Aggressive Approach healthy growth
The first attempt of Manoj
Bhattarai after joining Nepal
Life Insurance Co Ltd.
(NLIC) as its Deputy General Manager with the authority of office chief some nine months ago was to draw clear demarcation lines between the internal authorities to make the institution more systematic and hierarchical. He believes that an institution should run on system than under the direct rule of managers. “It should not matter to the performance of the institution even if I walk away unannounced,” he says. “It should be a team work with the equal participation of employees from all rank and file.” It must be due to this approach that Bhattarai has been able to steer NLIC out of hard times.
After signing in, Bhattarai landed on the thick of things—many employees who had worked for the company from the day one had left; the former CEO had just left the company and opened another similar one the staff morale was low and its 8,000 active agents had concerns about the prospects of the company. To put things together was an uphill task but Bhattarai managed to earn back trust from all quarters. The institution has sold 18,000 policies in the first eight months of his tenure, which reached a record 40,000 by the end of the fiscal year 2007/08, according to Bhattarai.
He started out with efforts in creating a brand image of the company by identifying the corporate colour, logo and many more to go with company advertisements. His next effort was to solidify the agent base, so he further improved agents' hierarchical system based on actual performance for them as well, rewarding their performances by volume of their respective businesses. He further took the initiative to organise the business data electronically. Moreover, he ensured regularity in official meetings. He sits down with his entire department heads every week to discuss issues and ideas. With plans already underway, he wants to develop NLIC into a paperless institution. “We hold power-point presentations and exchange confidential official agenda through mails,” he informs.
There were 12 branches catering mostly to urban areas when Bhattarai first stepped into the institution. Within this fiscal year, however, he plans to extend the number of branches to twenty with the new eight catering to some distant places as well. In addition,he has opened 20 sales offices to make things further convenient to both his institution and clients. Inside Kathmandu, three such offices are already operating at Kalanki, Balaju and Patan while plans are underway for three more. Outside Kathmandu, there are extension plans for more than ten such sales offices. These offices will collect policies and premiums on behalf of their regional agents but are not allowed to issue new policies on their own, thus playing the role of facilitators. Bhattarai has also made timely corrections to enhance the underwriting process, which is one of the most important components of the life insurance business.
A noteworthy distinction of NLIC, which isn’t much publicised, is that during the period of insurgency, it had provided insurance cover to both police and army personnel while other insurance companies had avoided it. Now some of these other insurance companies too seem to be following the footsteps NLIC has also started assuring the physically impaired people. “We believe that a physically impaired person lives longer than a normal individual as he remains careful at all times,” reasons Bhattarai.
However, there is one sector that NLIC has intentionally not ventured into — assuring people going for foreign employment. “It’s a term insurance, more like a personal accident policy, which has been largely provided by non-life insurance companies,” he explains. “It also involves a low premium with high risks. In case the mortality rates exceed our limitation, we don’t have the pool of life fund required to address such situations. We can’t scratch off money from the premiums deposited by our 180,000 policyholders to create that sort of fund. However, we are looking into its cost-benefit ratio.”
To address such incidents like the Koshi floods, NLIC is set to roll out ‘catastrophic insurance policy’. Next on their cards is bank assurance for which talks are underway with some banks and finance companies to act as their depositors. As Bhattarai informs, this new policy will cater to all the banks and finance companies across the country. Furthermore, within this fiscal year itself, NLIC plans to bring two new policies in the market—one aimed at children and another at those who have all the money but can spare no time to make rounds of the insurance companies to deposit their premiums. Yet another is a composite product, which Bhattarai likes to call his brainchild, under review as for now. He declines to give out details but maintains that it will be a value added life insurance policy which hasn’t been experimented in the domestic market so far.
NLIC is perhaps the only life insurance company with 365 days operation. This initiative has yielded encouraging feedbacks. Since almost all the active agents are involved also in other professions, it is difficult for them to manage time for the institution alone. “Now they can work for us on Saturdays and during public holidays. This has increased our annual productivity by about 20 percent in terms of the policies sold,” Bhattarai says. In addition to that, to address the problem of employee retention, he has brought some encouraging policies. The deserving employees now receive life insurance policies as a token of appreciation, upon the maturity of which, they receive a handsome amount of lump-sum from NLIC. Bhattarai has further introduced an annual promotion scheme based on the internal performance of the employees.
Bhattarai’s aggressive growth plans for NLIC don’t stop here. He wants to launch two to three products each year to keep the growth momentum going. And for all this, he is planning to render quality trainings to both his employees and agents. Between July to November last year, they held 110 agency trainings throughout the country—even at such far away places like Arghakhanchi, Bajura, Bajhang, Dailekh, Doti, Dadeldhura, Humla, Jumla, Myagdi, Pyuthan and Salyan. This was part of their drive to create awareness about life insurance and to address the severe manpower crunch in this sector. With the addition of four new players in the life insurance sector lately, the demand for quality manpower has further intensified and the training programmes that the Insurance Board conducts is not enough to fulfil the market demand.
Another pressing problem, as Bhattarai mentions, is that life insurance companies can’t spend the desired amount of money in trainings and other such measures to build manpower, unlike in case of banks and financial institutions. It is because the Insurance Rule-2049 allows a life insurance company to spend only up to 30 percent of its premium collection on management expenses. Bhattarai says that a big share of this amount, about 22-23 percent, goes into agency commissions and out of the remaining 6-7 percent, they need to spend on incentive packages, trainings and staff. On top of that, there is an unhealthy competition in the market and NLIC is facing similar situation now in the life insurance sector like Nabil Bank once used to face in the banking sector. The new players are bent on wooing the staff away from NLIC, which Bhattarai thinks is the greatest challenge for him. “This is something hard to tackle. And it doesn’t stop here. Unhealthy practices are exercised in alluring staff and agents by means of unfeasible and extravagant promises. I don’t understand the logic behind all this when there is enough scope for all the players in the market,” he rues.
The studies carried out in this sector indicate that only one million people are insured out of 25.1 million population of the country, which translates into 4 percent insurance penetration. And as per the expert estimates, this rate can be increased to 15 percent. “It will take ten years to insure all of them even if all the players put in their best efforts. Add to that 2.3 percent population growth each year. So when an old and established company like ours has the highest annual target of 60,000 policies, all of us have enough scope in the market and there is no need to engage in unethical practices,” Bhattarai adds. With this hefty annual target, he is talking about 50 percent annual growth in terms of policies issued. The number of policies issued stood at 40,000 last year but Bhattarai is optimistic about the growth prospect. He has similar target for the following year as well. “After that’s achieved, we can settle for 25 percent annual growth. We will have 300,000 enforced policies and that will be equivalent to a cash flow of 3 billion rupees,” he shares.
NLIC has total assets valued at about 5-6 billion rupees but there is a potential threat to this too. Only 16 percent of their policyholders are reassured, which means 84 percent are their liabilities, which translates into 8-9 billion rupees. However, Bhattarai is optimistic about the growth of the company. His target is to collect 1.35 billion rupees as premium within this fiscal year. About 960 million was collected last year and they had handed out bonus shares at the ratio of 5:1 to the share-holders.
An institution with strength of135 employees, NLIC is in verge of completion of its own building at Kamalpokhari, Kathmandu. The company management has planned to rent out parts of the building and the responsibility of day to day management of the building has been given to a separate company. “The rental income will be substantial,” he says. “It will be equal to about 20,000 policies sold each year without us having to bother about the base claims.”
Bok: Trying out the Untried
When the new
management took the
helms of Bank of
Kathmandu (BOK) Ltd. with Radhesh Pant as the new CEO some 8 years back, the bank was virtually in a chaos; with 80 percent of its credit weight on corporates and its non-performing assets piled up. But now the bank is on its post-recovery phase with the credit weight on corporates shrinking to 35 percent and the load of dead assets scaling down. To achieve this turnaround, the bank adopted a series of fixtures—diversified its risk portfolio and diverted its investments into sustainable small and medium enterprises. It’s least exposed to real-estate, marginal lending and commodity markets as per the recent reports. “Corporates may generate numbers but when it comes to profitability, it might not be there, especially if you consider the current business climate coupled with the entry the of new banks” shares Sanjay Shah, Chairman of BOK.
It has become a clear realisation to the management that they didn’t lose too much due to their loss in expert manpower to the new banks (in comparison to other banks). Putting this realisation into facts, Shah, who also has a very strong human resource management background, says that the bank has put a serious effort into understanding what potentials their employees really possess. “There is too much stress on solutions to problems these days. Solutions don’t solve problems. People do!” he adds. “The same solution or equipment, or the technology is available to everyone, but at the end of the day, it will be your people that will make the difference on how well or quickly a problem is addressed. If they gain, we will gain too. And this will definitely be one aspect of our competitive advantage.” Set on the growth wheel now that’s spinning fast, the bank, as Shah informs again, is coming out with a revolutionary product that will change the whole dynamics of how banks approach the small and medium enterprises (SMEs).
According to a 2007 report on the access of the Nepalis to financial services, only four percent of the population (not households) have access to banking facilities. The rest of the population remains alienated from the banks which are reluctant to cater to that bulk of the market. Realistically speaking, however, owing to poor physical infrastructures, reaching to these people is almost impossible. In technical terms, ‘the last mile access’ is costly. Just having the will is not enough. The only integration tool available with banks to bring this chunk of the populace under the purview of the financial system is the optimum use of technology and that’s exactly what BOK is trying to initiate in consultation with International Finance Corporation (IFC), Combined Group for Alleviating Poverty (CGAP), and other similar agencies. Shah says that it would be some sort of disruptive technology —disruptive innovation as they call it elsewhere—which is supposed to disrupt the prevailing trends in financing to the SME segment.
It might sound innovative in case of Nepal but it’s not so in case of other countries. It’s about encouraging and ensuring ‘access to finance’ among the rural populace.
“All these reports produced by various government and international agencies seem to focus mainly on ‘access to credit’ or the lack thereof. You won’t find too much mentioned about the real ‘access to finance’,” Shah shares. “The basic difference between the two is like the difference between walking and running. You can’t run without learning how to walk. In other words, an individual first needs to come into the financial services spectrum. Only then can we think of providing him credit. As a bank, as long as I don’t have some sort of history / information about your financial activities, I would say NO if you ask me for loans.” There are regulatory requirements to be adhered to before providing credit to anyone and it indeed becomes crucial on the part of the banks to check the details about the financial capabilities of their clients. An individual might be dealing in hundreds, thousands, or millions rupees on a cash basis per month, but how is a bank is supposed to know about his/her financial standing and requirements in such a case? “Too many players are providing very high cost services because they see there is scope for them because there is no banking there, there are no structured financial institutions that measure liabilities and risks,” Shah adds, “they don’t have structured evaluation systems. But now there are modern technologies available that can enable an individual’s ‘access to finance’. Without disclosing too much before we launch it, due most probably within a couple of months, we are looking at those products very seriously. When you say banking for all, you limit yourself. Financial services are required for the people even if there are no banks.”
To plug through this innovative idea, BOK, however, is not stopping or limiting any of its currently existing risk assets portfolio, as Shah mentions. “We are simply diversifying,” he says, “we are going for the larger piece of the pie, about which no other bank seems to be bothered as yet, and which we feel is a great idea. We believe that this is going to be serviceable, reachable and achievable at lower cost frames.”
While all the banks define SMEs in their own words, the emphasis of the BOK here, as Shah informs again, is to introduce something that might be called Micro SME, thus redefining the whole trend altogether. Though he accepts that similar products are available with some other local banks too, Shah thinks execution is what makes all the difference. And this requires expertise, for which Shah recently spent more than a year researching various aspects of providing services to BOP (bottom of the pyramid) markets and to read between the lines of these various models that exist in different parts of the world, to develop a model that would be suitable and appropriate in the Nepali context. “The pressing issue is that of ownership. Problems are bound to surface during execution if anyone, from the boss to a lower-level employee, feels left out. So we are trying to instil the sense of ownership among all our employees before we launch this product in the market,” Shah adds further. “On top of that, in case of small and medium lending, there are issues also related to regulatory environment and technicalities.”
As is the case, when banks enter into the lending of small and micro enterprises, the cost consideration and the principles of work pose hurdles. So this is where banks need to be innovative in their products. Shah declines to offer further insights into the product but says that the banks together can take care of the regulations that come their way while implementing the idea. “We will be purely using technology,” he dwells further. “Yes, as a bank, we will be a component of the execution strategy but the product will be technology-enabled. We believe that it will have a tremendous impact. More than anything else, the chief priority is to draw people into the financial services spectrum first. We are not too concerned about other banks entering into this sector because we believe there is a lot to do and only one bank cannot service this area. More importantly, this customer segment base is known for its loyalty and thus we will capitalize on our first mover advantage.”
The idea is something taken out from the books of South African history of financial models. Together, financial institutions there had issued a charter which carried their promise of making their services available within certain distances so as to cater to people from all walks of life in the wake of the country’s political change. BOK wants to replicate similar model here (with some localized modifications), thus enabling ‘access to finance’ among a larger mass of people. Shah is confident that if the idea works out, they will be providing a “creditable bank-backed” financial access to people at all the district headquarters of Nepal within a year and half. “The central bank has no regulation covering this sector (for commercial banks) and we will make them come up with one. So we will initiate the project and they can bring the regulations later,” he says.
BOK is looking forward to increase their business portfolio in other sectors as well. Shah says they would diversify instead of increasing the scopes of their existing products. “We have numbers that even beat Standard Chartered Nepal,” he boasts. “So we are not worried when people talk about share prices. We are long-term players. We plan to give a reasonably good percent of bonus shares as dividends at the end of this fiscal year. And to reach the authorised capital of 2 billion rupees, we will not be calling for right shares as we feel that our current performance and profits can easily make us reach that required figure without the need for our shareholders to put in any money. The way I see it, calling for right share is a fifteen-day process. Why should we announce it when we see nothing in the horizon to raise the capital for?”
Talking about remittance business in Nepal, about which he has even conducted some research, Shah says that the sector is not very transparent and that banks can play pivotal role in turning things around. “Currently, remittance business, is for the most part, controlled by non-bank entities. If this comes under the purview of banks, the cost of the service can go 50-60 per cent lower than what is prevailing. Earlier, other banks and financial institutions talked about acquiring remittance coming from abroad whereas BOK concentrated on local remittance—distribution within Nepal. Now BOK has spread out into remittance acquiring spectrum as well. “We are not as successful as we would like to be. We are still learning from our mistakes and experiences. But between these learning experiences, we will launch new products that will address all the prevailing shortcomings, like accessibility in every nook and corner of the country,” he further informs. We feel empowered and motivated and are going to try out a model that hasn’t been tried out as a model anywhere in the world,” he says confidently.
