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11 June 2016 K2_CATEGORY IAS Blog
Chanakya

Note: this answer has been written for the purposes of explanation; Hence, it may not adhere to word limit. For examination purposes, phrases instead of full sentences could be used.

INTRODUCTION:

  • The above case presents a situation where a drug for a currently incurable liver disease can be developed by my company. However, the development process involves a huge expenditure in R&D. Also the cost of drug development is unlikely to be recovered, making it financially unviable for my company to develop the drug.
  • Analysis of the options available along with merits and demerits of these actions is as follows:

1.Option 1- Approach relevant Government organisations or non-profit sector and seek help for funding the R&D

Merits Demerits
Public interest, especially of the impoverished tribal communities, upheld No financial benefits for company
Company/lab fulfilling its moral responsibility to take care of public interest; could be classified as Company CSR Logistics and Human Resources of company used for non-profitable activities
Personal moral obligations as a human being, to look for greater good of humanity fulfilled Secret processes of drugs manufactured by company may be compromised
Would ensure adequate funds for the development of the drug Approaching government organisations etc may delay the drug development and might compromise the extent of benefits to humankind
Can help in the overall research development of pharmaceutical industry adding extra knowledge to human repertoire, may help in future drug developments.  

2.Option 2- Approach other companies/labs and try to develop the drug as a joint project

Merits Demerits
Public interest, especially of the impoverished tribal communities, upheld No financial benefits for company; Duty to look at company’s interests as CEO compromised
Company/lab fulfilling its moral responsibility to take care of public interest; could be classified as Company CSR Logistics and Human Resources of company used for non-profitable activities
Personal moral obligations as CEO to look for greater good of humanity fulfilled -Secret processes of drugs manufactured by company may be compromised-might give other companies an advantage in market share
Would ensure adequate funds for the development of the drug Might be difficult to convince other companies to undertake the project just as a public good and not for profit

3.Option 3- Take upon the moral responsibility to develop the drug using company CSR funds etc

Merits Demerits
Public interest, especially of the impoverished tribal communities, upheld Duty to look at company’s interests as CEO compromised
Company/lab fulfilling its moral responsibility to take care of public interest; could be classified as Company CSR No financial benefits for company
Personal moral obligations as CEO to look for greater good of humanity fulfilled Logistics and Human Resources of company used for non-profitable activities
  Company may not have adequate funds for the project

4.Option 4- Abandon the drug development idea as it is financially unviable for the company

Merits Demerits
Duty to look at company’s interests as CEO discharged Public interest abandoned
The logistical and human resources of the company can be used to engage into more profitable projects Company/lab NOT fulfilling its moral responsibility to take care of public interest
  Personal moral obligations as CEO to look for greater good of humanity NOT fulfilled

Conclusion: Hence, as CEO, the ethically more suitable way out would be to undertake either options 1 or 2. This must however, be done with a lookout to minimise the demerits in the form of excess diversion of companies resources and compromise of company secrets. Also, the possible delay in seeking outside help must be minimised for the greater good

11 June 2016 K2_CATEGORY IAS Blog

Introduction :The article talks about the challenges which Payment Banks have to tackle in order to achieve its objective of universal financial inclusion.

  • It is widely believed that India is on the cusp of a financial services revolution. Recently, RBI gave licences to a new class of differentiated financial provider i.e. Payment Banks.
  • Of the 11 players who were issued in-principle approvals for payments bank licences, one (Airtel M Commerce Services Ltd) has received the final licence, and others have announced high-profile launches and recruitments.
  • Recently though, three payments banks (Cholamandalam Investment, Dilip Shanghvi-Telenor Financial-IDFC Bank and Tech Mahindra) have withdrawn their applications, reviving questions about the viability of the business model.
  • The success of these new entities will depend to a great extent on their ability to go beyond serving the well-banked smartphone-carrying consumers who have been the focus of digital payments in India so far.
  • Payments banks will need to creatively reach the low-income and financially underserved the so-called base of pyramid (BOP) consumers.
  • However, developing a model that is both effective in reaching the BOP consumer and commercially profitable, is far from easy. It will require a paradigm shift.
  • Leveraging technology to reduce cost-to-serve will of course be important, but much more will be needed. In this series, three key factors can be critical to successfully serving BOP consumers.
  • First, players will need to deepen their understanding of the unique needs of BOP consumers and develop products and customer experiences tailored to these needs.
    1. For example, income at the BOP tends to be more irregular and unpredictable, often cobbled together from various sources.
    2. Savings are limited, often taking the form of small amounts saved daily that need to be banked quickly to prevent them from being spent.
    3. Formal credit histories are virtually non-existent. There is heavy reliance on informal networks like friends and family for financing big-ticket needs.
    4. Providers will need to develop new products that are better suited to the financial lives of BOP consumers, for example, daily micro-saving products and micro-loans that rely on non-traditional data.
    5. They will need to develop partnerships with other financial institutions to meet the full scope of customer needs.
    6. More fundamentally they will need to orient themselves to become truly customer-centric.

Second, reaching out to this new target user group will require combining ‘high-tech’ with ‘high-touch’. Technology is, of course, going to be key to keeping costs low.

  1. The use of Aadhaar-linked authentication, know-your-customer and e-sign (elements of the so-called IndiaStack) and the proliferation of mobile/online payment systems hold special promise for reducing the cost of delivery.
  2. However, smartphone penetration is still low and digital literacy is a major challenge among the BOP. So, payments banks will need to rely on physical agent networks, at least in the foreseeable future, to serve this segment.

Finally, players will need to harness the potential of the ubiquitous kirana (neighbourhood) store, by making it worth their while to accept digital payments.

  1. This is particularly true for payments banks, which will need to rely heavily on small-ticket transactions for revenues, given limitations to their net interest income.
  2. Today, ~95% of retail in India is unorganized, and only 6% of these retail establishments accept digital payments. Clearly, cash is still king and digitizing small merchant payments is a herculean task.

Question:Payment Bank is another financial provider announced by RBI to achieve the target of universal financial inclusion in India. Do you think this initiative will be able to provide services to the ‘base of pyramid’ (BOP) consumers. Highlight the major challenges and give suggestions.

Suggested approach:

  1. Features of Payment banks.
  2. Major challenges.
  3. Suggestions.

Link: http://www.livemint.com/Opinion/i8FQefe8W8ngGE7dOOszqK/Cracking-the-payments-bank-puzzle.html