Learning by living with customers

A key part of the orientation experience of newly-appointed chief executive officers (CEOs) of Kshetriya Gramin Financial Services (KGFS) companies promoted by IFMR Trust is that the CEOs have to live with rural families for a week, to gain firsthand insight into how these potential, or existing, customers live, earn and spend their money.

The first batch of KGFS CEOs, all of whom are people with an armed forces background, complemented by top-class management education, went through this orientation in May 2008. Here, they share some of the insight gained from their experiences...

Anupama Joshi, KGFS CEO-designate, Uttarakhand, first stayed for a day in the home of 48-year-old widow Ellamba, in Ettapulikadu village, Thanjavur district. Ellamba is a landless agricultural labourer who works from dawn to dusk doing back-breaking work day after day just to survive. That she is impoverished was obvious: her thatched hut had no beds, and there were no visible assets; all her worldly possessions were in the form of her hut, a few utensils, and clothes.

Anupama Joshi, CEO-designate, with her rural host

The second day and five days after that were spent with Shashikala, her husband and son, in a small hut. Close to 70% of men in this village have migrated abroad for work and others trudge to Pattukottai, 7 km away, to find work.

Despite the obvious poverty of most people, their spending pattern was interesting, Joshi notes. At the birthday party of a one-year-old child, her parents spent Rs 3,000 on entertaining the guests and gifted the child a gold ring worth Rs 1,500. Shashikala herself and another villager, Mallika, gave their children Rs 10 every day as spending money; as parents they did not seem too conscious about how and where their money was being spent. Also, Joshi observes, "practically everyone in the village owned a mobile phone".

Mallika earned Rs 4,000 as a teacher, which supplemented the Rs 6,000-Rs 7,000 her husband sent her every three months. Shashikala too was a teacher who took afternoon classes. In addition, she was raising goats to sell for slaughter, and a few chickens and hens. She also plucked and sold imli (tamarind) in the local market or in Pattukottai and, of course, did all the housework and cooking.

Major expenses were on social events like birthdays and marriages; Mallika said she gave Rs 100 to the hosts on birthdays/ marriages. Visits to temples also involved monetary donations.

Both Mallika and Ellamba are KGFS customers, and the reasons they gave Joshi for their initiative were revealing. Mallika told her it was because she wanted to open a petty stationery shop. Ellamba became a KGFS customer to buy a buffalo.

Speaking about her hosts' priorities in life, Joshi observes: "The women want to educate their children well." In fact, Shashikala told Joshi that since she wanted to give her son the best of everything she was not planning on having any more children.

When it came to dealing with money, the villagers were "generally very alert and put great faith in word-of-mouth," says Joshi. Most people were aware that KGFS was offering loans at a lower interest rate than the pawnbroker or the moneylender. In fact, KGFS is more competitive than some active MFIs in the village.

S Sriramakrishnan, CEO-designate of Pudhuaaru KGFS-Thanjavur, lived with Selvanathan, a mechanic in a cycle shop, in Enadhi village, Pattukottai taluka. Selvanathan's family consisted of his wife and two children; his daughter was in Class 11 and his son in Class 12.

About 40% of Enadhi's villagers are landless labourers; the rest are landlords. Enadhi has a well organised supply chain system, observes Sriramakrishnan. "Villagers who own cows or buffaloes sell the milk to the local Aavin milk cooperative which pays Rs 12 a litre. Coconuts from the village go all the way to Chandigarh, while the husk and copra are sold in Kerala. A few farms grow vanilla which is harvested and transported by a vanilla factory. Groundnut, rice and sugarcane are also grown and sold to local factories."

In the case of sugarcane, farmers are paid by cheque or money transfer directly by the sugar factory to the local branch of ICICI Bank or SBI at Pattukottai. (Many farmers take agricultural loans from these banks, and the money is paid to them after the bank deducts its loan amount. No cash transaction is involved.)

The entrepreneurial spirit is high among the villagers. "As soon as people came to know what I was doing and why I was here, there was a rush of women asking me for loans to start their own businesses," says Sriramakrishnan. One lady wanted a loan to open a salwar kameez shop, another a beauty parlour, and a third a provision shop.

People spent money on education, festivals and other social occasions, but not disproportionately. Long-term schemes based on savings/ pensions could be useful here, he feels; there is scope for similar products.

The village, however, needs to work on a few issues like alcoholism, sanitation and garbage disposal. "The place is strewn with plastic bags, which really looked out of place," says Sriramakrishnan.

What are KGFS's prospects in the village? Sriramakrishnan says: "There's huge demand for products we bring to the table. But a thin front-end means going in slowly and methodically. Our cutting edge is low rates of interest and high technology orientation."

He also strikes a note of caution: "We have to be careful about people like pawnbrokers; they shouldn't be allowed to take jewel loans and then rotate the money in the village."

Ashit Mohapatra, CEO-designate of KGFS coming up in Ganjam district, Orissa, spent four days in the coastal village of Mallipattinam in Thanjavur district. He stayed with Dhanalakshmi, 32, and her three school-going children. Her husband works as a labourer in Dubai. Hers was arguably the poorest family in the village, with total monthly earnings of not more than Rs 4,000.

Describing economic conditions in the village, Mohapatra says: "There are two classes of people in this coastal village - boat-owners and crew who work on the boats. The latter are each entitled to 8% of the total catch; the rest goes to the boat-owner. Three prominent seafood companies buy up the best of the fresh catch every day and pay for it in cash immediately. The rest is sold locally. During the peak fishing season, fishermen can earn as much as Rs 50,000 per catch per day."

People were eager to take loans to drill borewells, buy goats, boats and nets, etc, he says. Though there is potential for tourism, lack of sanitation in the village makes that currently impossible. "Something needs to be done about these issues because people did seem to have lots of ideas but no motivation, direction or capital."

The business potential of the area can be gauged from the fact that Indian Overseas Bank (IOB) did business of Rs 9 crore in remittances. Almost 10% of the village's male population works in the Middle East, largely as labourers.

Boat crew earn about Rs 4,000 a month and boat-owners around Rs 10,000 per month, Mohapatra estimates. A family's regular monthly expenditure is around Rs 2,000 on food, Rs 500 on medicines, Rs 300 on education, and Rs 500 on entertainment. Each family also goes through two 'financial shocks' every year - during the festivals of Pongal and Deepawali where they could end up spending anything between Rs 1,000 and Rs 1,500 per head per family on things like new clothes. If there is a death in the family, the funeral expenses amount to at least Rs 5,000, while expenses on marriages are "almost limitless".

There was no concept of saving in the community, says Mohapatra. "Savings products could work here, as also loans and jewel loans."

V Mohan, CEO-designate of KGFS coming up in Punjab, made his home for a week with A C Cloria Marie, 35, her husband and three children in Veerakurrichi village in Pattukottai taluka, Thanjavur district. The village has a population of 750.

Cloria's family is largely landless - they own just one acre of land and have taken a loan of Rs 50,000 to sink a tubewell so that they can irrigate the land for better productivity.

Cloria Marie earns Rs 100 a day from making and selling thatches; her husband earns Rs 100 per day working in a coir factory as a labourer. They also sell the milk from their two cows. The family's average income is around Rs 10,000 a month.

The family owns an old TVS moped and two television sets, one of them a gift from Cloria's brother and the other gifted by the state government. Cloria is a member of three SHGs and one savings group. Surprisingly, all the people of the village are SHG members.

Most people are farm labourers, work in the coir factory, or are skilled labourers. The women work too. They earn Re 1 for every thatch they make, and are able to churn out 100 thatches a day.

There is potential here for savings products, Mohan feels, especially since people seem to have enough income to survive. Major expenses include school fees, school uniforms and clothes for the family. Prominent expenses include marriages, when "anything from Rs 50,000 to 1 lakh can be blown away in a matter of days". This is also an occasion when people borrow heavily at a monthly interest rate of 6% from the local moneylender or pawnbroker.

There is a prominent MFI working in the area. However, KGFS, Mohan says, "has the edge due to technology, transparency and lower interest rates". The local people are very impressed with KGFS's smart cards and low interest rate, he concludes.

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