Agile Financial Times July 09 Edition

Agile

FINANCIAL TIMES

Financial Inclusion Trends in Africa, South East Asia and India

CUSTOMER SPOTLIGHT

Repco Foundation PERSPECTIVE

Business Agility Through Central Processing Services SOLUTION SPOTLIGHT

Agilis Universal Micro-Finance Solution

July 2009

July 2009

Editor’s Note Greetings!

CONTENTS

Thank you for the enthusiastic response to our last issue where we talked about ‘inclusion’ of Micro-Finance software to our solutions stack.

CUSTOMER SPOTLIGHT

Responding to requests to hear more on this,

Repco Foundation

4

we have made ‘Financial Inclusion’ our cover story for you along with Micro-Finance case studies and solution highlights!

COVER STORY

Financial Inclusion

7

A special contribution this month is from our CEO, Kalpesh Desai, thanks to repeated requests to hear from him. We have been featured in many publications and are now known for our thought leadership in the BFSI sector. Kalpesh is much heard and read about in forums and media world-wide and our readers asked why not in our own Agile

PERSPECTIVE

Business Agility Through Central Processing Services 11

Financial Times. So here it is, in this issue. NEWS

Having personally spear-headed many successful initiatives in the

Global Update

14

BPO/shared services and central processing space, Kalpesh shares his ‘Perspective’ on the many benefits of setting up and outsourcing a

SOLUTION SPOTLIGHT

shared back-office to leverage economies of scale. It’s a win-win like no

Agilis UMFS

other. Please continue to send in your feedback on what you would like us to cover in forthcoming issues. We promise the ‘inclusion’ of your wish as our command!

Be Agile! Shefali Khera Chief Marketing Officer Write to us at [email protected]

16

CUSTOMER SPOTLIGHT

Repco Foundation Making a Difference

Agile FT recently acquired the Universal Micro-Finance Solution from Theme Technologies, which is now called Agilis UMFS. Agile FT has plans to offer this as a software platform as well as an outsourced service to microfinance institutions in emerging markets. This case study highlights the implementation of Agilis UMFS at Repco Foundation, which is a subsidiary of Repco Bank.

Repco Foundation for Micro Credit (RFMC) is a NGO promoted by Repco Bank, a Government of India enterprise. RFMC is a ‘not for profit’ entity registered as a Section 25 company. Its primary business is to extend support to Self-Help Groups (SHG) that are financed by Repco Bank, with a view to increasing the income level and eventually improving the standard of living of its members. Repco Bank floated RFMC as the services offered by other NGOs operating in Repco’s target geography were not satisfactory and left much to be desired especially in terms of creating awareness and imparting skills amongst the target groups. This is a unique model, which is the first of its kind to be implemented in India, under which SHGs are referred to Repco Bank by RFMC for extending credit facility. RFMC also monitors and engages in capacity building activities of the beneficiaries, as a result of which their credit absorption capacity is expected to increase in the long term. About the Foundation

RFMC is committed to the development of SHGs by extending micro credit to reduce poverty and for empowering the poor to become self-sufficient. To this end, it aspires to evolve into a preferred micro-finance institution (MFI) in bringing about a perceptible change in the lives of the poor through formation of SHGs. With more than 17,000 SHGs under its wing, to whom more than INR 100 crores credit has already been extended, RFMC is well on the way to success. RFMC currently has 57 branches, which are likely to increase to 75 in the next couple of years. A key characteristic of the micro-credit business is the high recovery rate which is a result of group-based

4

CUSTOMER SPOTLIGHT

lending, and RFMC enjoys a recovery rate of 99.75%. RFMC is aggressively pushing its services through the concept of ‘branchless banking’, via which it takes banking services directly to the customer through hand-held devices and mobile vans. In a country as vast as India, having a growing population with growing needs for banking services, RFMC is convinced that it will be able to address this demand quickly and in a cost-effective manner only by ‘taking the bank to the customer’, especially as in the micro-credit segment the large majority of customers may not even have the money to travel to the branch. Future plans include providing other services such as life and health insurance to all members of its community. RFMC has already formed a partnership with Life Insurance Corporation of India (LIC), as well as EXIM Bank for providing trade finance for exports, in addition to a tie-up with the National Housing Board (NHB) to provide better housing for its community members. RFMC has pro-actively embraced technology to drive its expansion plans, and considers technology to be the singular catalyst to achieve its business goals. Project Background

RFMC started operations two years ago, and in its endeavor to become an efficient and leading provider of micro-credit to the masses, it took a strategic decision to leverage technology to the utmost. In the world of micro-finance the ticket size of transactions is typically low, and this makes it even more critical for processes to be automated. This automation is required not only to increase the quantity and quality of services to the customer, but also to a large extent to reduce operational risk, including the possibility of fraud, by putting in place robust customer identification and authentication procedures. Each SHG has a group leader who is responsible for ten to twelve people in that group. The group leader is given a smart card that can be swiped in a handheld card reader carried by RFMC staff who collect or disburse money to individual members in the group, and the data is immediately updated in the core banking system to reflect the account accurately and in real-time. Supplier Selection

RFMC chose Theme Technologies as its technology partner to automate the entire micro-finance business, as the supplier had already proven its credentials by being a trusted technology partner to the parent bank for the last few years for its core banking initiative. "Our future vision is to extend enablement services to Self-Help Groups (SHG), with multiple products offered to individual SHG members, based on their repayment capability. We have established 12 training centers across our target geographies to train SHG members on smart card technology. In these centres, smart card technology is introduced to enable cash transactions. Theme Technologies is acting as a technology partner to support our vision and scale alongwith us. Our plan is to reduce pressure on the brick-and-mortar branches and to provide a superior service through mobile branchless banking. We are also planning to implement business correspondent services with a number of banks. We believe that Theme Technologies is poised to continue their partnership with us to enable us to achieve our business goals" says G. Manickasundaram, Project Director, RFMC. "Theme Technologies has a very good understanding of the pulse of our foundation and our specific requirements, especially as it earlier developed our bank’s core banking system. The delivery people in Theme are very dedicated, have good domain and technology knowledge, and are focused on helping us

"We believe that Theme Technologies is poised to continue their partnership with us to enable us to achieve our business goals.” - G. Manickasundaram Project Director RFMC 5

CUSTOMER SPOTLIGHT

achieve our goals. In addition to significant cost savings due to mobile branchless banking, the implementation of UMFS has significantly reduced the possibility of identity fraud, and has also enabled the IT department to provide top management with an accurate and comprehensive view of operations in real-time," says R. Rajagopal, General Manager - IT, Repco Bank. RFMC had also considered other offerings from other industry players, but felt that Theme’s technology would be able to quickly adapt to changing requirements and the partnership would provide a high level of commitment to RFMC, as opposed to its larger counterparts. Technology

Agilis Universal Micro-finance Solution (UMFS) is a user friendly and web-based financial platform designed specifically for micro-finance institutions. It includes group and individual customer information management, shares and savings management, loans and deposits, transaction processing and financial accounting. UMFS is built on a component-based architecture that allows RFMC the flexibility to change the functionality and workflow dynamically. This is especially critical in micro-finance as a number of practical problems that come up in the field can be worked around without compromising the integrity of the system and processes. The work-flow based portfolio management system present in UMFS allows RFMC to manage the complete cycle of solidarity group and individual lending portfolios for origination, disbursement, collection and recovery. The core transaction processing module handles the data capture of all debit and credit transactions and it automatically maintains general ledger entries based on user defined parameters. The built-in report generator produces all

standard operational reports as well as statutory reports. A key feature is the intuitive front-end that is integrated online to a mobile branch hand-held device with a smart card reader, which makes it a powerful solution for use in geographically-dispersed and remote field operations. Through this hand-held device, RFMC is able to perform all lending and deposit activities, including generation of receipts and statements for individual customers.

The success of the microcredit venture is spurring the foundation on to provide more third-party services to its large customer base which will generate substantial fee income. Business Benefits

The solution offered to RFMC meets the requirements of the micro-finance industry. It supports RFMC’s vision of introducing branchless banking across three states to service 17,000 SHGs. It allows RFMC to build a high level of confidence with its customers by enabling the field staff to provide e-statements at the group and individual level. Since the data is relayed on real-time basis to the central server, there is absolutely no data redundancy and the foundation has real-time visibility of its field activities. Due to the multilevel authentication mechanism built into the process, the likelihood of fraud by individual customers is minimal, and this has helped its recovery percentage to a large extent. "Without this solution, we would not have been able to automate the micro-finance business," says R. Rajagopal, General Manager - IT, Repco Bank. Conclusion

R Rajagopal, Repco Bank

6

RFMC has gained a significant competitive edge over other MFIs by virtue of using UMFS. The success of the microcredit venture is spurring the foundation on to provide more third-party services to its large customer base which will generate substantial fee income. Being one of the early movers in facilitating micro-finance in a quick and transparent manner has given RFMC a substantial advantage over its competition, and more importantly has helped it to serve the less privileged and make a difference by uplifting the lives and future of thousands of people living on the edge of poverty.

The majority of developing countries find it challenging to provide basic amenities to their citizens. Poverty is predominant, with millions earning less than US$ 2 per day. The usual issues of lack of food, medicine, housing, education, and security have been on the radar of various governments and other charitable organizations for a long time now.

Financial Inclusion Trends in Africa, South East Asia and India In the last five years, one issue that has generated a lot of interest is provision of banking and insurance services for the poor. These facilities are inherently important to the well-being of any community, and will eventually also help address and alleviate some of the root causes of poverty. The provision of financial services to the economically disadvantaged segment of the population has now matured and is manifested in most development schemes. The United Nations (UN) is a keen participant as it hopes to replicate effective initiatives across countries to reach the poorer sections of the society. The UN efforts were published in its ‘Blue Book’, to analyze impediments and initiatives to achieving financial inclusion in different geographies. The most common form of access to banking is opening a no-frills savings account. With increasing emphasis on financial inclusion, other schemes such as collateral-free micro-credit and micro-insurance are now gaining ground. Savings, deposits and credit are being given equal importance to develop an all inclusive and balanced strategy. Initial experiments and pilots in micro-finance reported success with high levels of responsibility among beneficiaries. While the reason that micro-finance institutions (MFI) originally started business was to address the unorganized money-lending business, the overall intention was to empower the poor. Micro-Finance enables this segment to get out of their

7

COVER STORY

debt traps from local money lenders by providing credit for income generating activities, and, in addition, provides services that allow a safety net for their families, such as micro-insurance. This market segment also offers a tremendous return on investment if the business is carried out professionally, as the percentage of defaults from this community is miniscule, a fact that is attributed largely to the group-based lending practice where peer pressure to pay back is high. Africa: Tackling Natural and Man Made Adversities Some African countries face harsh natural conditions, while, some others have endured wars and been strife-ridden for decades. With governments concentrating more on wars and internal conflicts, the welfare of citizens has hitherto been fairly low on the agenda. However changes are now visible with more schemes tailored to suit the needs of various countries in the region. Some African countries depend largely upon international organizations such as the UN, the Red Cross and other organizations for aid. Non-government and not-for-profit organizations drive most of the welfare initiatives. A number of micro-finance institutions (MFI) operate in the region. The schemes are suitably flexible to adapt to diverse requirements demanded by the region and take into consideration the need to pool group resources and leverage tradition.

The Consultative Group to Assist the Poor and the Bill & Melinda Gates Foundation launched a US$ 26 million technology and micro-finance initiative to test mobile banking, ATMs, card readers and other technologies underlining the importance of technology. Micro-finance initiatives that have worked well have been expanded to include other socially- related issues, such as schooling. An example of this is Yum, also referred to as Group of Common Initiative of the Women Farmers of Bogso (GICPAB), which started with efforts to improve cassava produce, process, transportation and marketing.

8

Members worked together and the collaborative efforts saved time and reduced costs. This initiative then expanded with loans to those who registered their children or grandchildren in schools, for books, meals and fees. The use of traditional banking practices and the associated transactional costs have hampered the growth of microfinance services in remote areas and villages. The implementation of the relevant technology to enable ‘branchless banking’ will speed up the process and enable access without having to establish branches. Training members from within the group to handle technology will enhance community involvement and increase independence of these groups. The Consultative Group to Assist the Poor (CGAP), an independent institution housed at the World Bank, and the Bill & Melinda Gates Foundation launched a US$ 26 million technology and micro-finance initiative to test mobile banking, ATMs, card readers and other technologies underlining the importance of technology to deliver micro-finance. Micro-finance must gradually expand to include microenterprise. Encouraging small-scale entrepreneurs will help in poverty eradication, and also reduce the number of rural poor moving to urban areas in search of employment. A visible line of scalability allows beneficiaries more options to move ahead. Banking and insurance services need a push to increase confidence in efficacy of these initiatives and change habits of people. Individual savings are low, directly affecting capital accumulation, which in turn affects the overall growth rate. Saving and investing will increase financial viability, participation, and provide for other benefits such as better education and housing. South East Asia: Success Depends on Stability Financial inclusion in South East Asia went through a phase of non-acceptance and doubt. However, persistent efforts,

COVER STORY

performance, and due importance and schemes by governments has made it one of the priorities for policy makers. Though conditions across South East Asia differ, and not all countries boast of successful ventures, experiments continue to try and formulate workable options. With increase in acceptance levels for micro-finance, it has moved beyond traditional NGOs to soliciting investments from regulated financial institutions. Micro-finance investment vehicles are tools to leverage foreign capital investment in MFIs. To maximize the reach of financial inclusion, innovations in delivery models and use of technology is on the rise. To cite an example, Cambodia has launched a mobile banking initiative called WING, which is a mobile-enabled payment service that allows customers and businesses to transfer, deposit and withdraw money using cell phones at a low cost. WING has more than 150 points of representation in Cambodia, with representation in 16 of the 24 provinces. WING customers comprise garment workers and other rural customers who have traveled to urban centers for work. The payment service offered by WING allows them to transfer money using a safe, affordable and fast transaction system. Governments have contributed by making policy environment conducive to development of micro-finance. For instance when the Government of Malaysia identified agriculture and agro-based sectors as the key growth areas in the Ninth Malaysia Plan, Bank Pertanian, a specialized financial institution for the agriculture sector, underwent restructuring and strategic changes to enable greater access to easy financing for the identified sector, followed by venture capital funding. The idea was to ensure that the entire value chain in the agriculture sector receives benefits. With innovations in technology, illiterate people have been able to gain access to the advantages of micro-finance. In Indonesia, PT Bank Danamon used biometric authentication leading to a paperless environment and eventually lower costs. Fingerprints were scanned for verification replacing the manually filled forms, making the process easier for first-time users or the illiterate, to engage in banking transactions. The financial inclusion initiative in SE Asia needs to develop into a self reliant mechanism. To develop this, emphasis on savings, and strict credit disciple need to be implemented. Greater stress on group initiatives, which have proved successful in other locations, will help. SE Asia suffers many natural calamities, due to which financial inclusion for poor people must accommodate micro-insurance. Low income groups are especially vulnerable to the loss of an earning member, therefore it is extremely important for them to have a scheme devised

keeping their risks in mind. A unique scheme based on community responsibility when an earning member of a family passes away has been used successfully in the Philippines. CARD’s Mutual Benefit Association uses the practice of Damayan - a local custom in the Philippine rural areas where members of community and relatives donate cash to a family that has lost a member. The practice is mutual as death in any family would be followed by a similar custom. CARD used local information, informal monitoring and enforcement system to develop a cluster of clientmembers with the vision that they would co-own an insurance company. Almost 98% of CARD clients are poor women. This format took care of high transaction costs, the perception of lack of capacity to afford regular insurance premiums and credit-worthiness. This scheme was further regularized using certain mandates to ensure maximum benefits. India: Innovating in the Face of Diversity India has the second highest number of people in the world without access to banking services. However it is the diversity of needs that is even more overwhelming. The financially excluded populace of India resides in urban and rural India and each segment has unique characteristics that need to be addressed.

To promote financial inclusion, public sector banks are required by the government to dedicate a requisite percentage of funds to priority sectors and offer ‘no frills’ accounts. While agriculturists form a major segment, other professionals such as artisans and people working in cottage industries need aid as well. The urban poor are usually daily wage earners, or those that have low-paying regular jobs which do not offer adequate security. According to estimates, only about 10% of Indians who need funds to improve their economic condition have access to it. To promote financial inclusion, public sector banks are required by the government to dedicate a requisite percentage of funds to priority sectors and offer ‘no frills’ accounts. Women in rural and urban areas are major contributors to household incomes and run small scale

9

COVER STORY

house-based enterprises such as tailoring and food-based small scale enterprises. Efforts to drive the entire initiative through them are taking shape, as they have proved to be prompt at repayment. Technology has been used to gain access to consumers in remote areas, to cut costs, make delivery faster and easier. Kiosks and smart cards are expected to make transaction costs much lower. Some private sector banks have also succeeded in converting micro-finance from being a socially responsible activity to a profitable venture. An example of this is ICICI Bank, which has been a front runner in the area of micro-finance, pioneering innovative schemes and initiatives. It introduced the partnership model forging an alliance with existing MFIs. The MFI, in turn, undertakes the responsibilities of identifying and training end-customers, and disbursing and recovering the money. ICICI Bank also launched Grameen Capital India, a company that promotes micro-finance as an attractive ‘asset class’ by enabling access to the capital markets and a wider canvas of investors. India has a huge population that does not ‘officially’ fall in the category of ‘poor’ - those that earn about US$ 2 - US$ 5 per day. The specialty of this group lies in the fact that they may be able to regularly repay small loans without any difficulty, though collaterals may not be an option for them. No frills accounts for households with low but regular income, would ensure their participation in the banking system, and also encourage savings. India also has the highest growth rate in cell phone penetration, and financial institutions must exploit this channel to deliver banking services. Systemic Impact

Technology has been used to gain access to consumers in remote areas, to cut costs, make delivery faster and easier. Kiosks and smart cards are expected to make transaction costs much lower. 10

In all regions around the world, micro-finance has impacted not only the rural and urban poor, but also a number of businesses that serve this target segment. In addition to financial services, companies that manufacture mobile phones, household goods (such as televisions, refrigerators, water purifiers and stoves), consumer products (soaps, shampoos and detergents) and farm equipment (including tractors!), have made an aggressive foray to service the rural areas. Some companies have even created innovative products such as a refrigerator without a compressor, and are selling it at a price point that has been arrived at after taking market feedback from potential customers. With the number of people under the MFIs’ umbrella increasing exponentially, these companies are using MFIs as a channel to distribute their products. With new products entering the rural market, it has led to a high demand for rural sales agents for these products, with many companies appointing rural housewives to market products within a community for a sales commission. This has automatically led to a higher income generation for many rural families, and has also helped empower women to a large extent by providing them with an opportunity to earn income and have a sense of purpose. With the rural and urban poor having access to fairly regular income, a number of them who realize the value of providing education to their children, are now willing and able to spend on it. Although the fees gained through an individual student are very less, the potential numbers are very attractive from a business point of view, especially with technology-led education gaining popularity in villages. All this opens us new scenarios and ambitions for the rural and urban poor, and results in a powerful economic and social impact within the community, village, town and region, and finally at the country level.

PERSPECTIVE

Business Agility Through Central Processing Services Kalpesh Desai CEO, Agile Financial Technologies Companies are being driven, now more than ever, to do more with less. Cutting back on services, service levels, or quality is clearly not an option. How, therefore, can companies increase operational efficiencies in customer acquisition and retention, as well as in back-office transactions?

The current financial crisis has forced all companies, especially in the banking, financial services and insurance (BFSI) industries, to reassess the way they do business. With institutional collapses becoming a common feature on the landscape, survival is obviously the first priority of management. However, beyond the survival imperative (which can be managed by short term measures) resides the real issue of sustainability. As has been the case for the past few decades, the solution lies in the use of technology. But the major stumbling block is the existence of legacy systems. Almost all technology applications started life completely in-house - they were designed, developed, and maintained by the company’s own staff, and deployed on the company’s own infrastructure. As hardware and software technology advanced rapidly, and as business needs evolved alongside, these in-house organizations adapted as best as they could in order to offer the latest technology to their users. Employees were trained to help them develop new skill sets. New features were stitched on to existing applications, but they were not fully integrated. New equipment was added, but this was not always compatible with existing hardware, and resulted in silo-ed information. To put it all together, integration was performed by way of data files and massive nightly batch runs. Technology in the BFSI segment has come a long way from the days of the traditional management information systems, but many companies still find themselves working with an unwieldy mix of the outdated and the state-of-theart. Additionally, changes in government regulations in

11

PERSPECTIVE

geographies where the company operates, calls for modifications to the underlying applications. A further complication is seasonal demand, which means that capacities and staff levels must be maintained to cater to peak loads. For in-house IT, this creates a large and expensive internal organization. While being a problem, this also offers a tremendous opportunity to reduce cost. Enter the Centralized Processing Centre (CPC). A CPC is either formed by very large companies for processing their internal requirements from a centralized location, or increasingly today by service providers who have set up centres with capabilities in diverse segments. The outsourcing industry today is at a maturity level where it can completely take over, and at times run more efficiently, almost all technology related non-core operations of any business. For many segments, especially BFSI, outsourcing suppliers can provide robust platforms and support for core functions. CPCs, especially when outsourced to independent service providers, can facilitate innovation and greater productivity in all facets of technology as a driver of business, including design of the business model, deployment of the appropriate technology, scale and agility, accessibility and security, integration and cost. Business Model Design

The emergence and ubiquity of every new technology (internet, mobile) opens up avenues for creativity by the user community. Most innovative products and services being offered to BFSI customers today are made possible by the availability of technology, to the extent that management can now take an ‘anything is possible’ customer-centric approach while designing their business model. The responsibility of executing the business process is undertaken by the service provider.

competitive, but can be prohibitively expensive. Most organizations can afford to upgrade their core internal systems only every five to ten years. In effect they are unable to reap the benefits of new technology until their next upgrade cycle. Added to this is the cost of retraining staff for every set of skills required for all applications, whenever the upgrades are implemented. In contrast, supplier-run CPCs continuously invest in technology, people and processes, as this is a core business function for them. They are thus able to take advantage of technology improvements very quickly, and pass on the benefits to their customers. Scale and Agility

Supplier-run CPCs are typically highly scalable, as they offer similar services to many companies, and therefore have a large installed capacity for any application or process. Consequently, they are able to respond immediately to a sudden rise in volumes from any customer, without any increase in per transaction costs. By the same token, when the demand ends, they are able to re-deploy staff without any carrying or retention cost to the customer. In terms of adoption, CPCs are able to acquire new technology and get it working faster than an internal IT department. Similarly, they are able to develop and deploy applications rapidly, offering the customer a much faster time-to-market. Accessibility and Security

In order to offer a superior client experience, companies need to offer their clients access to services not only via human interaction (typically during business hours) but also via the Internet and mobile. Third party suppliers are the leading providers of such access mechanisms. Beyond access, security of client information is the top priority for companies operating in the BFSI industry. Here again, service providers are better equipped to ensure technical security of client data. As service providers, they are required to operate at the highest levels of compliance in order to at least meet or exceed the levels practiced by their customer companies.

Process Optimization Integration

Moving transaction processing to a central processing centre can create an opportunity for the financial institution to review their existing processes, and engage in process optimization. With the deployment of effective workflow management tools, it is now possible to replicate the same function carried out in the back-office with lower skilled personnel who need to follow a defined task list in the process workflow. The replacement cost of the above itself generates a visible, definable ROI, and simultaneously enables bankers to focus on the front office, customer experience, product development and risk management.

Cross-selling products and services has become a critical success factor in the financial services industry. However, while multiple services under the same roof may win customers over initially, unified management and reporting mechanisms are essential to retain them. For example, in addition to retail banking, a bank may want to offer mutual funds, portfolio management, and unit linked insurance plans to the same customer, with a seamless automatic flow of funds from one service to another as and when needed, as well as a common record of all static information related to that customer.

Deployment of Appropriate Technology

Keeping up with technology is essential to remain

12

Additionally, if all these include a reporting/reminder service either by direct mail, email, mobile or telephone,

PERSPECTIVE

such messages too can be integrated into a single communication. Regulatory compliance is also tightening continuously, and satisfactory compliance also demands extensively integrated systems. Cost

The most significant cost advantage when using a CPC is in not having to invest in infrastructure or staff. While the pay-per-use model may come at a small premium, the cost of obsolescence is zero. And in cases where multiple services (like IT and BPO) are outsourced to the same supplier, overall costs are lowered by a reduction in the total number of transactions. In addition, the usage of CPCs significantly enables business processes to become streamlined, and thus provides companies with a strategic advantage that goes beyond cost efficiency. An Alternative: Cloud Computing

CPCs managed by external service providers do, however, have some entry criteria. They require a certain minimum level of operational discipline and record keeping on the part of the customer. More importantly, there is a setup time and effort involved, and the model is based on economies of scale, which means that benefits accrue only beyond a threshold transaction volume. For companies whose operations are not large enough, there is a viable alternative - cloud computing - which offers most of the benefits of CPCs, but calls for some self service. Specifically, no capital investment is required for either hardware or software, and therefore technical staff too. While this does require permanent functional staff, they need to be trained only once on how to use the software-as-a-service (SaaS) applications, with subsequent technological advances automatically incorporated into the software by the SaaS provider. Conclusion

The concept of central processing, whether via service provider-run CPCs or cloud computing, has significantly changed the way companies are able to service their customers. First, it enables businesses to adopt and leverage technology which may have been prohibitive otherwise. By outsourcing technology as well as routine business processes, the company is able to focus on its core business competencies. Second, it substantially reduces the time required to implement and roll out new innovative applications. The reliability of the software too is far greater than an individual company may be able to achieve on its own. Third, it enables complete seamless integration across all relevant applications, offering the company’s clients a unified view of all the information of interest to them, while minimizing the number of separate transactions needed to be performed by the client. Such integration also enables personalization of services to an individual customer’s needs, in turn helping to attract new customers, and retain existing ones. Finally, and probably most importantly, it allows a company to achieve greater security and regulatory compliance. By spreading the cost across all customers, suppliers are able to provide fully customizable levels of security, integrity, and compliance at a wide range of comparatively low price points.

Kalpesh Desai, founder and CEO of Agile Financial Technologies, envisioned the creation of an unparalleled enterprise that would be a technology partner to leading players in the BFSI sector enabling business agility. He has over two decades of experience in spearheading technology companies to achieve and sustain a position of market leadership and organic growth.

13

NEWS

Global Update A quick review of industry news from around the world. Dubai Financial Market Records a Net Profit of AED 128.3 million

Dubai Financial Market has announced its financial results for the second quarter, disclosing a net profit of AED 128.3 million, compared to AED 58.5 million in the previous quarter, representing a growth of 119%. The quantum jump in net profits in the second quarter is a reflection of the increase in market activity as the total trade value jumped 113% to AED 58.8 billion compared to AED 27.6 billion in Q1 2009. According to Essa Kazim, Executive Chairman of Dubai Financial Market, "The market witnessed good performance during the second quarter of 2009, with significant increase in different market indicators such as trading volumes and values, the performance of listed securities and the DFM general index. The market performance in Q2 2009 reflects improved investor appetite and their confidence in the sound fundamentals of the national economy and publicly listed joint stock companies. We are optimistic about the outlook, and hopefully the market can acquire additional momentum to be able to record more positive results by year end". National Bank of Kuwait buys 13.2% in Boubyan for US$ 295 million

National Bank of Kuwait, the country’s biggest bank by assets, has bought 13.2% of the Kuwait Investment Authority’s stake in Boubyan Bank for US$ 295 million at a public auction. This takes the National Bank of Kuwait’s

14

stake in Boubyan to a total of 27.5% or 321 million shares. It is believed that National Bank of Kuwait had earlier tried to buy a 19.2 percent stake in Boubyan from Commercial Bank of Kuwait (CBK) but the sale was disputed by Investment Dar. Qatar National Bank Sweetens Terms for Banking Accounts

Qatar National Bank has announced that customers holding current and savings accounts with the bank will no longer have to maintain a minimum balance. However, they will continue to receive the same benefits as usual, which means that account holders will be able to earn credit for all funds maintained on deposit, qualifying for special promotions and receiving preferential service rates wherever applicable. The bank also announced it plans to decrease tariffs on a number of its banking products and services, including safety deposit box rental, cheque books, personalized debit card replacements and certain inward money transfers. Government of Qatar Property Investments

Purchases

Banks’

With banks in Qatar struggling with their exposure to real estate deals, the central bank has announced that the government has earmarked QAR 15 billion (approximately US$ 14 billion) to buy real estate portfolios held by banks. The government had earlier announced that it would offer to buy banks’ property portfolios and loans to support the banking sector which was suffering and also guarantee continued growth in the economy.

NEWS

"The programme has been implemented, funds have been allocated to eligible banks and payments have been made according to conditions," said Sheikh Abdullah Bin Saud Al Thani, according to Qatar News Agency. Actis Buys 9.3% in Egypt’s Comml Int’l Bank for US$ 244 million

Actis, a private equity firm, has agreed to pay US$ 244 million for a 9.3 percent stake in Commercial International Bank, Egypt’s largest bank by market value. Justifying its investment, Actis, which invests in emerging markets, has said that Commercial International Bank has excellent growth potential. The investment has been welcomed by the bank, which says that the investment will help accelerate its growth in consumer banking. Doha Bank Announces Operating Profit

24%

Increase

in

Doha Bank’s financial results for the first half of 2009 were announced by His Excellency Sheikh Fahad Bin Mohammad Bin Jabor Al Thani, Chairman of Board of Directors. The bank’s net profit for the first half of 2009 increased by 12 per cent to QAR 646 million, compared to QAR 579 million for the corresponding period last year. The bank also recorded substantial growth in net income and total assets. Incidentally, the bank has been pushing the concept of ‘Green Banking’ to encourage each customer to protect the environment by adopting paper-less banking. Doha Bank has also been voted as the "Best Commercial Bank in the Middle East" recently. ANZ Looking to Acquire Bank Assets in Asia

Melbourne-based ANZ may buy Royal Bank of Scotland (RBS) units in at least five Asian countries, and is believed to be in advanced negotiations to acquire RBS’s retail and commercial-banking units in Hong Kong, Taiwan, Singapore, Vietnam and Indonesia. The growing number of bad loans in Australia has had an adverse impact on ANZ, which has cut its dividend this year. ANZ sold A$ 2.5 billion worth of shares two months back to fund the bid. It also paid A$ 114 million to increase its stake in Indonesia’s PT Bank Panin, and plans to open six new offices in Vietnam.

European Union Warns State-Aided Banks of Possible Forced Sales

Banks that received government bailouts, such as Lloyds Banking Group and Dexia SA, may have to sell branches or units to gain approval for restructuring plans under new EU guidelines. The EU announced that its recommendations call for stress tests, disclosure of impaired assets and a review and possible closure of unprofitable operations. The guidelines will be used to review lenders that received aid after the credit crisis prompted EU governments to approve more than 3.77 trillion euros to support banks. Central Bank of Brazil Slashes Benchmark Interest Rate

The Central Bank of Brazil has slashed the benchmark interest rate for the fifth time this year to 8.75%. Central bank President Henrique Meirelles had cut the rate by at least a full point in all four previous policy meetings of 2009, and the latest cut signals the possible return of economic growth in the region. According to the Organization for Economic Cooperation and Development, the Brazilian economy is expected to expand 4% next year, powered by domestic demand. According to the IPCA index, the annual inflation has slowed to 4.8 percent in June, down from 5.2 percent in May and the lowest since March 2008. Economic Growth Slows in Sudan

According to the International Monetary Fund (IMF), Sudan’s economic growth will slow to 4 percent this year from almost 7 percent in 2008 because of lower revenue from oil exports. Foreign reserves have dropped to about US$ 300 million this year from US$ 2 billion last year, due to lower oil prices and the central bank’s intervention to boost the value of the local currency. Although Sudan does not qualify for funds from multilateral lenders such as the IMF and World Bank due to US sanctions, China and India are expected to provide loans to build the infrastructure in Sudan. Bank of Yokohama Plans Expansion

Japan’s Tokio Marine to Cut Hedge-Fund Investments

Tokio Marine Holdings, which is Japan’s biggest casualty insurer, plans to reduce hedge-fund investments and shift more of its portfolio in the industry to strategies such as macro and long-short equity funds. In order to minimize fees and increase profit, Tokio Marine will stay focused on single hedge funds, rather than fund of hedge funds. Tokio Marine currently invests in around 60 hedge funds, more than half of which are based in the US and Europe.

Bank of Yokohama, Japan’s largest regional bank, has announced plans to surpass Nomura Holdings to become the biggest retail brokerage in Kanagawa in terms of assets under management. With demand for loans going down last year, Bank of Yokohama established a joint venture with Tokai Tokyo Financial Holdings to expand into the securities businesses and increase fee income. The securities venture which started with 7 branches in Kanagawa, plans to have 22 outlets within four years, most of them contained with Bank of Yokohama branches.

15

SOLUTION SPOTLIGHT

Agilis UMFS Technology for Micro-finance Micro-finance is an area which is arguably the most dependent on technology in order to be effective in terms of provision of services to its target audience, and in a cost effective and operationally efficient manner. It is also an area where sustainability and outreach are both extremely important, i.e. if either of these qualities is compromised, it would have a negative effect on all initiatives and as a result, on the country’s economy.

The need of the hour is to enable delivery of services such as credit, pensions and insurance quickly and efficiently, thus ensuring sustainability of programmes. And such sustainability efforts have to be cost effective to ensure outreach to new communities, villages and regions, otherwise micro-finance institutions (MFI) will not achieve their mission of reaching out to vast multitudes of people. In addition, the technology that is used has to be transparent to the end-customers, so that it builds a high level of confidence in them and encourages them to switch over from the local unorganized sources of money, to a professional micro-finance institution. While the sustainability v/s outreach challenge still exists when it comes to reaching out to people in remote areas, or to people with low economic and social status, technology is continuously evolving, and is today available to circumvent and/or address these challenges and enable MFIs to further their positive impact on society. Agilis Universal Micro-finance Solution (UMFS) is a userfriendly and web-based financial platform designed to service the end-to-end needs of an MFI including group/individual customer information management, shares and savings management, loans and deposits, transaction processing and financial accounting. The solution, which is CGAP-compliant, is built on a component-based architecture which gives MFIs the flexibility to change dynamically with changing requirements. The workflow-based portfolio management system allows MFIs to manage the complete cycle of solidarity group and

16

SOLUTION SPOTLIGHT

individual lending portfolios from origination and disbursement to collection and recovery.

according to running balances, monthly minimum balances, average period balances, and end-of-period balances.

The core transaction processing module handles the data capture of all debit and credit transactions and automatically maintains general ledger entries based on user-defined parameters. The integrated report generator produces standard operational reports as well as statutory reports. The solution’s intuitive front-end is integrated online to mobile and handheld devices such as smart card readers, which makes it a powerful solution for use in geographically dispersed and remote field operations. The features of Agilis UMFS include:

Savings and deposit accounts can be linked to loan accounts so that they can function as a guarantee and automatic repayment of loan arrears can be made from the account. The savings and deposit account transactions are automatically posted in the general ledger with provision to de-activate automatic posting which will facilitate MFIs that handle loans only, but still want to track their clients’ savings with a local bank. Minimum opening balances or balances to be maintained can be set for each type of account. Apart from transactions and interest postings, the savings module also allows the addition of rewards or charges to accounts.

Customer Information Management

Loan Portfolio Management

Agilis UMFS captures exhaustive information about group/ individual customers such as personal details, demographic information, financial status, assets and collaterals. MFIs can gain a single view of the customer across multiple accounts.

Agilis UMFS has been designed to process different types of loans such as personal loans, housing loans and small business loans. Each loan product can be configured with its corresponding interest parameters and installment periods. Loan products can also be classified according to source of fund, loan officer and business sector; this facilitates MFIs in effective portfolio management. The workflow-based loan processing engine controls and manages various work steps of loan processing right from initiation till the sanction order is approved. On approval of loans, the system automatically generates a loan contract with repayment schedules.

Shares Management

There is a built-in share management module to define different types of shares which group/ individual customers of credit cooperative MFIs can buy, sell and transfer by cash, cheque or bank transfer. All share transactions are automatically updated in the general ledger. Savings and Deposits

Agilis UMFS offers the ability to create and manage savings and deposit products with incredible flexibility. Accounts can be created in the name of an individual with or without a co-account holder, a group or a business/institution. Group accounts can be tracked either at group level or at individual member levels, wherein the debit and credit transactions of both group and individual members of the group are captured. Interest rates can be configured

The solution supports part and full disbursements with facilities to deduct fees and charges. Disbursements can be made either in cash, by cheque, or to an existing bank account. The system supports multi-channel (e-mail, fax and mobile text messages) correspondence such as proactive reminder notifications and arrears notification on irregularities. Agilis UMFS classifies non-performing loans into three buckets i.e. sub-standard, doubtful and lost. It calculates

17

SOLUTION SPOTLIGHT

precise provisions automatically by applying regulatory norms and is highly parameterized so that changes in regulation can be configured with ease. The solution also enables users to set up signals and alerts for delinquencies; based on which the branch managers can initiate follow up action with the customers. The recovery module captures all the details of the delinquent accounts and its status of recovery to facilitate branch managers to initiate action on rescheduling, closure and write-off. Reporting Engine

The reporting engine is designed to provide the MFIs with information for operational control, management control and strategic planning, and provides the following reports:







Savings Loan Activity Portfolio Quality Income statement Balance sheet Cash-flow

Mobile Branch in Field Operations

The mobile branch is used by loan officers to capture transactions in the field. Smart cards are used as access cards by individual customer and groups. Transaction details are updated in the smart card for effective control. Activities performed using the hand-held device include:





Savings, repayments and past-due payments. Group and individual validation and smart card updation Issue of spot receipts Auto generation of repayment fund transfer.

Smart Switch

The solution’s intuitive front-end is integrated online to mobile and handheld devices such as smart card readers, which makes it a powerful solution for use in geographically dispersed and remote field operations. 18

The smart switch serves as an intermediate router/network switch for integrating the Mobile Branch hand-held devices with Agilis UMFS through a dedicated link for secure money transactions. Data integration takes place either on-line through GPRS or off-line through serial/USB port connectivity. The features of Smart Switch include:








Dynamic Routing and effective Network Traffic Management Secure Message Transfer Using Industrial standard message formats. Protocols to handle integration of (wireless) handheld devices and MFI’s database controller. ISO 8583 message digest for increased scalability Triple DES encryption algorithm for secure message transmission of PIN. AES encryption algorithm for ISO message transfer. Audit logs for overall management of message transfer.

Financial Accounting

The financial accounting module automatically maintains general ledger entries based on user-defined parameters. All savings, deposit and loan products are linked to the corresponding general ledger accounts. Branch codes, donor codes and cost centers serve as analytical codes for MIS reporting. The fund accounting module facilitates MFIs in efficient reporting on fund usage to donors.

www.agile-ft.com

Agile Financial Technologies Pvt Ltd 701-A, Prism Towers Mindspace, Malad (West) Mumbai 400064 India Tel : +91-22-42501200 Fax: +91-22-42501234

Agile Financial Technologies 808-A, Business Central Towers TECOM, Dubai Internet City P.O. Box 503007 Dubai United Arab Emirates Tel: +971-4-4331825 Fax: +971-4-435-5709

Agile Financial Technologies Pte Ltd 20 Cecil Street, #14-01 Equity Plaza Singapore 049705 Tel: +65-64388887 Fax: +65-64382436

Views expressed in this publication do not necessarily represent the views of Agile FT and the information contained herein is only a brief synopsis of the issues discussed herein. Agile FT makes no representation as regards the accuracy and completeness of the information contained herein and the same should not be construed as legal, business or technology advice. Agile FT, the authors and publishers, shall not be responsible for any loss or damage caused to any person on account of errors or omissions.