Comat Technologies: Leveraging a Rural Network to Promote Financial InclusionPublished: March 10, 2011 in India Knowledge@Wharton
In Devanahalli, on the outskirts of Bangalore in the Southern state of Karnataka, is a small and unremarkable rural business center. Barely around 200 square feet in size and manned by a single operator, it has two computers, a printer, a scanner, a biometric device and an uninterrupted power supply system. Nondescript as it is, this center attracts a steady stream of villagers throughout the day. They come here to get a copy of their land records and various certificates pertaining to caste, birth, death and income, and also to avail of government services like pension and family benefits -- all at a payment of Rs15 (approximately 33 cents) per transaction.
Throughout Karnataka, there are around 800 such rural business centers. Called the Nemmadi Kendras (Nemmadi means "peace of mind" in the state language, Kannada, and Kendras mean "centers"), these sites are owned and operated by Bangalore-based social enterprise and e-governance firm Comat Technologies. Team Comat, which up to now has been focusing on the last mile connectivity to provide rural citizens with access to services and information, is now gearing up for a huge leap forward, in the area of financial inclusion. With this, visitors at the centers will soon be able to use another facility -- a financial inclusion card.
The impetus for this has come from Comat becoming an empanelled partner of the government's Unique Identification (UID) program, which aims to provide unique identification numbers to all Indian citizens. Apart from laying the foundation to re-engineer the delivery of public services, the UID program is also focusing on financial inclusion as a key area, and Comat wants to capitalize on this. Until now, one key deterrent to opening a bank account for many economically challenged Indians has been the lack of adequate proof of residence and other identification documents like a passport, driving license and election identification card. The UID number is expected make this process easier.
"As an empanelled agency of the Unique Identification Authority of India (UIDAI), we believe that we will be able to enroll millions of people, the majority of who are unbanked," says Comat co-founder Ravi Rangan. "Financial inclusion is a natural extension of our service offerings, and we believe that it will add sustainability to our rural business center model."
To make this goal a reality, Comat, whose investors include Omidyar Networks and Elevar Equity, has recently brought in a new investor, Chennai-based Commonwealth Inclusive Growth Services (CIGS). A partner organization of the U.K.-headquartered Commonwealth Business Council (CBC), whose charter is to bring private sector investments into socially relevant and economically viable projects, CIGS was formed in India in 2008 with investments from the CBC and high-net worth individuals. It currently has a corpus of US$20 million.
"Our vision at CIGS is to bring the unbanked in India into the banking fold by leveraging technology and innovative business models. The UID-linked financial inclusion will be a main thrust for us," notes Mahesh Ramachandran, co-founder and CEO of CIGS. Ramachandran was an advisor to the CBC and director in some its initiatives in Africa before setting up CIGS.
A Card for Financial Inclusion
In October 2009, CIGS launched a financial inclusion card branded as the Commonwealth Card in a pilot project in Tamil Nadu in partnership with the Union Bank of India. The Commonwealth card can be used for banking transactions such as cash withdrawals, deposits, funds transfers, balance inquiry, and so on. It can also be used for buying goods at merchant establishments and paying utility bills. The card further entitles customers to benefits including discounts and loyalty points. The Commonwealth Card was launched by former Indian President A.P.J. Abdul Kalam. During the launch, Kalam said initiatives such as the Commonwealth Card "should act as the catalyst in benefitting people by creating a cashless socio-economic fabric."
For Comat, CIGS brings in multiple strengths: financial backing, the equity of the Commonwealth brand, a financial inclusion offering and the learnings of the parent organization. Apart from adding financial inclusion to its portfolio, Comat will also be using investments from CIGS to strengthen the company's existing operations.
Gopal Naik, professor of economics and social sciences at the Indian Institute of Management, Bangalore (IIMB), sees this as a positive move. "Companies addressing rural needs can sometimes be constrained because of their size and bandwidth, especially by way of identifying and designing new services, and also on the softer aspects of service delivery. Fresh investments, and from an inclusive orientation, will certainly be an advantage."
For CIGS, Comat offers a ready channel to reach a large rural population and to acquire customers for its financial inclusion card. For one, Comat's network of rural business centers attracts around 50,000 to 70,000 visitors daily. Two, as an UID empanelled partner, it expects to enroll more than 5 million people by the end of this year and around 30 million people over the next few years. With a recent RBI regulation allowing for-profit organizations to function as business correspondents (BCs) -- agents engaged by banks for providing banking services at locations other than bank branches and ATMs -- Comat can now also function as a BC.
Working for the Government
Comat has a sound track record of delivering digitized services to citizens. The company was co-founded by two engineers, Ravi Rangan and Sriram Raghavan, in the early 1990s and started life much like any other IT services company. In the mid-1990s, the duo bagged their first government contract: to issue election identity cards. Over a period of 12 years, Comat has issued over 10 million election identity cards across nine states in the country. In 1999, the company worked with the revenue department of the state government of Karnataka in the landmark Bhoomi project, which aimed to digitize land records and manage and deliver them online. Between 1999 and 2003, Comat digitized around 20 million land records for more than 6 million farmers in the state.
In 2006, Comat won another ambitious government project, this time from the Karnataka government's food and civil supplies department to digitize ration cards (the cards issued by the government to distribute subsidized food grains to economically deprived citizens.) Called Akshaya, this program is the first of its kind by any state government. "The idea is to use technology to improve the efficiency of food grain distribution, arrest leakages in the system and also eliminate any fraud and duplication," according to H.R. Srinivas, commissioner, food and civil supplies. Till now, Comat has delivered around 7.2 million digitized ration cards in the state. "Given the scale and the complexity of this task, Comat has done a commendable job," says Srinivas.
Scale and reach is in fact what attracted the Comat co-founders to set up the rural business centers in Karnataka to offer government-to-citizen services. "We wanted to make a difference to society, and we realized that working with the government would give us a huge opportunity to reach the masses and make a significant impact," notes co-founder Raghavan, who is now an advisor the company.
The idea for the RBCs came after Comat had completed the digitization of the land records. Post digitization, Comat was given a one-year contract to deliver the digitized records to the citizens from 177 government-owned centers at the taluk level. (A state is divided into districts. Each district is further divided into taluks. Taluks are then divided into blocks, which in turn are divided into villages.) After the first year, the government took over the delivery. But it soon found that though the digitization itself was very successful, there were two limitations to the project. One, since it was being delivered only at the taluk level, villagers had to travel long distances to avail of the service. Two, being run by government employees meant that speed and efficiency were often compromised.
"We proposed [to the revenue department] that the delivery of the Bhoomi records be outsourced on a revenue sharing basis," recalls Raghavan. Comat got the go ahead but with a caveat -- the company had to deliver the Bhoomi services at the block level also. Delivering only the land records was financially unviable for Comat, so the government agreed to offer other services through the Comat centers, such as the delivery of caste certificates, birth and death certificates, and income certificates.
At present, there are around 40 services being offered at these centers, which are connected to the state data center that hosts all the information. Any change, either by way of information or entitlements in any of the various certificates or benefits, is done only by the authorized government agencies. What Comat does is the delivery of the same. The process ensures speed, transparency and authenticity.
'A Strong Impact'
A recent audit conducted by the Karnataka State Planning Board rates Comat's Nemmadi Kendras as being the best public service delivery organization in the state. According to the report, "most of the users (91%) in the state were completely satisfied with the services provided at the Nemmadi Kendras. The response for the rest of the services for complete satisfaction was in the range of 59% and 76%, the lowest for the pension schemes and the highest for the government high schools." The findings of the audit were presented by Sanjiv Kumar, principal secretary of the planning and statistics department, to the state chief minister, B.S. Yeddyurappa.
"Comat has certainly created a strong impact with its rural business centers," says Jayant Sinha, managing director of the India arm of the philanthropic investment firm Omidyar Network. In 2008, Omidyar invested US$9.36 million in Comat. It was the firm's first investment in the country. "Our criteria for investment are innovation, scalable technology platform and the ability to impact the base of the pyramid. Comat fits all of these," notes Sinha.
Comat's co-founders believe that if the government had been more supportive, the company's RBCs could have had an even greater impact. "There are 200 services that the Karnataka government had initially promised us. Of these, we have got only 40 up to now. A larger portfolio of offerings would bring in more customers," says Raghavan. "The government's stated obligations have not been met," adds Rangan.
A couple of years ago, Comat had entered into public-private partnerships with a few other state governments also as part of the central government's common service centre project laid down under the national e-governance plan. However, Comat pulled out of this project for lack of support from the respective state governments and decided to focus on their RBCs in Karnataka.
"One of the problems with the government is lack of coordination between the various departments," according to IIMB's Naik. "Today, individual departments are trying to reach the rural areas, but they have difficulties by way of getting good people and also managing the technologies. This has to be a core issue that the government has to discuss at a very high level," Though the government is sometimes wary of partnering with small companies because of credibility issues, "we need an industry body that can lay down some standards and norm," he adds.
Expanding the Offerings
M.N. Vidyashankar, principal secretary, e-governance department, government of Karnataka, agrees that more government services need to be offered through Comat's RBCs. However, he adds that what is equally important is for these centers to offer a whole range of non-government services also. "In the Bangalore One centers [service centers in the city of Bangalore], at least 50% of the services [offered] are non-government. These include credit card payments, utility bill payments, flight and train bookings."
Comat, in fact, has been offering non-governmental services through its RBCs. These include computer-based training, life and crop insurance, mobile top ups, bus ticketing and so on. But those services account for only 10% of revenues; 90% of the revenues come from the government-related services. "Any products or services targeted at the rural consumers need to be tailored to cater to their specific needs. It is only now that private companies are looking seriously at the rural consumers and coming out with products and services specifically for them," Rangan says. "Going forward, we now plan to increase our [non-government related] service offerings." Comat customers welcome this move. "Before this center [at Devanahalli] came up, we had to travel a long distance to the taluk offices," says 65-year-old Dodda Pappaiah. "The Nemmadi Kedras has made things faster and easier for us. We will be very happy if we can come here for other services also."
Meanwhile, Comat's biggest challenge is the erratic supply of power in rural areas. Though the company has installed uninterrupted power supply systems, the battery backup is only for three to four hours. Sometimes, when there is disruption of power supply for as long as eight to 10 hours, the battery cannot be recharged. According to Vidyashankar, the only long-term solution to overcome the problem of power shortage is to supplement the grid support through solar power. "We are working towards this," he says.
Many Unknowns Moving Forward
Looking forward, Vidyashankar is of the view that Comat's plans for working toward financial inclusion with CIGS as a partner is a good fit for the company. "There are good linkages in terms of visibility and comfort factor between Comat's rural business centers, its role as an UID enrolment partner and Commonwealth's financial inclusion card." He adds a note of caution, however. "One has to see if the volumes of transactions at the Nemmadi Kendras support the investments required to be a business correspondent, and if the linkages between the two organizations translate into business benefits." Adds Sinha of Omidyar: "There are strong synergies between Comat and CIGS, but the key is in the execution. The UID-linked financial inclusion is a very new idea and there are many unknowns."
Comat and CIGS officials say they are ready for the long haul. "It is not a business you can crack in a day and requires putting together a lot of different jigsaw pieces," says Ramachandran. A key piece, he adds, is the interoperable standards that are currently being put in place by the National Payment Corporation of India and the UIDAI, which will enable transactions across multiple players like different banks and merchant establishments.Also, unlike the traditional financial inclusion model where the bank typically pays the BCs to enroll customers, the Comat-CIGS model will be a customer-pay model. "If the customer is convinced of the value and the benefit that our financial inclusion card offers, he will be willing to pay for the service," Ramachandran notes "Our pilot project has proved that this model can work and we believe this [the customer-pay model] is the most scalable and sustainable model in the long run."