CASE ANALYSIS OF Financial Inclusion Network and Operations (FINO)

 1: Microfinance has long presented a challenge to the industry. Loans are much small, clients are widely dispersed, most of them in difficult-to-access rural areas, and the paperwork and procedures associated with a lending transaction are very high. All of those factors contribute to the high interest rates for microfinance loans. These problems are common with other financial institutions like Banks, and also with various governmental departments.

Financial Inclusion Network and Operations (FINO) prodiveds a decent solution to the above problems face by the financial institutions and governmental departments.

Ø  (FINO) is an Indian Inclusion Solutions and Services company, formed in 2006.

Ø   It is promoted by some Public and Private sector banks including the ICICI Bank, and insurance companies like the Life Insurance Corporation of India, ICICI Lombard and ICICI Prudential.

Ø  The company offers technological solutions and services to enable financial inclusion.

Ø  The company serves its client companies through invention, innovation and implementation of integrated biometric or smart card technology solutions for institutions like Banks, Microfinance Institutions, Government entities, Insurance companies to enable financially inclusive environment for the micro customers especially in rural areas.

Ø   The company is mainly run by its wide network of Bandhus or Business Correspondents across the country who are mostly the local people appointed by the company. These agents are equipped with GPRS enabled hand-held Biometric devices which reads the Smart Card information with the clients and hence the financial transactions are done in an easy, accessible and cheap way.

Ø  Its key areas of operation are to provide branch-less banking and insurance infrastructure, and assisting government schemes through its technology and agent network.

Ø  Today FINO, with its highly systematic and technologically advanced services, plays a key role in developing branchless banking infrastructure in India.

Ø  FINO is not principally a microfinance institution (MFI), although it has a US$1.5 million microfinance loan portfolio spread across 8,500 borrowers.

Ø  Lending only accounts for between 1% and 2% of FINO's business, but FINO had set targets of US$4.5 million for 2010 and a 10-fold jump to US$45 million in 2011.

Ø  But now, the controversy surrounding India's microfinance industry may hamper its expansion.

Ø  Although FINO is going slow on its lending operations, but management says that they can lower its interest rate below 20%. The company borrows from the banks at the same rate as other MFIs, but their cost of operations is 4-6%. Reasons are

o   First; lending operations would use the same bandhu network, which means shared costs.

o   Second, the average monthly payout for a bandhu is only around US$35, though it could be higher in some cases. Some 95% of FINO's bandhus are in rural areas, whose monthly compensation is less than that of urban bandhus.

o   Third, the use of technology reduces the paperwork associated with micro-banking and micro-insurance operations. This saves time for bandhus.

Ø  Not everybody is totally enthusiastic about the potential of FINO's bandhu network, however. Argument given was - It adds one more layer of intermediation, but four more layers of costs: commission to the BC; cost of technology -- smart cards, point-of-sales terminals; cost of regulation; and the cost of the carrier -- mobile or VSAT (satellite ground station). And there are enough margins to justify the costs.

 2: Yes, FINO’s business model for microfinance can be a considered as E-business because its operations work on the same principle of e-business. It uses technology and a sustainable business model to provide business solution to various financial institutions and Governmental Departments. Also it acts as an intermediary to provide solutions to customers of various institutions in a cost effective way. It also sells products of these financial institutions. It uses the innovative technology, internet and GSAT facilities and thus does operations on a real time basis.

 3: FINO has two main lines of business that include

Ø  Technology Products (like Smart Card, Biometric devices) and Business Correspondent Services. FINO as a technology solution provider provides solutions to enable financial inclusion, microfinance, remittances by using both technology and human resource. 

Ø  As a Business Correspondent services provide, FINO provides the agent network to facilitate the last mile services for banks and financial organizations.

FINO has been working on several National and State Level Schemes of the government by providing technical support through Smart Card and Biometric devices. It is also providing its wide network of business correspondent services to support the access of these schemes to the poor, especially rural customers. The government schemes undertaken by FINO are:

§  Rashtriya Swasthya Bima Yojana(RSBY)

§  Mahatma Gandhi National Rural Employment Guarantee Act (NREGA)

§  Swavalamban Pension Scheme

 4: FINO operates through a network of 10,000 field force — also called Bandhu (friend in Hindi). This field force serves as a doorstep bank and electronic teller machines in areas where banks are yet to reach or have any ATM. Each bandhu is equipped with a small, handheld biometric device that they take into the field and use to transact with clients, who access banking services through smart cards. Balance transfers, deposits and withdrawals can all be done through the smart card system.

 5: Although FINO is going slow on its lending operations, but management says that they can lower its interest rate below 20%. The company borrows from the banks at the same rate as other MFIs, but their cost of operations is 4-6%, which is much less than that of traditional process. Some of its reasons are

Ø  First; lending operations would use the same bandhu network, which means shared costs.

Ø  Second, the average monthly payout for a bandhu is only around US$35, though it could be higher in some cases. Some 95% of FINO's bandhus are in rural areas, whose monthly compensation is less than that of urban bandhus.

Ø  Third, the use of technology reduces the paperwork associated with micro-banking and micro-insurance operations. This saves time for bandhus.