Being a farmer in the developing world is a challenging business at the best of times. And although the digital revolution has provided help in myriad ways, the flood of new apps has, for many, made things more complicated than ever.
But for farmers in India there’s now a digital product that promises to help solve even that problem – by consolidating multiple digital tools under one system. Loan application, banking services, insurance crop information and a cashless bazaar are all accessible through one “smart wallet” on their handphone.
The product is part of the ESTCoop, a “digital development bank” created by Dr Sindhu Bhaskar working from the Cambridge Innovation Center at the Massachusetts Institute of Technology (MIT).
The grand vision is to take the three engines of wealth development in rural areas – agriculture, traditional rural industries, and landless labour – and add a fourth, rural bank and exchange. Bhaskar has carefully selected existing fintech startups and banking partners that can contribute the necessary infrastructure to run the rural financial products he has designed.
“We have been operating for two years now and we have 9 million customers,” says Bhaskar, “the customers have come along with the collective of fintech start-ups that have joined our ecosystem.”
A cooperative of fintech start-ups
How can a diverse ecosystem of products, each addressing a different area of fintech specialism, deliver such a comprehensive digital development bank product? Through a modular system of components.
The patchwork of fintech startups and their apps form the teams, technology stack, and customer base for the digital development bank.
A “wallet” will be run by Tramo; microloans will be provided by InfoMicroFin; other financial services will be run by Transaction Analysts, and their debt will be traded on a digital rural exchange formed by Invest19 in partnership with government bank ICICI.
While it is easy to get lost in the winding connections that link these fintech start-ups together, Bhaskar, an ex-banker, has constructed the ecosystem to deliver a complete suite of development banking services.
Each element of those services, and the technology underpinning them, is managed by the specialist startup itself, but the collective is united under ESTCoop’s own blockchain payments system, ESTPay. Thus, as customers move from one start-up fintech system to another, each transaction and movement is indelibly recorded using ESTPay’s blockchain ledger.
Development banking and the private sector
But can such private sector fintech companies provide effective services in a development context?
Yes, says Arup Kumar Chatterjee, Principal Financial Sector Specialist, Sustainable Development and Climate Change Department at the Asian Development Bank (ADB). “It is essential that the private sector is involved in development bank solutions.”
While governments are very effective at encouraging pilots, when power changes hands and priorities shift these pilots can fade away, says Chatterjee. A robust transition plan that can help the pilot progress from a government scheme to a profitable private operation implemented at scale is key.
“Any development bank must work towards financial inclusion. The financial inclusion process has been accelerated in India by the adoption of unique identity numbers linked to fingerprints for each citizen. This allows 95% of Indians access to bank accounts and mobile phone numbers.” This foundational infrastructure has opened up a new market for private fintech companies in India.
What’s next for ESTCoop’s digital development bank?
When India went into lockdown during Covid-19, 40 million migrant labourers across the country walked home, some walked thousands of miles. Once lockdown ends in India, ESTCoop has developed a product to get people back to work. Prospective migrant workers will be able to go to one of 54 centres around India run by JustRojgar.in. There they will find a job, get transport to the job’s location, and receive a 5,000-rupee loan, through Tramo, for their family living in their home village. They will even gain skills training through the Just Learn app launched by the Governor of Kerala. Once the migrant worker is earning, they will be able to send money back to their family via the Tramo app.
With private fintech companies in India stepping up to support development banking at scale, this system of fintech-enabled smart villages could play a valuable part in expanding financial inclusion and rural commerce as the country emerges from the shock of the Covid-19 lockdown.
Bhaskar’s business model is to create partnerships with banks that are already operating, so that he can operate under their license, and provide the digital development bank infrastructure for free. Customer service fees are incremental, but profits are then made based on the sheer volume of transactions.
The digital rural development bank infrastructure will be launched under the brand ‘BranchX’ later this year. Based on the successful performance of the India operation, Bhaskar has already inked agreements with global banks and exchanges around the world, which have provided the ESTCoop ecosystem with licenses to operate alongside Ecobank in Africa, and in Peru, Brazil, and Uruguay, with more to come.
