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Himank Sharma
Gram Swaraj with digital service
delivery at village level with the
leverage of Cooperative Structure
A service model to provide digital
service delivery through PACS with a
digital platform and Risk Management
with Risk Scoring and Cyber Security
Framework for the platform
Manager, National Bank for
Agriculture and Rural Development
Risk Management Department,
NABARD Head Office, G-Block,
BKC, Mumbai – 400051
9811682825
himank.sharma@nabard.org
1. PGP AIML, Univ of Texas
2. B. Tech (Computer Science) –
IIIT Hyderabad
3. Financial Risk Manager (FRM) -
GARP
4. M.A. (History)- IGNOU
5. JAIIB, CAIIB - IIBF
Gram Swaraj with digital service delivery at village
level with the leverage of Cooperative Structure

Introduction
Credit and Services availability is an essential tool for sustainable economic and social
growth of a nation and its people, and is one of the focus areas for welfare government.
In consonance with the needs of populace at large, there have been several attempts at
micro credit and service delivery in India. The process which started with peer-to-peer
barter/lending, gradually moved to the local sahookaar/baniya to oppressive landlords
to modern regime of subsidised credit and price control mechanism. The trend is now
veering back towards micro delivery of Credit and Services with peer-to-peer
partnerships. Micro-credit was the first realised need with the advent of KCC.
Microfinance, which can cover the domain of Credit and Services including
Savings/Deposits/Credit, Product Customisation, Value Added Services, Information
Dissemination is a more sustainable solution to the growth needs of people. The key to
last mile service delivery lies in utilising the institutional presence at ground level with
institutions like PACS (and the cooperative structure) while providing technology
solutions to bring about cost efficient and need based delivery of services across the
country.

Paradigm Change
A major focus of service delivery as part of Government and welfare initiatives has been
towards the marginalised and rural population of India. A directed approach was
required in tune with the existing population, technology, and resources. Varying degrees
of success of different programs can be attributed to different reasons, not a part of
current scope. However, two major changes provided the push required for India to
utilise its demographic dividend. LPG (Liberalisation, Privatisation and

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Globalisation) started an age of capacity building, capital flow in the form of forex inflow,
etc. The building blocks formed through the LPG reforms were beneficial and yet the
capacity utilisation lagged behind the established economies of the world. Digital
Revolution with the arrival of better means of communication, cheap internet and
multimedia availability, has become the promised game changer for India. The Jan Dhan
Yojana which helped realise banking access to the marginalised was a major
achievement towards inclusion of majority population into the organised sector with
successful intervention of Government and Financial Institutions.
Availability of internet to general public with the arrival of mobile internet has enabled a
symmetry in information dissemination. This has helped bridge gaps between classes,
sectors, geographies. The remote villages in India have access to most of the facilities now
with the help of mobile. Directed approach towards development was taken with a view
to provide basic facilities to even the remotest of corners. Arrival of digital technology
has enabled us to bring the cutting edge to the marginalised without a compromise on
the product features.
PACS Computerisation
The Cabinet, Government of India approved the scheme of Computerisation of PACS on
29th June 2022. The Centrally sponsored scheme with a budget outlay of ₹2,516 cr is being
implemented by NABARD for computerisation of 63,000 PACS. The main components of
the scheme are Cloud based unified software with data storage, Cyber security,
Hardware, digitization of existing records, Maintenance and Training.
The PACS software is expected to have business and admin modules which would help
the PACS in managing their business as well as operational activities including
Administration and Governance, Regulatory and MIS operations, Audit, Financial
Services Module, Business Management Module, Public Service Delivery Function. The
usage of single software across the country gives the interoperability to PACS to enable
creation of a national level structure with ground level presence in remote corners of the
nation.
The government thrust on cooperatives is a means to achieving this national scale with
remote presence. Initiatives like New Cooperation Policy, Model Bye-laws, two lakh new
Cooperatives (PACS in every Gram Panchayat), focus on non-credit cooperative societies,
World’s largest grain storage (decentralised) – godown/ warehouse for every PACS,
Focus on Multi-State Cooperative Societies, Proposal for creating National Cooperative
Export Society Ltd. are directing towards the Government’s ideal of rural growth and
prosperity through the power of cooperatives.
A Memorandum of Understanding (MoU) was signed between Ministry of Cooperation,
Ministry of Electronics and Information Technology, NABARD and CSC e-Governance
Services India Limited. This MoU will enable Primary Agricultural Credit Societies (PACS)
to provide services offered by Common Service Centres (CSC). PACS are getting the
institutional support and architectural sufficiency towards availing the technology
leverage with the focussed orientation of Government of India.

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Research Objective

i. PACS have access to population segment which are hitherto excluded

ii. PACS are being digitised through a GOI project
iii. In remote regions, PACS are main purveyors of credit, specially to Small/Marginal
farmers, "akin to microfinance"
iv. A digital platform for delivering custom designed Credit and Non-credit products
through PACS can further provide "Access to Services" to the marginalised section
serviced by PACS
v. A high share of Indian population in rural areas is young and tech savvy. This
demographic dividend can provide suitable clientele for consumption of online
services provided by the PACS.

The objective of this research study is to provide solution in the form of a digital model
towards service delivery by the PACS with the associated Online Interface and Risk
Management framework. An analysis of indicators before and after implementation of the
solution can lead towards results for Hypothesis testing. Secondary research regarding
the hypotheses stated below seems to suggest positive correlations.
A comparative study of results as available through the usage of solution and as available
from Secondary research could enable SWOT analysis for the solution, which could be
used towards large scale implementation of nationwide solutions for Cooperative
structure including Credit and Non-Credit Cooperative societies.

Hypothesis

❖ H1. Credit Availability and Microfinance are contributors to development and

prosperity
It is hypothesised that availability of Credit and linked Microfinance services have a
positive impact on economic wellbeing through increase in economic indicators on
regional/individual level.

❖ H2. Last mile availability of services through digital medium

It is hypothesised that delivery of services through digital medium can lead to more
inclusive approach. The cost and operational efficiency required to deliver last mile
connectivity increases exponentially with traditional medium of delivery. Availability
of digital medium through mobile internet at remote corners help in delivering
services in a cost-time-effort efficient way.

Research Design

An analysis of the Policy/Frameworks is important for the purpose of redesign of

products and services towards a digital orientation of service delivery. There are specific
issues with regards to policies and directions in case of agricultural and rural
organisational structure. Agriculture being a state subject, different laws and regulations

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are applicable in different areas. The issue of PACS being registered with RCS and
operating as financial entities provides policy and operational challenges.

An analysis of the portfolio is required for selection of products and services for
implementation through digital medium. The field of analysis would require a study of
the portfolio to analyse the importance of different products and services. The processes
including the Human intervention, delegation, and approval (in case of financial services
like credit) also need to be analysed to have a better understanding of the current status.
It would be prudent to introduce process redesign to leverage the technological
advantage.

Study of the comparable institutions and their structure and delegation could serve as
models for framing of product and processes in digital environment. Adoption of best
practice, integration of processes and services, usage of extant platforms can be assessed
as part of the analysis. GOI Scheme of PACS as CSC initiated in February 2023 aims at
providing services ranging from Aadhar, Banking, Pension, Education, Electricity etc.
through PACS. The proposed solution would be aligned with above scheme. Credit
lending as done by banks provides an insight regarding processes, systems and issues.

Risk Management is the keystone to a safe and sustainable business model. An exposure
of rural financial institutions to digital platforms is expected to bring in significant
vulnerabilities and risks, both for the service provider and receiver of the services. Range
of risks vary from Fraud, Credit Risk, Information Security Risk, etc. Cyber Security is
covered as part of GoI scheme. However, communication/alignment of the proposed
solution with the underlying technology interface being established by the Government
will provide associated risks at both ends which need to be analysed.

A layered solution architecture to be implemented as per the design of proposed solution.

Layers including the Presentation layer for front facing UI. Application layer and Business
layer would have the business logic for portal as well modelling facets of the solution.
Persistence and Database layers would be used for dealing with the memory and storage
requirement of the solution. Option of porting the application to mobile platforms,
Android/iOS is a requirement thus the technology architecture chosen for the project
should be adaptable to mobile environments. Free source applications to be used for
development of the solution.

Scoring models for the credit linked business of the PACS would be required to aid
PACS/DCCBs in decision making. Simple credit scoring model based on credit worthiness
factors like character, capacity, capital, collateral, and conditions could be used.
Vikaspedia, online information guide launched by Government of India talks about SHG
grading at different stages of life-cycle. SHG CRI grading is carried out by Andhra Pradesh
Government. Models and parameters used for grading of SHGs could act as guides for
credit rating of SHGs and individuals, clients of PACS/DCCBs. There is also the challenge

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of credit scoring for entrepreneurship based on personal financials. Studies are
underway on the scoring, latest research in this direction is focussed on applicability of
Fuzzy logic with the help of Markov chains to arrive at optimal solutions. EShakti, pilot
project for digitisation of SHGs was launched by NABARD in the year 2015. It aims at
digitisation of data of all SHGs for enhancing the ease of doing business with SHGs. The
position as on March 2023 covers around 1.75 lakh villages and around 1.5 crore SHG
members. Some of the data points in EShakti include Credit History of SHG members,
generation of monthly balance sheet for SHGs, Dynamic grading of SHG. A study of the
above systems and processes could be useful for risk scoring models for the credit
services of PACS.

GOI scheme of geo tagging of warehouses is being implemented by NABARD which

enables development of geo tagged national directory of warehouses. The information
can be used to design service delivery mechanism for PACS. An efficient service delivery
mechanism at grass root level including storage and disbursal could help in easing, the
Demand-Supply issues plaguing Indian agriculture. MP Online, a Government of MP
portal launched in 2007 provides a variety of service including eMandi through which
services like location of Mandi, automatic token dispensation, automatic debit from loan
account are under operation. PACS solution as proposed would be focussed on similar
agri related services, to be accessible digitally for the end user on a phone, or through
PACS/Banking Correspondent/CSC operator/Village Level Entrepreneur (VLE).

Development of models would be required as part of the solution. The models could vary
from Risk Management framework including Financial risks, Credit default and Fraud,
Cyber security risk management models for attacks like DDOS/phishing attempts.
Scoring models, AI based classification as well as Product/Process frameworks are also
envisaged as part of the project. Framework to Review Models by National Audit Office(UK)
and other similar frameworks can be used for model validation before deployment.

In line with advancement of the analytics space, Model Risk Management

policies/frameworks need to be upgraded to ensure that any incremental risk due to the
AI/ML methodologies are handled. Facets like Risk Tiering and Bias & Fairness study
need to be conducted on data before Model design. AI/ML model validation should cover
aspects like Data Appropriateness, Methodology and Model testing with Stability of the
model, Conceptual Soundness and Interoperability is essential for a model to have
acceptance specially with regards to financial decisions. Other steps like Model Security,
Model Governance, Version Control and Ongoing Monitoring are required to ensure
model acceptability.

Methodology

Analysis of the policies and frameworks laid down by Government of India through its
departments, State Governments with regards to Agriculture credit, Service delivery etc.

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for Cooperative Societies including PACS. Guidelines as issued by the
regulators/supervisors (RBI, NABARD, RCS) with regards to Rural Financial Institutions.

Analysis of PACS and their business model including credit and service delivery
operations is required as part of the solution delivery. An analysis of the portfolio based
on factors like need and usage of the facility, appropriateness of digital channel for service
delivery required for selection of products and services for implementation through
digital medium is required for a design of the framework and products. It would be
prudent to introduce process redesign to leverage the technological advantage.
Comparative study with the successful models of implementation, credit delivery or
services could form the part of exercise towards developing a digital service delivery
mechanism through PACS.

A study of vulnerabilities as documented across different scales and business models can
be carried out. Secondary research towards vulnerabilities and solution approaches
adopted by businesses providing last mile service delivery or microfinance could be
considered for comparative study to develop corresponding models for digital delivery
of services through PACS. A range of vulnerabilities varying from Data security issues,
Fraud Monitoring, Supply chain and logistic issues can be introduced as part of Risk
Management processes for PACS.

Some of the data points in EShakti include Credit History of SHG members, generation of
monthly balance sheet for SHGs, Dynamic grading of SHG. Credit history of members
could be used for building credit models for PACS. Features and parameters as used for
dynamic grading in EShakti could be fine-tuned for the use of PACS solution. The usage of
EShakti is at different levels of maturity across India. Analysis of data from different levels
of usage can help in understanding last mile connectivity issues. Communication and data
flow with EShakti through API calls could be explored towards building behavioural
analytics.

The solution architecture would consist of different layers to manage the application.
Front facing UI as part of the Presentation layer could be designed using open-source
frameworks. Joomla is the one of the open-source framework for building portals. Basic
functions of the program as the Application layer and Calculation logic and information
analytics to be developed in the Business layer could use Java/C#/others for application,
python for analytics, readily available frameworks with basic functionalities could be
used for the POC solutioning, Standard AIML models in Python for Classification and
Regression may be used for the Model building exercise, Persistence and Database layer
could be dealt through open source cloud based databases like MySQL, PostGreSQL,
Microsoft Azure etc. The technology architecture chosen for the project would be selected
to enable the option of porting the application to mobile platforms. Features like api calls
to service providers including Govt websites, services like EShakti, Meghraj as well as
platforms like twitter can be used for information dissemination features.

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Cyber security framework as prescribed by RBI/NABARD may serve as a basis for simiar
framework for PACS. FFIEC Cybersecurity Assessment Tool, to help institutions identify
their risks and determine their cybersecurity maturity can be used for software
validation.

Execution Plan

Proposals for systemic changes in processes can be designed after due analysis of PACS
and their business model including credit and service delivery operations. The exercise
is also being undertaken as part of the PACS computerisation scheme. Digitisation of
existing records of PACS is also underway in order to build a comprehensive national
database. The solution design needs to be aligned with the proposed ERP solution for
PACS Computerisation to bring about efficient utilisation of national structure. Sample
analysis of PACS across different regions and focused analysis of PACS in a specific district
to be carried out for the selection of products available through digital medium. Different
levels of digitisation in different states with states like Telangana and Uttarakhand having
completed PACS computerisation. PACS in Kerala could have more than one branch while
there might be PACS with minimal presence. Cooperative structure in Gujarat, Karnatka
and Kerala is quite strong while a state like Uttar Pradesh with similar economic size as
Maharashtra and a higher population has got around 5,000 PACS as compared to around
20,000 in Maharashtra. The solution with such disparities could be directed towards
Cloud based architecture similar to Meghraj, encompassing a set of discrete cloud
computing environments spread across multiple locations, following a set of common
protocols, guidelines and standards issued by the Government of India.

Lending capacity of PACS is limited due to lack of sufficient funds, the operations are
limited due to their structural organisations as societies which can only lend or seek
deposits from their members. An analysis of the delegation hierarchy and operation
standards in Commercial Banks/CSCs can lead to a design towards efficient utilisation of
3 tier structure in Rural Cooperative sector. This could be used to provide the reach as
well as scale required for the clientele.

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Simple credit scoring model based on credit worthiness factors like character, capacity,
capital, collateral, and conditions could be used. AI based classification models for Credit
Default/Fraud and Early Warning Signals could be developed through model testing on
sample credit databases. Synthetic data generation techniques like Monte Carlo or other
Neural Network based techniques could be used for building robust models through
additional training data sets. Simulation environment could be used for Model Testing
and Validation.
Usage of online geo location services like Google maps api in coordination with
digitisation of records and warehouse geo-tagging schemes of GOI can be used to
optimise service delivery related to warehouse, godowns or other physical assets.

A flow diagram indicating the Project Life Cycle Steps and associated activities to be
undertaken is shown below:

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Deliverables
• A service model to provide digital service delivery through PACS. The model to
include:
o Digital platform for access to Credit and Non-Credit services through PACS
o Basic Risk Management with Risk Scoring and Cyber Security Framework for
the platform
o The model could act as an extension to Enterprise Resource Planning Solution
proposed as part of PACS Computerisation scheme.
o The model could act complementary to CSC scheme launched by GOI to deliver
services through PACS.

Mentorship
Mentorship would be required for a few aspects as part of the solution development
process. Some of the aspects for mentorship include:
a. Guidance on the Policy/Framework Vision of the Regulator(s)/Government. This
will enable alignment of the solution with greater government goal.
b. An understanding of Credit scoring and Delegation models as used by Commercial
banks along with idea about parameters/indicators monitored by banks as part of
Credit Risk Management
c. Learnings from the last mile connectivity programs of Banks like Jan Dhan Yojana
and Agri-credit schemes like KCC will help towards building a robust solution
design
d. Simulated environment could be used for model accuracy and connectivity testing.
Presence of Cyber security testing tools could enable VAPT and Scalability testing
of the solution before deployment.
e. Guidance regarding Project Management and Delivery Processes from Industry
experts would be useful towards timely completion of the assignment.

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