NEWS WIRE: India: Infosys Software Division Finacle Offers Nano Banking System Targeted to Low-overhead Microfinance Institutions, Poor Clients

Original article available here.

BANGALORE, MAY 27 – Finacle, the banking product arm of software major Infosys Technologies, has developed a solution to take forward financial inclusion which, in its scope and business possibilities, can turn out to be a major offering.

Finacle has 65 percent of the core banking solutions business in the country. Last year, it clocked a global turnover of USD 150 million in 60 countries.

“The solution is there and we are talking to banks, hardware people and enablers to identify launch customers, and can go public with the whole thing by the year-end,” indicated Haragopal Mangipudi, vice-president and business head of Finacle.

The product will enable banks to deliver basic banking services to very poor people across the country at affordable costs. By conceptualising an innovative product, which incorporates best global practices, Infosys could end up creating a Nano in mass banking.

As Mangipudi explained, the product has been developed by defining what is needed and then working out what is feasible. The cardinal aim has been to develop a technology which is robust, flexible and with very wide reach. To use the solution banks should not have to make daunting up-front capital investment and need pay on a per-use or per-transaction basis.

Finacle first decided that for the product to have mass application it has to be bank agnostic, usable by any bank and not limited to only those hosting Finacle solutions. Also, it has to be multi-correspondent enabled, that is usable by a range of self-help groups and NGOs which typically take financial services to the doorstep of the very poor.

The end customer should be able to get a printed receipt and even hear a voice message (say, “you Rajagopal have deposited INR 100”) in his own language as he may be illiterate. This will require a handheld transaction point device like a point-of-sale device used for credit cards, which will enable biometric identification.

The solution must have a data centre, which will maintain the banking books of account, whose contents will be periodically uploaded to the banks concerned and maintain every bank’s data in different buckets.

The banks will continue to take basic decisions, select their customers and decide who gets how much loans. The service will be delivered via this solution and through the correspondent.

But it should also go beyond bringing horse and water together and do things like helping the correspondent (SHG/NGO) to identify customers. This can be achieved, for example, if the system hosts lists of ‘below poverty line’ card holders.

The product should also be flexible, serve more like a platform on which banks should be able to run their own applications. Dispensation of pensions, rural employment guarantee payments and ration card drawals should become possible over time.

At a later stage, the endpoint device should be able to read smart cards and be wireless-enabled so that a customer can transact business from anywhere.

The aim of the solution is to make micro-finance an attractive business proposition for banks. Through it they should be able to cut transaction costs for such low value customers from 8-13 percent by 5 percentage points and mobilise substantial deposits, which were earlier lying in cash in a tin box or under the mattress.

Such deposits and the additional ‘float’ (money in transit on which banks pay no interest) they will generate can come to banks at 4 percentage points less cost. This can bring down the cost of offering micro-finance to around 23 percent, including setting aside 10 percent for delinquency.

The better micro-finance agencies today lend at around that level but they are not financially very robust. The new mass banking product from Infosys will seek to make such micro-banking a sound business proposition for commercial banks, and thus enable them to access the fortune at the bottom of the pyramid.

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