Financial inclusion: India too may learn from US weather insurance firm ClimateCorp’s model

The Economic Times , Monday, October 07, 2013
Correspondent : Dhirendra Kumar, CEO, Value Research
Last week, the American chemicals and biotech giant Monsanto announced that it would acquire a company called the Climate Corporation for $930 million. Given Monsanto's controversial image in India, some people may have assumed that an outfit with a name like that would likely be a nefarious plan to achieve world domination by controlling the weather like the villain of a superhero film. Nothing of the sort.

ClimateCorp is actually a very interesting company which straddles an intersection between technology and retail financial services in an innovative way. Moreover, its approach holds an important lesson for us in India. ClimateCorp is a provider of weather insurance. However, it does so in a retail, online, productised and data-driven way.

Conventionally, weather insurance in the US has been a negotiated and large-scale service which is accessible only to big businesses. ClimateCorp, which was founded in 2006 by two ex-Google employees (funded, among others, by Google Ventures and Vinod Khosla), provides weather insurance to small farmers and agri businesses.

Anyone who needs weather insurance goes to climate.com, signs up and buys an insurance product optimised to their exact needs. If the extreme weather event they had insured against occurs, then they get the payoff with practically no further interaction.

The heart of ClimateCorp is an elaborate software system for analysing weather. It has detailed historic data as well as captures micro-level weather information from a huge range of sensors. It provides adjustments for individual locations as well as gathering pace of climate change. What makes CimateCorp different from the older style of weather insurance is the innovative use of huge amounts of data (big data, as the jargon now goes) to create a new type of business.

It uses technology to serve small farmers and businesses with a critical financial service that was not available to them earlier. In other words, ClimateCorp is about financial inclusion. That's a phrase we've heard a lot in India for some years now. However, no one ever seems to connect the idea of financial inclusion to providing small businesses with simple access to sophisticated services. Take a simple service — hedging against exchange rate fluctuations.

As the macro data clearly show, being import-dependent is no longer something that happens only to big businesses. There are lakhs of small and medium-sized businesses which need protection against forex shocks. And in theory, for some years now that Indian banks have offered such services. However, the actual delivery of simple to use and understandable hedging to small businesses is zilch.

I have a neighbour who is a small importer of an agricultural commodity and the last three months have been traumatic for him and others of his scale. It's ironic that years after forex futures markets were launched in India, when the time came for the these markets to actually deliver, the government decided that this is all a form of that most dreaded evil of all: speculation.

If it is, then the fault lies with the fact that the utility of forex futures has not been delivered to actual end-users. What these businesses need is an Indian 'currency.com' equivalent of climate.com where they can buy what is functionally a simple term insurance against forex fluctuations. There's a lot of talk and activity around financial inclusion in India, the biggest being the new crop of banks that are going to be given licences.

The strange thing about all this is the huge focus on unbanked areas, with the implicit assumption that all is well with financial services delivery in areas where there are many bank branches.

Unfortunately, apart from a recent mention in governor Rajan's first statement, financial inclusion of small businesses seems no one's priority. There's a lesson here too from ClimateCorp. After all, there are plenty of huge financial companies in the US, but none of them created this.

ClimateCorp is not a product of Wall Street, but a Silicon Valley startup. Similarly, in India, don't be surprised, if the big behemoths produce only empty talk of innovation, but not the actual stuff.

 
SOURCE : http://economictimes.indiatimes.com/news/emerging-businesses/startups/financial-inclusion-india-too-may-learn-from-us-weather-insurance-firm-climatecorps-model/articleshow/23619237.cms
 


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