Customer Retention - Rationally unpredictable?

Sona, the Customer Service Representative wore an appropriately contrite expression on her face as she helped me fill out the Account Closure form.  Her name was in resonance with my amused reflection of the state of affairs I found myself in - an old Ajit (Hindi villain) joke - "Usko liquid oxygen mein duba dho, taaki liquid usay jeene nahin dega, aur oxygen usay marne nahin dega" (Drown him in liquid oxygen -- the liquid will not let him live, and the oxygen will not let him die)!  The Bank had just sent me their second reminder to pay my credit card dues; but had cleverly blocked me from carrying out any operations on my account! And then charged me interest and late fees for non-payment of credit card dues!!!
Reason for blocking the payment: Err  9999!  (How informative) After calling up a Contact Center and lengthy explanations, I found out that Err 9999 was non-submission of KYC forms!  They can reach me on my mobile, send emails, even letters to my residence...call me at odd hours of the day with cross-sell and up-sell promotions!  Yet, they do not know their customer!!! And the irony of it all -  they have on their records that they did indeed collect that form from me!!!

I was reminded of a recent conversation with a friend about the next big challenge for Financial Services and Telecom companies - how do they predict which customer will stay with them...and who will they lose!  A corollary to this : Do these companies have the intelligence or the knowledge to deal with this.

Would every customer who has gone through the experience that I did, go on to take the extreme action of closing their account with the bank?  Probably not.  At least, not the ones who have a salary account, or someone who has taken a loan.  Nothing in the bank's response to this situation seemed to suggest that they would have acted any differently with any customer.  The responses were pretty standard! A feeble attempt to retain the customer...followed by an attempt to show their concern for customers by making the exit as pleasant as possible.  However, in the present case, even that miserably failed!  Apparently, you cannot close an account even, if the KYC formalities are not completed!  "The case has an identified risk against the account"  - please resolve it the CSR was informed by the teller!  Wow! That's very sensitive - the customer becomes a "case"!  The Bank's got my money...and I become a "Risk" to them!  :-)

I wonder if the bank has any kind of intelligence that alerts them to:
a) Accounts where KYC norms have not been completed
b) Transactions which are likely to fail on account of (a)

Do they have the processes that:
a) Do not permit the transaction to be entered even (why allow it to be entered and then cause it to fail)
b) Allow their systems to generate Error codes that customers can understand

Do they have the knowledge base that:
a) Lets CSRs know that you cannot close an account if it is not KYC compliant
b) Train CSRs identify problem customers and resolve the issue before it escalates.

A customer-oriented bank would have definitely taken the trouble to alert the customer of this situation and quickly stepped in to resolve the situation.  Strangely enough, a PSU bank with which I have an account had the sense to do it...no fancy information systems here...just plain only customer-friendly face-to-face banking!  Rao, the factotum, who has been with the branch for over twenty years, seems to have a mental checklist for all the customers who walk in.  It's not his job, but he seemed to know that there was something pending against my account, and quickly brought me a form, when he saw me walking into the bank.  As he seemed to know that there was a tax form that needed to be given to another customer as she walked in.  I wonder, if this bank will also fall into the same rut, as the more fancy multi-national bank when Rao retires!!! They have already implemented a core banking solution... the first step to losing touch with the customer!

I think it ultimately boils down to a "people" or "process" failure.  If the knowledge systems are wired to identify the information links that can lead them to these "points of failure" early enough, customer satisfaction will go up, revenue generation opportunities will not be lost.  The bank not have had to go with one customer less if their system had not let me schedule a transaction which they would disallow later on; or  kept me informed about it.  They still might have managed to retain a customer, even if this account closure had gone through smoothly! The CSR was not knowledgeable about her own internal processes!  You can be sure I'm going to terminate my credit card account too!

Question: How can you predict customer retention?  Some customers like to be informed of new products.  Others can get pretty upset by these unnecessary interruptions.  Some customers will stay on, if they are just left to themselves, others want to be wooed.  How can marketing intelligence predict what customer needs the kid gloves...and which one needs to be ignored...so as to be able to retain them?

ICOMFI 2011 - Pondicherry University

The International Conference on Microfinance has become a regular fixture of the Pondicherry University calendar.  And it was successfully held for the fourth successive year from 27^th to 29^th of January, 2011, this year.  The conference organizers have been zealously endeavoring to make this truly international in flavor and content. Backed by able support from JAK Tareen, the Vice-Chancellor, the highlight of this year’s conference was the inaugural issue of an International Journal on Microfinance Research.  The Vice Chancellor has also promised support in setting up a Center for Microfinance Research.  Hopefully, these initiatives will make subsequent conferences a lot more useful to researchers, academicians and the industry.

A very curious phenomenon that was witnessed this year was a conspicuous absence of sponsors for the event.  Barring NABARD and Indian Bank who have been loyal supporters of this event year after year, it was quite strange to see that the entire place was bereft of banners and hoardings, one usually associates with conferences.  One wonders whether this was by design or a curious case of a combination of delayed impact of the recession combined with the turmoil this sector has been going through since November, 2010. 

Having organized three editions prior to getting here, perhaps I had set my bar a little too high, from a content-perspective; I was clearly disappointed.  While the thrust of the discussions, Financial Inclusion and Financial Literacy by itself, was a little too broad, the content and the topics discussed were even more unimaginative.  While most panelists were eminent people with several years of experience in the sector, it seemed that they were all from the same school of thought – a recipe guaranteed to kill even a soupcon of debate.  It would have been interesting to have had someone from an opposing school of thought – one that would have provoked a discussion, or even some serious interaction among the audience.   What made the proceedings even more monotonous was the presence of the same set of panelists who came up on stage to speak about practically the same subject, albeit with different headings…if one was titled Self Help Groups and Financial Inclusion, the other Financial Literacy and SHG…the same content got repeated with varying degrees of verbosity…ad nauseum.

Clearly, one area which we will definitely expect to see a quantum improvement in the following years will be the Technical Sessions.  For an international conference in which the accepted papers get published as a book volume (with an ISBN), one might expect a much higher standard of research papers.  Instead, it was quite disappointing to see blatant plagiarism, meaningless surveys, poorly formulated hypotheses and unconvincing data models pass for research.  In a sense this highlights one of the serious flaws of our academic institutions – the poor quality of research.  One hopes that such papers do not get into the International Journal of Microfinance Research.  And one fervently hopes that the setting up of a Center for Microfinance Research will allow for more serious research to take place in this Central University.

Perhaps, the best part of this conference for me was Dr. Detlev Holloh’s inaugural speech.  Dr. Holloh, Director, GIZ, in his speech laced with references to Mahatma Gandhi, Vinobha Bhave and the Sarvodaya movement, showed he was more in touch with agrarian rustic India than several of his Indian peers.  If his dissection of the problem was scientific, the proposed solution seemed almost too obvious.  One sincerely hopes that his fervent plea to strengthen the agricultural sector will be heard by the policy makers and that a more holistic program shall emerge which will allow the resurgence of microfinance as a poverty alleviation device – one that can be truly self-sustainable.

I had a good time. I only wished I had also learned something more.

Microfinance maladies

For the last few weeks, Microfinance Institutions have been a very worried lot. Whereas the Draft Bill seeking regulation of Microfinance Sector as a whole has been awaiting approval, the Andhra Pradesh government quite expeditiously passed an ordinance last week clipping the wings of Microfinance Institutions and their free run on the monies of the poor.

yada yada hi dharmasya
glanir bhavati bharata
abhyutthanam adharmasya
tadatmanam srjamy aham
(http://www.asitis.com/4/7.html)

While this might be quite inappropriate considering that I am referring to the government taking action, it still holds good that you cannot ignore this malaise forever. If the MFIs have not learnt their lesson from the 2006 fiasco  (http://bit.ly/dEOGMG), then they deserve what they are getting now. These organizations have had sufficient warning and time to mend their ways and become organized. However, from the recent debacle it is quite clear that they actually got complacent and dropped their guard once the storm had blown away. While some very genuine companies have also been impacted by the recent legislation, it is quite clear that as a fraternity, they have failed to create sufficient self-regulation to substantiate their bona fides.


Regulation cannot be selectively applied. Unfortunately, it is the Lowest Common Denominator principle that will be applied, and therefore impact evens those with good intentions. Equitas, (http://www.equitas.in/Transparency.html) for example, is one such company that claims to print its all-inclusive interest rate on every member's passbook. I am sure there are other MFIs, especially the larger ones, that have similar fair practices embedded as part of their operational practice. As has been the claim by most of these players, it is probably a few "fly-by-night operators" who have seen this as an opportunity to make a quick buck that have caused everyone to be painted with the same brush.

What has surprised me though, is the extreme reaction that we have been reading in the press in response to the legislation. When one is used to a free run of the place, any kind of regulation is likely to seem quite draconian. And this ordinance has been no exception. What is surprising though is the way the markets and the entire industry have reacted to this. One would imagine that Andhra Pradesh is the only state with a significant number of people who are below the poverty line, or otherwise disadvantaged, and therefore in need of financial assistance. On the other hand, if one were to take a more cynical view, the poor of this region have been the most gullible, waiting-to-be-exploited populace in the country, and for those in the business of exploiting them, it has come as a rude shock to see their wings being clipped. And it may well seem the case, going by NABARD's State of the Sector Report – 2009-10.

One of the short-comings clearly pointed out by the ACCESS State of the Sector Report 2009 has been the unequal growth of microfinance with the southern part of the country being an extremely good marketplace while the rest of the country is relatively under-served. I will probably comment more about this, in another post later. Coming back to the present malaise, this clearly reflects a case for

A) Implementing mechanisms for measuring and reporting Social Performance
B) Implementing effective process and systems to reduce costs and increase productivity of personnel deployed

Here again, while some of the larger MFIs have implemented automation with varying degrees of success, integrating this into the overall business operations for Business Intelligence and Social Performance Management has been something that has been quite low key in these implementations. In the absence of reliable and auditable data based on which regulation and compliance can be monitored, these MFIs are left to the perceived whims of the regulators who will perforce adopt a path that will seem draconian and make it appear quite unviable for the industry as a whole to operate. The sooner these organizations realize this and put mechanisms in place to address this issue, the better. Otherwise, one of the tools that was once touted as the panacea for what ails the unbanked will slip into oblivion. The unbanked and under-banked shall be left to the mercy of the government-run Cooperative Banks, Rural Banks and other credit societies. And those who cannot get credit from there, will go back to the unfriendly-neighborhood moneylenders. The wheel would have turned full circle.

We do hope that the dawn of the new decade will also see some concrete action from the Government, one especially, being passing of a much-delayed Microfinance Bill. We will also likely witness a shake-out and eventual consolidation of the MF sector, which we hope will augur well for all – especially those that were intended to be served in the first place.

Best wishes for a peaceful and prosperous 2011 to one and all.

"Sarve Bhavantu Sukinah"
Let there be happiness with everyone and everywhere.

ICOMF10 – International Conference on Microfinance, Pondicherry, 2010

This year the Third International Conference on Microfinance organized by Pondicherry University was held from the 22nd to 24th January, 2010.  The conference was well attended with several delegates and participants from all over the country landing up in this lovely little coastal town for the three-day jamboree.  The highlight of the event though, was the innovative approach of integrating self-help groups and small local microfinance institutions into the mainstream conference. Not only were site visits organized to enable participants to observe first-hand the activities of the local microfinance institutions, but more importantly, the third day was almost entirely devoted to very close interaction with the local self-help groups and microfinance institutions.  This session was primarily intended to provide academicians with a ringside view of the world of microfinance and give an opportunity to the Self-Help Groups (SHG) to voice their views and opinions on their real issues.



In a sense, the concept of an integrated approach seemed to be the theme around which the entire conference seems to have organized itself.  In fact, during the inaugural session one of the keynote speakers came up with the A+B+C+D+E (Academician + Bureaucrat + Credit Agency + Development Agency + Entrepreneur) formula for successful microfinance;  and quite coincidentally, it was this combination of these five important players throughout the conference that lend the entire proceedings its charm.  This was also quite evident in the academic discussions (paper presentations), panel discussions inter alia on capacity building, skill development, innovation, technology and self-help groups; the icing on the cake was the site visits and the presentations by SHGs and local microfinance institutions.



One recurrent theme that evidenced itself, albeit in different forms, was the need for an integrated approach to dealing with the core objective of financial inclusion and poverty alleviation.  Whether it was with skill development, capacity building, or the status of the SHG-Bank-Linkage program, it occurred to me that Microfinance had reached the next level of maturity, where it was now essential to go beyond the usual rhetoric of recovery rates and outreach, and look at the more fundamental issue of financial inclusion from a perspective of poverty alleviation.



The integrated approach to inclusive growth is a theme I would like to explore. I welcome feedback / inputs from readers on this subject; I hope to be writing a little more about this as my experience with the subject grows.


 

Social Performance and Source of funds

Is " For-profit Microfinance Institution" ethical? A completely new perspective on "What is the morally (read ethically) correct interest rate to be charged" has emerged ever since an increasing number of researchers have started looking at this aspect of Microfinance. However, as a friend recently commented – there are far more people out there looking to make a buck than in trying to make a difference. And more importantly, it seems quite fashionable to be involved in microfinance, in one way or the other. The moot question really is "Are we making a difference to the lives of the poor?" Is that one of the objectives, in the first place!

I just happened upon a document on the CGAP.org website which listed about eleven key principles of microfinance (http://www.cgap.org/gm/document-1.9.2746/donorguidelines.pdf) endorsed by the G8 countries. Key among the principles is one that reads:

Microfinance can pay for itself, and must do so if it is to reach very large numbers of poor people. Unless microfinance providers charge enough to cover their costs, they will always be limited by the scarce and uncertain supply of subsidies from donors and governments.

So, this is clearly a very overt statement that it is ethical and in fact very necessary to charge interest rates that will allow MFIs to cover their costs.

However, I think the more fundamental question is "Irrespective of the model, are we in any way alleviating poverty…or at least making progress in that direction". I think there are enough stories to provide evidence that microfinance has made a difference in the lives of many people. I think it is reasonable that given access to financial services (primarily credit), an industrious person will have the means to haul himself out of poverty…and on the road to progress. I don't have the data to suggest that a majority of the people do so. In fact, I think there has been so much emphasis on making this a commercially viable proposition, that there is more data collected on the number of outstanding loans, repayment rates, and amount of loan disbursed and other financial metrics that lends credence to the growth and profitability of microfinance institutions. There is far less data is available on current poverty levels, the extent of poverty alleviation that has actually happened or the number of people for whom this has become a means of sustainable livelihood. We do have recent surveys on Progress-out-of-Poverty Index (PPI), CERISE, and USAID coming up with social performance audits and means for tracking social performance. Nevertheless, I think that funding available to carry out such surveys in a more rigorous manner, as well as the initiative by MFIs to monitor progress of their social missions have been found wanting.

So, is there a role for Donor organizations in the face of increasing commercialization of Microfinance? Or should Microfinance be predominantly a donor-led activity to ensure that we do not drift away from our social missions? I would like to imagine that both can and should co-exist. In fact, the Key Principles of Microfinance lays out the roles very nicely:

Donor funds should complement private capital, not compete with it. Donors should use appropriate grant, loan, and equity instruments on a temporary basis to build the institutional capacity of financial providers, develop support infrastructure, and support experimental services and products.



When this is combined by strong government policy, which brings microfinance into the mainstream of financial policy, then we are likely to see overall development and growth. Donor funds will then be able to find its way into development and infrastructure-related projects – those that are in alignment with the Millennium Development Goals – especially in the area of health, education, low-cost housing and sanitation. When the basic infrastructure is in place, I think we will begin to see quantum leaps in social performance and poverty alleviation. In such a scenario we will see a clear distinction of use of funds based on the source of capital, and a harmonious coexistence of both forms of microfinance.

Is Content really King? Then Long Live Google!

At a recent discussion on Learning innovations, the favourite topic turned out to be eLearning.  What was interesting though was the attempt by more than one speaker to capture the classroom experience and bring it online.  The lecture was largely attended by lecturers – mostly the arts and science colleges.  It seemed like the whole discussion, for them, was zillions of miles away from their reality. 

In an era where the student is perhaps more clued in to what’s happening around the world, the teacher will look woefully out-dated.  They seem quite out of touch with the progress that’s happening in their own sphere of competence.  This is one instance where the old adage “Content is King” has been dethroned.  The new era demands that the teacher is able to reinvent himself and create pedagogical constructs that puts the content in the right context. 

“Koshwan Acharya” (The one with the book is the teacher) is out.  Google has replaced the book.  The teacher will have to become a facilitator – bringing the appropriate pedagogy into play to make the content relevant and transform it into knowledge. 

On a related note, ( pkmadhu's post) talks about the huge opportunity in the content development space.   For this to become a really huge opportunity, I think the learning context needs to change.  Can Kindle replace today’s textbooks?  Is that again the right approach.  IMHO, that again is just one more way of recreating the old paradigm in the new world. 

If the Gutenberg press was in a big way responsible for changing teaching methods, moving it away from the spoken word to the written and read medium, and in the process also making it available to the masses (and not restricted to the elite few), I wonder what will drive the next revolution in teaching.

Any bold predictions?

Technorati Tags: eLearning,Knowledge Management,Content Development,pkmadhu,KenQuest

In search of profitable motor insurance portfolios

"Motor insurers must manage their insurance portfolios in a sound, fair and sustainable way without resorting to pricing wars so as to ensure a profitable class of business." This seemed to be the refrain of industry leaders at the inaugural Asian Motor Insurance and Claims Management Conference, held last week in Singapore. 

How do you get insurers to agree when the market conditions do not permit premiums to have a direct correlation to the risk involved.  On the one hand there is a very powerful truck operators lobby which can influence premiums and on the other hand there is very lax traffic enforcement.  The absence of a handshake between traffic enforcement department and insurance companies leave both parties without sufficient data to make informed decisions on how to improve road safety and reduce accidents (reduce claims).

I think this has especially great relevance in India, where any initiative in this direction can have a huge impact, not just for the insurance company, but also for the overall economy itself! It may sound quite strange, but I am saying this more from the perspective of a road-user than that of an insurance company.

The basic premise for this, of course, is that traffic violation data (or rather the regulation of it) will have to be tightly integrated into insurance premium and claims. To start with, we will need to be able to integrate insurance data with traffic violations data. For example, if insurance companies had access to data on traffic violations, it would be possible to increase premiums for such vehicles / people. The stick of huge premiums has been successfully implemented as a deterrent elsewhere in the world, and can hopefully be emulated here too. At the same time, if may be required to offer the carrot to the enforces of traffic regulation, by offering them commissions for formally booking traffic offences so that we get a more realistic picture of the actual violations happening in the country.

It is also by strange coincidence that I came across two companies that were implementing some systems – one for insurance companies that provided data to the traffic police department (in Abu Dhabi) and the other which was implementing a system which would enable traffic regulators to identify vulnerable spots in the city where incidents of accidents were higher. This, I thought, was especially useful information that when integrated with insurance applications would enable the implementation of insurance-on-demand and pay-as-you-drive modes. For example, a vehicle that used a more accident-prone route was more likely to be charged with a higher deductible, as opposed to one who used less congested routes.

A combination of the two solutions would be a potent tool for increasing road safety. While one the one hand, it will likely reduce the number of accidents, on the other will increase revenues for insurance companies. A part of this revenue can actually be allocated to improving road conditions and implementing safety standards.

Unfortunately, in India (perhaps that is the case all over) traffic police departments are a state subject. It will be required to evolve a common standard for transfer of data so that irrespective of the systems being used, it will be possible for traffic departments and motor insurance companies to exchange data. It will probably work best if the regulator (IRDA, in this case) is entrusted with the responsibility of developing a standard for information exchange. This will ensure that both insurance companies and traffic departments can follow a standard method of exchanging data to enhance compliance.

I wonder if there is an existing model anywhere that can be adapted for Indian conditions!