Five women stand together so one of them gets a loan to buy a cow. In time, the woman who buys the cow pays back the money by 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 -- and ready to buy a retirement plan.
This scenario makes many banks and insurance companies believe that the self-help group-led penetration of the rural market will be the 'next big wave.'
Anil Bhatia, a general manager leading the alternate channels of sales at ING Vysya Life Insurance Company here said, "Over the next five years, you will hear a lot about the rural market. The early nineties were a great time for companies such as Hindustan Lever to sell in the villages. Perhaps 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 multinational insurance companies, non-banking finance companies and a host of goody-two-shoes NGOs. And industry lobbies such as 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 villagers saved "a healthy 30 per cent" of their incomes and that awareness of life insurance was "near universal."
Some 51 per cent of 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 the Andhra Pradesh regions of Sanga Reddy, Nalgonda, Medak, Sadashivpet and Nakrekal.
A majority of respondents -- 95 per cent -- didn't have life insurance, with 70 per cent because 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 staff said.
The insurer also spoke to more affluent farmers who didn't need SKS' help. Between 30-40 per cent of those farmers had insurance but for 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 and SKS have struck a distribution tie up that aims to sell life insurance 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.
Banking industry sources working in the micro finance area in Andhra Pradesh said: "A year back, SKS had come to us for some money but we couldn't help them. But, now things seem to be looking up as Vinod Khosla is expected to invest in them. They have completed their due diligence and Khosla is shortly expected to put in the money."
SKS' staff would function as insurance advisors and INGVL was targeting the top 10 per cent of some three lakh villagers that the micro-finance institution wants to reach by 2008.
"The women (SKS loans are given onlt to women) 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.
INGVL isn't the only one. Conservative public sector banks are in on the act too. Canara Bank annnouced this week, it aimed to disburse some Rs 400 crore (Rs 4 billion), 'credit-linking' 100,000 self help groups (SHG) in the 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 non government organisations working with the SHG. Canara Bank's total disbursement to the groups was about Rs 170 crore (Rs 1.70 billion), today, with outstanding loans of between Rs 80 crore (Rs 800 million) and Rs 90 crore (Rs 900 million).
Rural lending would continue to be a significant part of the bank's business, the officials said. Of the bank's 2500 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, as part of the "priority sector lending" that state owned banks do.
FICCI is just wrapping up a second study that looks at how kiosks, such as ITC's e-chaupals, and other information technology tools can aid selling financial services in the villages.
The e-chaupals have also tied up with Aviva Life Insurance Company, in a pilot funded by DFID, a United Kingdom government agency for development programmes worldwide.
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 body, 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 again in the interest of the customer!"
