Dvara Holdings has been in the financial inclusion space since 2008 to try and achieve financial inclusion in India, especially in the rural segment. According to Samir Shah, Executive Vice-Chair and Co-Founder, Dvara Holdings, the firm aims to be India’s first “Venture Studio” - an incubator for innovative technology-driven initiatives to enhance the reach of financial services to low-income households across the country. Excerpts:
Q. Dvara has been in operation for over a decade. How did you pivot towards financial inclusion with a deep rural focus?
A. Dvara Holdings was formed when Nachiket Mor and Bindu Ananth along with some bankers of ICICI Bank left the bank in 2008 and started what was then called IFMR Trust. It later became Dvara Trust and is now known as Dvara Holdings. It was set up to try and achieve financial inclusion in India, in a much more meaningful manner. The founding team realised that the traditional banking model can go as far but not really deep as they will have limitations of operating costs, reach, distribution etc. So, traditional banking will achieve a little bit of financial inclusion, but you can’t really deeply penetrate financial inclusion just because of the nature of a bank that serves different types of business and customers, it is just impossible to get that sharp deep focus.
The second thing that was sort of a very early realisation for the founding team was that to achieve true financial inclusion, you can’t be just in the business of providing financial services to the excluded or to the low-income houses, but you also have to do a lot of deep policy work, partner with regulators and actually bring about change in policy thinking and regulation. So very early on we started with the approach of saying that we will do both types of activities.
We will incubate and build new commercial organisations, financial services organisations that are social enterprises, focusing on low-income households across the country to enable access. On the other hand, we will also work with regulatory bodies to help them understand what type of framework is required, what kind of policy changes are required in order to be truly customer-centric in financial inclusion.
Q. So, how did you go about balancing the two areas of activities?
A. We set up four institutions in 2008. Three of them were commercial institutions, out of which two are NBFCs - Dvara KGFS, Northern Arc; one is a technology company - Dvara Solutions; and we set up a not-for-profit research and policy advocacy company - Dvara Research.
In the second phase, we included four fintech into our fold – Dvara E-Registry and Dvara E-Dairy which operates in the rural segment. Dvara SmartGold and Dvara Money are fintechs that help in improving the credit profile of low-income households across segments by inculcating a habit of investing small amounts in gold, digitally, and maintaining financial hygiene for gig economy workers by encouraging them to file taxes regularly and avail a broader range of financial services.
Q. One of your NBFCs is Dvara Kshetriya Gramin Financial Services (KGFS), which works in the rural segment. How different it is from any other NBFC that works in the rural areas with an aim of financial inclusion?
A. Dvara KGFS is a deep rural NBFC. The vision for this NBFC is to be the wealth manager for rural India. It goes beyond lending. Typically, NBFCs will just focus on lending but we go beyond lending. What we do is actually put together a financial plan for the rural households. Just like you and I would go to a banker or wealth manager, who would work on a sort of a financial plan for us, Dvara KGFS takes that approach for rural households and builds a financial plan for the rural household using a deep understanding of the household.
We digitise that financial plan, and offer products and services that are relevant to that particular household, including credit, savings, insurance and pension instruments. We have half a million active customers, about 295 branches, we are profitable, we operate in six states and are very digital and tech-savvy. In early 2021, Dvara KGFS applied for a Small Finance Bank (SFB) license and we are hopeful that we should be able to transform this NBFC into an SFB soon, subject to RBI approvals.
Q. Are these completely rural households? And what are the kind of products that you offer to these households
A. They are all 100 per cent rural households. And not just rural, they are deep rural. We currently serve around 10,000 villages including those where the population might be around just 1,000-2,000 villagers. Around 33-35 per cent of our customers are Dvara KGFS only customers, because of the remote nature in which we operate, no one else is serving them. The kind of products we offer to them are loan products which are the standard MFI products. We also offer savings instruments, insurance & pension products, and payment products. We don’t randomly sell and it has to be in accordance with the Dvara KGFS financial well-being report.
Q. How are you leveraging technology while working in the rural or agriculture space?
A. We have two fintech companies focused on the agriculture space. Dvara E-Dairy operates in the dairy segment while Dvara E-Registry is for small farmers. The dairy segment is a very interesting segment. All lending and insurance companies need the cows to be identified for which RFID’s are used, which is not completely foolproof and can be easily tampered with.
Using artificial intelligence, we have created an Aadhaar equivalent for cows. Our hypothesis was that the nose of the cow, which is called the muzzle, is a unique footprint of that cow. We created an artificial intelligence-driven mobile application that captures the muzzle images, matches them with the unique digital identity stored in a secured cloud server and retrieves the information required in less than a minute. We have partnered with IFFCO Tokio, ICICI Lombard, Jana Small Finance Bank and are in advance talks with other large lenders and insurance companies to provide this service.
Meanwhile, Dvara E-Registry has developed a mobile and web-based platform called Doordrishti, which allows farmers, FPOs and partner institutions to leverage traditional and alternative data to digitise farmer and FPO lands, business activity and provide them farm and crop-specific products and services.
The Small Farmers' Agri-Business Consortium (SFAC), which is promoted by the Ministry of Agriculture and Farmer Welfare, has empanelled Dvara Trust as a Cluster-Based Business Organisation (CBBO) to form Farmer Producer Organisations (FPOs) as part of the central sector scheme. As a result of this empanelment, Dvara E-Registry will create FPOs in Maharashtra and in Rajasthan.
Q. It is often said rural households are very prompt and very responsible when it comes to repayment. Has that changed during the pandemic?
A. Correct. Though these are poor households they are extremely prompt in repayment of loans. Our average credit cost pre-pandemic was less than one per cent. That means our default rate, the NPA rate pre-pandemic was less than one per cent. We used to traditionally have 99.5 per cent collection efficiency.
The pandemic has changed that equation a bit and our default rates went up slightly above 10 per cent. But they are now beginning to stabilise. Our regular collections have once again reached 98 per cent collection efficiency.
We have restructured some loans in line with the RBI’s restructuring guidelines. Those households will take maybe a year or so to repay the few EMIs that have become outstanding over the last 12 months. But on an ongoing basis, we are already at 98 per cent collection efficiency, which is phenomenal, given the situation.
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