Five women stand together so one of them gets a loan to buy a cow. Over time the woman pays back the money, selling milk, and is ready for a second cow with a little financial help.
In a few years she has become, with four or five cows, the rural equivalent of the urban middle class. She is ready to buy a retirement plan.
This scenario is so attractive that many banks and insurance companies believe the self-help group-led penetration of the rural market will be the "next big wave".
Anil Bhatia, director-sales at the ATM maker NCR, till recently a general manager leading alternate channels of sales at ING Vysya Life Insurance Company said, "Over the next five years you will hear a lot about the rural market. The early '90s were a great time for companies like Hindustan Lever to sell in the villages. Now the financial services sector is at the same stage, poised for aggressive growth in the rural market."
In the fray are public and private sector banks, large multi-national insurance companies, non-banking finance companies and a host of goody-two-shoes NGOs. Industry lobbies like the Federation of Indian Chambers of Commerce and Industry are excited about the 124 million rural households, a potential market, a fifth of whom own Kisan Credit Cards.
FICCI collaborated with INGVL on a survey that found that the villagers saved "a healthy 30 per cent" of their incomes and that awareness of life insurance was "near universal". Some 51 per cent of the 1,200 respondents, from parts of Uttar Pradesh and Andhra Pradesh, wanted to buy life insurance, the survey found.
In a smaller survey, INGVL's staff polled a sample of some 160 people who had taken loans from Swayam Krishi Sangam, a micro-finance institution in Sanga Reddy, Nalgonda, Medak, Sadashivpet and Nakrekal.
About 95 per cent of the respondents, didn't have life insurance, with 70 per cent saying they didn't have information. The rest thought "it was only a death benefit" and so hadn't been interested. But, "when the benefits were explained, 80 per cent wanted to buy life insurance policies." The goodwill that SKS had also helped, ING officials said.
The insurer also spoke to more affluent farmers who didn't need help from micro-finance institutions. Between 30 per cent and 40 per cent of those farmers had insurance but of smaller sums, and 60 per cent of them were willing to spend up to Rs 6,000 a year as life insurance premia, the staff found.
INGVL was in advanced talks with SKS on a distribution tie up that aims to sell policies to some 30,000 rural customers by 2008. Started in 1998 as a not-for-profit trust, SKS is in the process of transforming itself into a non-banking finance company, which makes it easier for it to raise money.
Industry sources working in the micro-finance area in Andhra Pradesh told Business Standard, "Things seem to be looking up as Vinod Khosla is expected to invest in them (SKS). They have completed their due diligence and Khosla is shortly expected to put in the money."
If the tie-up went through, SKS's staff will function as insurance advisors and INGVL was targetting the top 10 per cent of some 300,000 villagers the micro-finance institution wants to reach by 2008.
"The women (SKS loans are given to women only) will be those already the rural equivalent of the urban middle class." INGVL aims to sell them Saphal Jeevan, an over-the-counter product that requires a premium of Rs 4,000 a year, with no medical underwriting.
ING isn't the only one. Public sector banks and insurance firms are in on the act too. Bangalore-based Canara Bank announced earlier this month it aimed to disburse some Rs 400 crore (Rs 4 billion), "credit-linking" 1,00,000 self-help groups in villages. The bank aimed to meet that target by July 6 next year, when its centenary year ends, the bank said.
To kick off the initiative, the bank organised a "mela" in Sonahallipura, near Hoskote taluk in Bangalore rural district, where it disbursed loans totalling some Rs 7 crore (Rs 70 million) to 1,100 SHG.
The bank has a 3-acre training centre in the village to train NGOs working with the SHG. Canara Bank's total disbursement to the groups was about Rs 170 crore (Rs 1.7 billion), today, with outstanding loans of between Rs 80 crore (RS 800 million) and Rs 90 crore (Rs 900 million).
Rural lending will continue to be a significant part of the bank's business, the officials said. Of the bank's 2,500 branches, 1,400 were rural and semi-urban that lent some Rs 5,000 crore (Rs 50 billion) of agriculture credit in the 10 months to January 2005.
This was part of the "priority sector lending" state-owned banks do. LIC has a tie-up with Share Micro Finance, and private life insurer Aviva has tied up with another NGO in AP, BASIX.
FICCI is just wrapping up a second study that looks at how kiosks, such as ITC's e-chaupals, and other IT tools can aid selling financial services in the villages.
ITC's village kiosks, e-chaupals, have also tied up with Aviva in a pilot funded by the department for funding international development, a United Kingdom government agency.
FICCI's report may add glamour to kiosks, but people like Khosla have bet more on the ability of the village women to pay back, with interest, what they borrowed. Canara Bank and INGVL are doing the same.
The watchdog, Insurance Regulatory and Development Authority could help, says Bhatia, by removing restrictions on a bank from selling products of more than one company.
"In Korea, for instance, the regulator stipulates that no more than 50 per cent of all insurance a bank sells can be from the same insurer, in the interest of the customer!"
