this resource is in charge of so many things and maybe the stumbling block preventing too much innovation from coming in too rapidly. So, rather than blaming the management, we must point the finger at the banks’ IT departments.

Q. What is your view on the level of product customisations provided by the digital transformation vendors to cater to the pain points of rural banking? Whether it is the public sector or private sector, Banks have been facing challenges in getting market share in rural credit. What is your opinion about the number of growing fintech firms offering CRM products and customised solutions to Banks?

Emmanuel:  It is not difficult to customise technology, and this is not a limitation. A year ago, we were in interior Kalahandi, Odisha. We found that the Jio connectivity was there, and people had smartphones and watched movies on smartphones. So, data has reached the interior corners of the country and technology can ride on that.

We should revisit some of the earlier questions, such as What exactly is the rural credit market size? What is the quality of financial services? And, how big is the unserved market? Then, look at the appropriateness of the products being offered. In my experience working in districts and visiting remote rural bank branches; banks that are already present are familiar with the area’s topography and inhabitants, and they have penetrated credit deep into the countryside. Still, are there huge untapped markets? It remains a mystery.

If there are individuals who aren’t so far lent, it’s because they are hard to lend customers for a bank. Serving those clients will be as tricky for a fintech as it is for a bank. The product flexibility can be enhanced, and there’s no question that it can be made better and frictionless. However, it’s necessary to ask, what precisely has prevented someone from doing it already?

To compare the hype around Rural Fintech, I would suggest one have a look at Fintechs operating in urban and MSME space. What was the addressable market portrayed by these fintechs? And how far have they succeeded in getting? They had these huge projections, but they are nowhere near what they claimed they would achieve.

Anyone can lend money. Collecting it back is the indicator of success, and how will that be accomplished is the question. 80% of people will pay back, technology or no technology, fintech or bank. Collecting the balance 20% is work. Even in metropolitan areas with large population densities, fintechs are losing 5% to 8% of what they lend, and they haven’t achieved a substantial breakthrough in solving this. It’s too early to say whether rural markets will behave differently.

Microfinance offers an indication that credit management costs are close to 10%. So, if someone wants to do it in rural India, it will be more or less around that percentage, and the cost of credit and risk cost would have to be factored in to arrive at the final cost.

Q. The RBI stipulated that credit scoring should be used to issue loans in the mid-2000s when Trans-Union and Equifax were working with banks towards the end of the decade. This accelerated the velocity of lending for all retail banking portfolios, except agricultural. So, nowadays, several firms, like SatSure, are endeavouring to do land scoring. What is your anticipation of the scenario, what worked for credit scoring activities and what are the risks for businesses like SatSure, based on your expertise from working at organisations like RBI and NABARD?

Emmanuel:  Credit bureaus have aided in looking at criteria other than credit score when providing loans, like what the person’s aggregate borrowings are? How many banks/ lending institutions have the person borrowed from? Is he/she over his due date with someone? Did he/she default on someone? These are fascinating pieces of independent data that have been available through credit bureaus and aided in the multiplication of credit. Credit has been enhanced because we now have a better borrower profile, and as a result, there’s a reasonable probability that the person will not default if he/she takes a loan.

A credit score might sometimes be deceptive. A person may have been prompt in returning his debt, however, when a default occurs and actual visits are made, it has sometimes revealed that the individual is not the picture that the credit score reflects, with a ‘katcha’ house and family issues; that credit score do not reflect. When viewed in isolation, it gives a false impression of the person’s creditworthiness, so over-reliance on credit scores is fraught with risk.

In order to determine creditworthiness, two factors must be considered: intent and capacity. While credit scores can be used to identify ‘intent,’ there hasn’t been much effort to determine the ability to repay,’ which is where SatSure comes in.

Farm scores can be used in conjunction with credit scores to more precisely measure a farmer’s creditworthiness. There are cattle, labour, and several other sources of income, that satellite images cannot capture. Today, non-agriculture sources can account for up to half of a person’s income. These make up a substantial percentage of the revenue and must be combined with crop data to get a total score for the farmers we are considering to lend.

Many fintech’s are attempting to market their products, and some are gaining traction even though they may not be the perfect market fit. They maybe erecting barriers to entry for businesses with better market fit products (which can benefit banks and farmers) but aren’t well-known. Venture capital firms take a bet on because the market size seems so huge and attractive.

The fact of the matter is, bankers are waiting to exit rural India, leaving the ground open for intermediaries, agents and fintechs to enter and cash on it. It will be harmful to the country if policymakers do not comprehend this threat and act upon it. Things could become worse and more worrisome if they pretend to be unaware. Again, bankers are very short-term thinkers; each Chairman considers his future advancement, and each man has his own set of objectives.

The Government and RBI have an important role to have the right policies and police this space. Rural banking is at a critical juncture, and we need to sound the alarm bells in everyone’s ears. Otherwise, it’s going to get worse.

Q. SatSure focuses on scalability using satellite data to be more precise in business models. We found scoring incredibly useful from a credit and collection standpoint since we are essentially utilising primary data and then analysing the patterns. But our scores must be combined with Bureau data of their current clients to get the best results. However, there always exist challenges around the speed of adoption. How do you see the friction-reducing over time and what do you think needs to be done?

Emmanuel:  You can establish patterns using satellite data that might help banks create profiles of people they should lend money to, and to whom they shouldn’t. Unfortunately, there is no shortcut, and anyone attempting to enter this space will encounter these barriers. It will add a lot more value to the system if you can provide evidence-based outcomes of the advancements.

At present, due to the constant rotation of staff, institutional knowledge is transient, and no systems exist for systematic knowledge transfer causing inefficiencies since familiarisation takes time with each change of guard. Internally, banks need to address this risk and hence management buy-in is very essential for firms like SatSure, who employ continuous monitoring and algorithm processes to capture people’s behaviour over time. It will be highly beneficial in decision making and can simplify agricultural credit processes in the long-term.

Q. The Agtech part has generated much hype, but the tech component is superficial; it’s all about the supply chain. Since you are currently operating an investment firm and have backed several businesses, I wanted to understand your perspective. What are your thoughts on the supposed ‘VC-created Agtech hype’?

Emmanuel:  Farms to Fork and Agfintech are perceived as having strong CAGRs. As a result, they attract venture capital since VCs may not discover growth opportunities elsewhere. Therefore, Farm to Fork and Fintech models are receiving all of the funding.

I can’t speak about the fintech model since its early days, but farm to fork models are unsustainable because the majority of them are losing money for every unit of revenue. They can sustain as long as there are continuing rounds of funding. Firms like Uber and Zomato are valued based on metrics having no link to profitability. A similar pattern seems to be unfolding in Agtech; the largest farm-to-fork startups are struggling to attract the next round of funding, and they are financially stretched. It is difficult to say where they’re heading.

This article was originally published in The SatSure Newsletter [TSNL]



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