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GAUTAM BHARADWAJ

India,

In response to the absence of support for the impoverished elderly in India, Gautam Bharadwaj has designed a new system that helps low-income workers financially plan for old age throughout their working lives. Gautam has created the policy and institutional architecture needed to make financial security in old age a reality for the poor. 

This profile below was prepared when Gautam Bharadwaj was elected to the Ashoka Fellowship in 2012.

INTRODUCTION

In response to the absence of support for the impoverished elderly in India, Gautam Bharadwaj has designed a new system that helps low-income workers financially plan for old age throughout their working lives. Gautam has created the policy and institutional architecture needed to make financial security in old age a reality for the poor. 




THE NEW IDEA

Demographic trends in India, combined with poor coverage by existing financial products, suggest that India is moving toward a significant number of elderly poor. Gautam recognized that poverty-alleviation programs for the elderly poor are creating staggering expenses for the Indian government. Seeing this unsustainable policy continuing, Gautam built a new pension system that creates financial security for the elderly through sustained contributions during their working lives. He believes that the central values of a pension system should emphasize self-help and thrift. 

Since 1998, Gautam has been committed to instilling new savings behaviors among young and working populations that would free them from depending on their adult children in their old age and allow them to save modest sums through their long working years. Employing creative techniques, he raises awareness among communities to foresee their future and understand the benefit of deferring current consumption to save for old age. To support this, he has designed the institutional infrastructure to enable and encourage each citizen to take this risk. In 2004 Gautam steered the design of the National Pension Scheme to introduce flexible products that take into consideration the irregular incomes of the informal sector. He also harnesses credible, regulated institutional capacity to increase outreach and service delivery to make products more affordable by minimizing transaction costs. Partnering with payment service providers, such as banks and card companies, Gautam has also developed technologies and structures that insulate communities from institutional risks and allow them to save in a convenient, secure, regulated environment. 

To secure an above-poverty pension and incentivize communities to undertake disciplined voluntary retirement savings over multiple decades, Gautam convinced the central government and several state governments to commit to supplement the savings of the communities. With over 150 million low-income workers enrolled, across nine states in India, he is now actively engaging private companies and citizens to contribute to the savings of their workforce. 




THE PROBLEM

Populations worldwide are aging. In India, while the total population is expected to rise by 49 percent between 1991 and 2016, the number of elderly persons (aged 60 and above) is expected to increase by nearly 107 percent to 113 million. In other words, the share of the aged in the total population will rise to 8.6 percent in 2016. Demographic projections further suggest that the number of elderly persons will rise even more rapidly to 179 million by 2026, or 13.3 percent of the population (OASIS Report, 2000). While we witness an increase in the number of aged, the traditional methods for income security (such as the joint family system) are increasingly unable to cope with the enhanced life span and medical costs during old age. 

Males and females in India at the age of 60 are expected to live beyond the age of 75. Thus on average, an Indian worker must have adequate resources to support themselves for approximately 15 years after retirement. This need is amplified for unskilled workers who are often replaced by younger, more able-bodied workers by the time they are 45-years-old. In addition, a majority of India’s 150 million working poor, who earn US$2 or less per day, are highly vulnerable to old age poverty. The modest intermittent incomes, absence of an affordable and easily accessible long-term savings mechanism, along with the rising rate of inflation has put retirement planning out of reach of most workers. As a result, barely 4 percent of this group is presently saving for retirement and less than one in five have some form of insurance.

Government and private companies in India have historically provided pension only for their own employees. As a result, 90 percent of the working population in India who are in most desperate need of old age pension, are ineligible to participate in formal pension or savings programs meant to provide old age security. Banking and financial systems are also not designed to support microsavings programs, as transaction costs in building awareness and in processing payments increase significantly. The network of banks and financial institutions in remote areas are also few.

Informal sector workers are consumed in meeting their immediate expenses and keeping their small savings at home. Creating a shift in savings behavior and bringing them into the ambit of the financial system becomes even more challenging when financial products are complex. Unable to fully understand risks and processes, marginalized communities are often wary of investing. 

Evidence from the “Indian Retirement, Incomes and Savings Survey” produced through an American Development Bank funded study for the Indian Ministry of Finance in 2004 to 2005, and the subsequent “Invest India Incomes and Savings Survey 2007” suggests that around 60 million urban and rural working poor in India are willing and capable of saving for their old age. Their aggregate annual retirement saving capacity exceeds US$4Bn. However, to achieve an above poverty pension, the poor need supplementary savings from the government and other stakeholders along with a secure environment under which their modest savings are channeled to customized long-term savings products and earn high real returns at a low transactions cost. This also provides a powerful financial incentive to undertake disciplined voluntary retirement savings over multiple decades. 




THE STRATEGY

After three years of researching global trends, demographics, and systems that provide old age financial security, Gautam became convinced that India needed a contribution-based pension system where people saved for their old age through their working career with support from the government. This study, and subsequent advocacy efforts in partnership with the media and experts, lay the foundation for the National Pension Scheme (NPS) that was launched in 2004. It was designed to be flexible, affordable and secure. 

Since then, Gautam has sought to implement secure and scalable mechanisms that harness existing institutional capacity to reach low-income workers and deliver quality service. Gautam collaborates with large financial institutions to help them extend their products to the informal sector. He ensures that such “product partners” (i) have a credible history, (ii) are flexible on “know your client” regulations (as most prospective clients may not meet strict norms), and (iii) have efficient systems that are capable of handling large numbers. To date, Gautam has built formal partnerships with two of India’s leading statutory financial institutions: Unit Trust of India (UTI) and Life Insurance Corporation (LIC).

However, these large financial institutions are not designed to administer and service microsavings. To bridge this gap, Gautam founded Invest India Micro-Pension Services (IIMPS) in 2006, which proactively seeks distribution partners to help reach out to and enroll clients. In association with the product partners, Gautam has secured the license to extend two simple micro-pension and insurance products that cater to differing needs of clients and help diversify their risks. The first one, NPS Lite, in association with LIC of India, offers co-contribution from the government (Rs. 1,000 per year or US$61,600) but the money invested is locked-in for twenty years. The second, in association with UTI, is liquid but does not benefit from a co-contributor matching his investments. Investments in both are distributed between the debt and equity markets and are designed in a flexible manner, allowing clients to save according to their needs. 

To increase participation of the informal sector in regulated financial products and aggregate their demand, Gautam identifies several “distribution partners” such as MFIs, citizen organizations, cooperatives, worker unions, and government departments. He identifies credible partners, who have a good track record in financial management systems. Upon signing a Memorandum of Understanding, partners embark on a detailed onboarding process—through a series of workshops and trainings that educate the field staff on the mission, products, and roles. For large distribution partners, IIMPS staff invests six months to a year to incubate the team on the ground, conducting monthly and quarterly reviews. The role of the distribution partner is to educate the customer (using tools and materials provided by IIMPS), inculcate a savings behavior and enroll the client. To date, IIMPS has partnerships with approximately 50 organizations around India, including SEWA and BASIX. 

For large-scale voluntary enrollment and regular savings behavior, it is critical that communities understand the need to save, the nature of financial products, and the risks associated with it. To this end, Gautam has developed quality education materials in different languages used in India, and methodology and tools that respond to different savings behavior across the country. He also requires the field staff to first enroll as customers, as this allows staffers to understand and internalize the process they will have to convey to consumers. Gautam has also developed a robust certification and training process to enable field staff to play their role especially as partners and educators. More recently, he has launched a helpline where IIMPS staff cross-checks and tests the clients’ understanding with each distribution partner on a random sampling basis. This helpline also allows consumers to directly call IIMPS for any clarification.

Gautam is cognizant that the architecture to collect and invest regular savings must be simple, secure, and affordable. Transaction costs should be minimal and payment gateways must be secure. More importantly, it must mitigate the risk of institutional failure or service interruptions. It must be designed to allow customers the ability to continue saving independent of the distribution partner.

In this context, in order to reduce risk of fraud and theft, Gautam requires that only regulated payment service providers undertake collection of money. Over the past few years, he has partnered with several banks to open bank accounts for clients. Upon enrolling, clients deposit money in such banks, who then pool and transfer funds directly to the regulated product partners. Although funds are directly transferred to the product partners, banks provide statements of deposits to IIMPS. Through the proprietary micro-pension administration and recordkeeping software platform developed, IIMPS issues and administers individual pension and insurance accounts. This helps product partners administer and manage microsavings at an affordable transaction cost. 

Since banks are not accessible and require a client to forego daily wages to make regular payments, Gautam is partnering with card companies such as Mastercard and Visa. In three centers, he has introduced prepaid micro-pension Visa cards. Equipped with a simple swiping machine, Visa’s agents are present in villages to collect deposits, transfer funds or give instructions. Clients get instant alerts on their mobile phone on the amount deposited and outstanding balance. A statement of transactions is uploaded by the Visa agent at the end of each day and IIMPS forwards appropriate details to its product partners. Through this model, Gautam is building a transparent social security marketplace, using its scalable technology platform to enable millions of low-income workers with modest savings to access low cost pension and insurance products. 

Given that modest savings by such clients will remain insufficient to achieve above poverty pension, Gautam has been strongly pushing different agents to co-contribute to their savings. He has convinced governments to contribute by showing that it will save them significant amounts in caring for the impoverished elderly. As a result of these efforts, the Government of Rajasthan launched India’s first such co-contributory pension scheme for low-income, informal sector workers in 2008. The state appointed IIMPS as its consultant and turnkey implementation partner for this program that today covers over 50,000 poor across all 32 districts of Rajasthan. More recently, Gautam has also advised the State Governments of Madhya Pradesh, Haryana, Andhra Pradesh, and Karnataka in designing similar co-contributory pension schemes for their working poor. He is working with the Ministry of Overseas Indian Affairs in designing a co-contributions based pension and insurance system for the 5 million migrant Indian workers on short-term work permits in sixteen ECR countries.

Seeing the success of different states, India’s pension regulator, the Pension Fund Regulatory and Development Authority (PFRDA), decided to adopt a similar micro-pension approach for achieving mass-scale coverage of the NPS. This system, although launched by PFRDA in May 2004, has achieved a voluntary coverage of only 4,000 informal sector workers. In 2010, the Government of India announced an annual co-contribution of Rs 1,000 (US$61,600) for low-income workers who voluntarily join the NPS in order to encourage a large number of workers to join. Government cash transfers linked to retirement savings provide the working poor with a powerful financial incentive to undertake disciplined voluntary retirement savings and also supplement the modest savings of the poor, so that when they reach their retirement years, the value of their savings is sufficient to produce an above poverty annuity. 

To date, IIMPS operations span seventy districts across nine Indian states and have enabled around 150,000 working poor to save for their old age. Going forward to further supplement the savings of the working poor, Gautam is exploring roles for private companies and citizens to co-contribute. For instance, he is in discussions with the All India Truckers Associations and a leading oil company in India to create incentives for truck drivers to save and for the company to co-contribute. Under the proposal, every time a driver fills fuel from the company, they are awarded points that are converted to pension contributions by the company. For the company, this would help build loyalty among drivers. 

Gautam is the process of launching a new not-for-profit company that will incubate new ideas that will spread and strengthen mechanisms for old age financial security. For instance, he is planning to launch an online platform that will help citizens understand and analyze product options. It will empower all citizens to plan their own savings and will also provide easy tools and mechanisms to co-contribute to the savings of informal sector workers employed by them. 




THE PERSON

As the son of army personnel, Gautam had a modest upbringing that took him across different parts India. He dropped out of college to start working for an advertisement agency, initially in marketing, and later in the creative department. 

Slowly, Gautam realized he wanted to start something of his own. Conversations with his friends, who worked in the financial sector, got him interested in this space. Gautam felt that the sector was becoming so complex that consumers did not really understand products or risks. Around the same time, in the early 1990s, the Indian economy was opening up and regulators, like the Securities and Exchange Board of India (SEBI), were being established and India’s financial markets were maturing. Given the addition of many new products and intermediaries, Gautam felt the gulf between financial product manufacturers, financial institutions, and the end consumer was becoming wider. Believing that people were not well equipped to make financial decisions, he started Invest India Economic Foundation (IIEF) at the age of 23, to improve financial literacy. 

Gautam sought to create a direct contact program that brought regulators, government departments, and financial product manufactures on a single platform and had them interface with the end customer. Raising funds from different institutions, he brought approximately fifty institutions together on a national roadshow that employed a strong media campaign. Conducting group workshops and seminars, Indian financial product manufacturers interfaced with their customers directly for the first time. Banks also used this as an opportunity to enroll clients, and the drive reached around 400,000 to 500,000 people in four years. 

Despite this five-year long effort, Gautam felt he was barely scratching the surface in a country as big as India. IIEF started organizing policy meetings and consultations, believing that the problem was rooted in poor enforcement mechanisms and complex financial products. Between 1994 and 2000, IIEF acted as an objective platform for an emerging financial sector in India and built a strong network and reputation in the Indian financial services industry.

In 1997, IIEF was approached by the Ministry of Social Justice and Empowerment to explore the creation of a fund to provide for the rising number of older, poor populations. Rather than blindly create a fund, Gautam questioned why the number of destitute were increasing. He intuitively felt that creation of a fund would not solve the problem at its root. After exploring this further, he found that no one except government employees benefited from pension. Keen to explore the issue further, he spearheaded the first study in India to explore the context and possible solutions for nationwide pension reform. 

This resulted in the OASIS Report, 2000 that lay the foundation and architecture for the NPS. Working in close collaboration with different government departments, national and international financial institutions (like the World Bank and ADB), IIEF published a report that explored two main dimensions. It detailed how to shift the pension mechanism of the government from a defined-benefit to defined-contribution system. It outlined design principles and systems to make the system investor-friendly and reduce fraud. It also explored solutions to extending a similar architecture to the larger population, including the informal sector. 

For the next few years, Gautam took every effort to ensure that the government translated these ideas into policy and action. He organized regular meetings with key influencers and extensively engaged the media as active partners in understanding the problem. These efforts eventually led to the creation of the PFRDA, as the regulator for pension in India. The NPS was launched the same year to shift to a contribution-based pension system for all prospective government employees. This helped the Government of India to significantly reduce its pension liabilities.

With the architecture for the NPS laid out, including design of the product, role of product providers, distributors and regulators streamlined, Gautam started to influence ways to extend this architecture to the informal sector. He formed a loose coalition between UTI and the Self Employed Women’s Association Bank that piloted the program with 20,000 women saving Rs. 100 (US$2) a month. Its success showed the government and financial institutions the power of aggregated savings and its potential to achieve true financial inclusion. 

However, despite the positive response, Gautam realized that large financial institutions were not designed to proactively seek out aggregators and manage micro-savings. There was a need for someone to champion this idea, facilitate the aggregation of savings, and develop secure payment gateways that provided a secure, accessible and affordable solution to the informal sector. To address this, he started IIMPS in 2006 which proactively bridges the gap between product providers, distributors, clients, and designs systems that make retirement savings a reality for the poor. 

Gautam’s passion for education is reflected in his emphasis on financial literacy and ensuring that consumers truly understand the system.




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