Now, VCs to invest in rural tech

Venture capitals (VC) in India, which traditionally invested in urban segments or technology sector, have begun investing in rural-centric technology firms. Avishkaar India Micro Venture Capital Fund, Acumen Fund, and Rural Innovations Network (RIN) are showing increased focus on rural markets.

A non-profit investment firm E+Co, with investments in 28 countries, plans to begin operations in India. The firm with $183 million capital mobilised and $24.6 million investment portfolio will focus on clean technology.

“India has very few funds that look at investing in rural India. But what’s heartening to see is that the sector now has a few options and entrepreneurs can approach for investment,” said Arun Natarajan, MD and CEO, Venture Intelligence.

Most of these VCs get their funding from philanthrophic activities. RIN gets funding from donors such as HIVOS, The Lemelson Foundation, Sir Dorabji Tata Trust, and The Rockefeller foundation. Whereas Google, Gates, Cisco and others form the investor base for the Acumen Fund.

Acumen India has been in the country since 2005 and has invested in 12 entrepreneurs. The focus is to fund innovative businesses that target the poor as consumers and demonstrate to the world the sustainable ways of bringing access to critical goods and services such as healthcare, water, housing and energy to low-income households.

So far, Acumen India’s total approved investment is $17.4 million.

“Our capital commitments range from $3,00,000 to $20,00,000 in equity or debt with a payback or exit in roughly five to seven years. Our average investment is about $1 million. We also do follow-on investments as our portfolio companies’ scale — leading to anywhere up to $4-5 million exposure to a given company,” said Clara Bardy, India Portfolio Associate, Acumen Fund.

October adds highest ever mobile subscribers at 10.42 million

During these times of cutbacks there's one thing which Indians are buying in abundance-mobile connections. During the month of October the country added the highest-ever addition to the mobile subscriber base at 10.42 million taking the total number of mobile users to over 325 million, according to the data released by the Telecom Regulatory Authority of India (Trai). India already has the distinction of being the world’s fastest growing telecom market.

During the month of September, the total (GSM, CDMA and WLL) addition was of 10.07 million.

However, the net addition of about 10.29 million users (wireline and wireless) during the month, could have been higher but for the decline in the landline user base. The landline wireline segment saw the subscriber base falling to 38.22 million in October from 38.35 million in September. During September the net addition stood at 9.79 million. The total number of both wireless and wireline users now stand at 363.95 million, Trai said.

With this, the overall tele-density stood at 31.50% at the end of October against 30.64% in September. The total broadband subscriber base rose to 5.05 million by the end of October 2008 from 4.90 million in September.

In terms of break-up of the mobile subscriber figures, during October the GSM players added their highest-ever addition of around 8 million taking their user base to 242 million. Projections are that by the year end the total GSM user base would stand at 250 million.

Commenting on the record growth, TV Ramachandran, director general, Cellular Operators Association of India had earlier said, “the ongoing, vibrant growth of the GSM sector that with the cumulative GSM subscribers already at an estimated 242 million in October, it is clear that the GSM sector would by itself cross the historic 250 million milestone by December 2008.”

Bharti Airtel, the country's largest telecom operator added its highest-ever 2.7 million customers during October, which is a 3.51% growth compared to the month of September. The world’s third largest in-country operator has a market share of 33.23%. It added the largest number of operators in the Rajasthan circle, adding a 350,000 subscribers during the month.

Vodafone Essar, the country's second largest GSM operator with a market share of 23.49% added around 2 million customers in the month registering a growth rate of 3.81%. The company recorded a highest addition of around 266,000 subscribers in Eastern UP circle.

The state-owned BSNL, the country's second largest telecom player with about 670,000 users, during the period registered a growth of 1.71% over the previous month. The telco has a market share of 16.5% in the GSM subscribers. Among the CDMA operators, Reliance Communications, which is the largest operator in the segment, added 1.7 million subscribers.

Fast dialling

• Total number of both wireless and wireline users now stand at 363.95 million
• With this, the overall tele-density stood at 31.50% at the end of October against 30.64% in September
• The total broadband subscriber base rose to 5.05 million by the end of October 2008 from 4.90 million in September.

60% of mobile users in rural India by ’12: E&Y

 Rural India too prefers mobile phones over landlines. Of the next 250 million Indian wireless users, approximately 100 million (40%) are likely to be from rural areas, and by 2012, rural users will account for over 60% of the total telecom subscriber base, according to a report jointly released by Confederation of Indian Industries (CII) and Ernst & Young.
    As per Trai figures, subscriber additions in rural areas exceeded additions in the metros. In the first nine months of 2008, the four metros together added 10.3 million subscribers, while the rural areas added over 11.3 million. Mobile phones in rural India also grew by close to 13.72% to reach 70.83 million in the quarter-ending June 2008. This is expected to continue till 2012, according to the CII and Ernst and Young analysis. “The majority of new wireless subscribers will emerge from circle B and circle C,” said Ernst & Young telecom analyst, Prashant Singhal.
    While the overall teledensity in India is over 30%, in rural areas the figure languishes in single digits. CII predicts the number of subscriber addition in rural areas to exceed the additions in metros by 2012 with about 120 million new users expected to adopt wireless telephony in rural areas compared to about 62 million in the metros.
    With over 300 million mobile subscribers, India is the second largest market, after China, in terms of subscribers. By 2012, the total telecom subscriber base is expected to shoot up to include about 700 million subscribers, of which about 650 million will be wireless users.

60% of mobile users in rural India by ’12: E&Y

 Rural India too prefers mobile phones over landlines. Of the next 250 million Indian wireless users, approximately 100 million (40%) are likely to be from rural areas, and by 2012, rural users will account for over 60% of the total telecom subscriber base, according to a report jointly released by Confederation of Indian Industries (CII) and Ernst & Young.
    As per Trai figures, subscriber additions in rural areas exceeded additions in the metros. In the first nine months of 2008, the four metros together added 10.3 million subscribers, while the rural areas added over 11.3 million. Mobile phones in rural India also grew by close to 13.72% to reach 70.83 million in the quarter-ending June 2008. This is expected to continue till 2012, according to the CII and Ernst and Young analysis. “The majority of new wireless subscribers will emerge from circle B and circle C,” said Ernst & Young telecom analyst, Prashant Singhal.
    While the overall teledensity in India is over 30%, in rural areas the figure languishes in single digits. CII predicts the number of subscriber addition in rural areas to exceed the additions in metros by 2012 with about 120 million new users expected to adopt wireless telephony in rural areas compared to about 62 million in the metros.
    With over 300 million mobile subscribers, India is the second largest market, after China, in terms of subscribers. By 2012, the total telecom subscriber base is expected to shoot up to include about 700 million subscribers, of which about 650 million will be wireless users.

A rich harvest from Kisaan Bazaars

Organised retail might be faltering in urban India, but is booming in rural India, going by the experience of DCM Shriram Consolidated Ltd’s Hariyali Kisaan Bazaar (HKB). Aimed exclusively at rural India, the company has seen sales from its 160 stores more than double in the last couple of years.

Average sales at an HKB store have gone up to Rs 5 lakh a day during the harvest seasons, while it is around a tenth of that during the lean season. That means the turnover of a single HBK store is over Rs 6 crore, annually, while the investment cost varies between Rs 2 crore and Rs 3 crore.

The growing popularity of HKB stores has also prompted banks and insurance companies to look at possible tie-ups to tap the rural customer. ICICI Lombard and HDFC Bank have already tied up with HKB for their products. Though he furnished few details, Ajay S Shriram, chairman & senior managing director, DCM Shriram Consolidated, said, “Banks and insurance companies get a ready customer base on a platter.”

Shriram said HKB’s retail model was developed exclusively for rural customers. “We have no intentions to bring it to urban areas; it has been designed for rural customers,” he said, adding that retail in rural India is commercially viable.

HKB not only sells products relating to agriculture like fertilisers and seeds, but also household items as 40% of rural India comprises those that are not engaged in farming, Shriram pointed out.

The success of HKB has also encouraged the company to launch pulses and masalas under its own Hariyali brand.

Rajya Sabha to have its own TV channel

After the "success" of Lok Sabha TV, there are plans to launch a separate channel for Rajya Sabha. "A decision to have a separate television channel for Rajya Sabha will be taken shortly," said Secretary General of Rajya Sabha, V K Agnihotri, at the conference of secretaries of legislative bodies in India. Both the channels will, however, "function under one control and will have one CEO", he said. Earlier, his counterpart from the Lok Sabha, P D T Achary told the conference that the Lok Sabha TV Channel, a brainchild of Speaker Somnath Chatterjee that was started two years ago, has been attracting large viewership since then. "During the deliberations on Motion of Confidence on July 21 and July 22 this year, the TRP rating of this channel was at an all time high, leaving much behind even the popular entertainment channels," Achary said.

Govt-run financial brands ’ve upper hand

FINANCIAL brands are built on the bedrock of trust and expertise. But with the US-led global financial meltdown spawning an undercurrent of fear and distrust among millions of investors, employees and consumers alike, brand experts say that government-run Indian financial brands like SBI and LIC seem to have an edge, as they are built on strong relationships and a trust that emanates from an implicit sovereign guarantee rather than a claimed ‘expertise’ that many of the (now failed or failing) marquee global names used to harp on. Says SBI Life Insurance MD Uday Shankar Roy: “Government funded financial institutions have always been criticised for being stringent with the regulations and investments. But, we must understand that ultra-modern risk-monitoring practices adopted in the West have failed miserably. Considering the present scenario, the central banking regulatory authority in India stands the strongest. The traditional monitoring and investment practices will certainly see an upswing now.”The meltdown will hit the sheen of western brands hard and a conscious move towards Indian brands will be
noticed among the Indian consumers. Says Ogilvy & Mather India country head (discovery & planning) Madhukar Sabnavis: “Trust is what business relationships in the East are built upon. Culturally, in India, as long as trust remains consumers are willing to live with business ups and downs and accept that as a part of life. Indians as a race is forgiving and hence the importance of trust.”
Public sector banks riding high on credibility have underscored robust growth in the recent times. According to the recent ET-Brand Finance India’s Top 50 Most Valuable (Company) Brands 2008 study, India’s largest bank State Bank of India emerged as the most valuable financial services brand value at Rs 16,595 crore. While Punjab National Bank’s brand valuation escalated by about Rs 570 crore in 2007-08, Bank of India has shown a growth of over 50% as against the previous year. In comparison, now bankrupt Lehman Brothers had shown a drop in its brand value in 2007 ($4 billion) from $4.4 billion in 2006, according to Brand Finance’s annual report on 500 most valuable global brands.
Given the volatility of global financial market and lessons learnt from the South-Asian crisis, subprime crisis and present meltdown, the ideology of safety and security have superseded the ‘cool image and dynamism’ plank. Brand experts across various sectors have echoed the strong sentiment of building relations as the essence of Indian business practices. Says Publicis Asia regional strategist Partha Sinha: “Indian financial brands are build on relationships whereas multi-national have always been expertise driven. But now this edifice of ‘expertise’ is coming unstuck.”
Even as the US suffers from major financial crisis, Tata AIG Life claims to be well capitalised and is confident of meeting stringent local regulatory and capital requirements. “Since the Tata Group holds major stake (74%) in the company, the credibility earned by the conglomerate shields Tata AIG Life from any immediate material impact,” says the company statement.
Future Brands CEO Santosh Desai feels: “Merrill Lynch, Lehman Brothers and too a certain extent AIG are not too big brands for an average Indian. Moreover, the credibility lend by the brand Tata maintains the faith among the stakeholders.”Financial institutions in India see a silver lining amidst the crisis. For instance, Reliance Money acknowledges this scenario as the right time for expansion in the international markets. Says Reliance Money CEO Sudeep Bandopadhyay: “With a century-old American banks collapsing, I think, it is a wonderful opportunity for Indian banks to go international with their intrinsic values. We also see it as a good time to acquire quality assets.”

Raghuram rajan panel want Smaller banks For India

THIS should sound sage advice in the aftermath of the Lehman collapse. The Raghuram Rajan panel has suggested that the Reserve Bank should consider entry of smaller players into the banking sector as failure of small banks will not have systemic consequence created by failure of a giant banking entity. There is no need to believe that smaller banks would fail and historical evidence is not relevant since the situation has changed.
The panel has suggested that the regulator should prescribe tighter capital adequacy and regulatory norms for smaller banks. The Rajan committee submitted its final report on financial sector reforms to the government this week. The panel urged the regulator to “allow more entry to private wellgoverned deposittaking small finance banks offsetting their higher risk from being geographically focused by requiring higher capital adequacy norms, a strict prohibition on related party transactions, and lower allowable concentration norms”.
This means that these banks, if allowed, would be entitled to advance a lower percentage of their deposits as advances in comparison to larger banks. Such norms would minimise the risk of any of the entities going bust, the panel feels.
The committee has also questioned the honesty of the large banks, saying there is “no necessary link between size and honesty, as the recent experience with large banks suggests”. It has, however, suggested that the regulator should be more selective and find “fit and proper” criteria for giving licenses to the smaller banks.
The intent behind the need of such banks is to bring local knowledge to the bankers so that they are able to take decisions quickly in conformity with their customers whom they would personally know. The entry of such financial entities would also help in achieving the government’s goal of financial inclusion.
The committee has clarified it does not recommend smaller banks based on earlier models where governance structure was poor, political and government interference was excessive, besides unwillingness to take corrective regulatory measures.

Mobile banking only for card holders: RBI

SMALL-ticket payments and remittances from mobile phones will become a reality soon.Keeping in mind the superior reach of mobile phones as a delivery channel, The Reserve Bank of India on Friday released its final operative guidelines for mobile banking.
The central bank has decided to keep the limit on the ticket-size for mobile banking at Rs 2,500 per transaction, and Rs 5,000 per day. Banks have also been allowed to put in place a monthly transaction limit, depending on the bank’s risk perception of the customer.
While the guidelines will enable lenders such as State Bank of India and Axis Bank to go ahead with their launch of mobile-banking services, the central bank has decided to restrict the services only to holders of debit and credit cards. The card user base in the country is 80 million, with 55 million debit card users and 25 million credit card users.
However, it comes as a blow to players who intended to use mobile banking to reach out to the underbanked in rural India. A number of microfinance institutions and mobile payment operators such as mChek, PayMate and Obopay had tied up to offer mobile-based financial inclusion products in the hinterland. Banks, however, have been allowed to use the services of banking correspondents for extending this facility to consumers.
Only Indian rupee-based domestic services shall be provided on the mobile-payment platform, and the use of mobile-banking for cross-border transactions have been strictly prohibited. Banks which are based, licensed and supervised in India will be allowed to offer such services. Further, only banks which have implemented the core banking platform will be allowed to offer mobile banking.
At the same time, the RBI has recommended that all mobile banking transactions are validated through a two-factor authentication system, thereby complying to the latest security and encryption standards. The RBI has also said the long-term goal of the mobile-payment framework in India would be to enable funds transfer from and account in one bank to any other account in any bank on a real-time basis, irrespective of the mobile network the customer has subscribed to. The guidelines also recommend that banks do not compromise on their know-your-customer and anti-money laundering guidelines. They will also be required to file suspicious transaction reports (STRs) to the Financial Intelligence Unit for all mobile banking transactions, as in the case of regular banking transactions.
It has also been recommended that banks explicitly state the risks to the customer and also get them to sign a contract before the service is adopted. It has also asked banks to make their mobilebanking services available across all phone networks.
The number of mobile phone connections in the country was at about 296 million at the end of July this year and it is growing at about 8-9 million per month, according to telecom regulator Trai. Banks have been exploring the feasibility of using mobile phones as an alternative channel of delivery of banking services. Some banks have also started offering information-based services like balance enquiry, stop payment instruction of cheques, transaction enquiry, location of the nearest ATM or branch, etc. Acceptance of transfer of funds, instruction for credit to beneficiaries of same or another bank in favour of preregistered beneficiaries have also started in a few banks, the RBI said.

India-Huge market for Mobile VAS

Stanford University and BDA, through a combination of interviews of executives in leading VAS firms, secondary research and analysis of prevailing trends has released it’s research report on “Future of Mobile VAS in India“.
Here are key excerpts:

Subscriber base:

• Population: 1.112 billion
• Fixed Subs : 39.41 million (Oct 2007)
• Mobile Subs : 217.14 million (Oct 2007)
• Internet Subs : 9.22 million (Jun 2007)
• Broadband Subs :2.67 million (Sept 2007)

Of the mobile subscribers:

• Prepaid connection comprise 85% of total subscriber base (expected to increase to 90%); and over 95% of new additions.
• By the end of 2010, the mobile teledensity will be almost 44% with 497 mn subscribers (driven by semi-urban and rural areas)

VAS in India:Past, Present and Future

• VAS constitutes 7% of of total telecom revenue for Indian operators.
• SMS consituted 55% of VAS revenue in 2006 [P2P/A2P/P2A, A = Application, P=Person), the growth was majorly driven by reality shows like Indian Idol/Kelloggs/KBC etc.
• Digital music (including CRBT and ringtones) constitutes 35% of VAS revenue.
• CAGR of 44% (2007 – 2010), VAS revenues will reach USD 2,744 mn (926mn $ by 2007): This is dependent on several factors like regulatory (e.g. number portability) and non-regulatory factors.
  • Growth acceleration will begin in 2009, as various challenges are overcome, size of mature user base increases, and telco focus on high end user VAS heightens
• Bollywood and Cricket is the killer content - though no significant investment has gone beyond developing local apps or even content/services.
• Revenue share between telcos & content providers / aggregators is 70:30, substantially more skewed in favor of telco than in other countries - further aggravated by lack of payment mechanisms.
• SMS/IVR/Music downloads/Internet Apps/Search will see an upsurge; limited growth of UGC and mCommerce
• Almost half of Indians use ULCH (Ultra Low Cost Handsets)

Entities in VAS Value chain

• Content/Application Owner - cos. like saregama/mauj/Rajshri who develop coyrighted content
• Aggregator - aggregates content like games/wallpapers/ringtones and distributes it to suit customer needs [players : mauj, hungama mobile, indiatimes mobile etc]
• software developer - develops applications (like payment/games/middleware etc.) for mobile VAS [players - mchek/July systems/webaroo/affle etc]
• Technology Enabler - provides the platform that plugs into telco networks and acts like a bridge between aggregator and telcos [players include OnMobile, cellnext. mauj etc]

Operators still dominate the revenue sharing arrangement in VAS [Of the amount paid by end users, 60-70% is kept by operator, aggregator gets 20-25% and content app/owner gets 10-15% of the revenue]

Challenges:

• Lack of content localization
• Shortage of spectrum
• Slow adoption of GPRS mobiles (only 6.1 mn GPRS users compared to 200 mn overall subs)

Future VAS trends:

• Location Based Services
  
• Mobile Music update will increase with better bandwidth
• Migration to 3G will result in increased ARPU
• Local content is on the rise - regional/rural IVR seen as a major opportunity
  
• Mobile commerce doesn not look too promising (India is still a cash and cheque country)
• IVR will see large scale adoption, especially in rural areas.
• Mobile E-Mail will primarily be driven by enterprises
• Stocks on mobile will see an uptake

The current state of VAS can be candidly summed in one sentence “Novelty of VAS on mobile is short-lived and innovation is the key to success which means technology companies like will have to increase their investments into R&D”

Soap Market in India

Personal Wash (Soaps)

The personal wash can be segregated into:

• Premium- Lux, Dove
• Economy- Nirma Bath, Lifebuoy
• Popular- Nirma, Cinthol

The price of the premium segment products is twice that of economy segment products. The economy and popular segments are 4/5ths of the entire soaps market. The penetration level of toilet soaps is 88.6%. However, the per capita consumption of soap in India is at 460 gms per annum, while in Brazil it is at 1,100 gms per annum. In India, soaps are available in five million retail stores, out of which, 3.75 million retail stores are in the rural areas. Therefore, availability of these products is not an issue. 70% of India's population resides in the rural areas; hence around 50% of the soaps are sold in the rural markets.

Growth
With increase in disposable incomes, growth in rural demand is expected to increase because consumers are moving up towards premium products. However, in the recent past there has not been much change in the volume of premium soaps in proportion to economy soaps, because increase in prices has led some consumers to look for cheaper substitutes.

The major players in personal wash (Soap) market are HLL, Nirma and P&G. Now ITC and Godrej also come in the Race .