Responsible Investing

Access for growth: Promoting responsible access to healthcare and finance in India

India’s vast untapped market for healthcare and financial services offers significant growth prospects for companies looking to serve it.
December 2019

India’s vast untapped market for healthcare and financial services offers significant growth prospects for companies looking to serve it. We believe that beyond reaping the financial benefits of increasing revenues, companies can and should play an active role in improving people’s livelihoods by making these services affordable and inclusive. Our research and engagement trip to the country earlier in the summer allowed us to gain valuable insights into companies’ efforts in these areas.

India’s economic success over the past three decades has helped lift millions of its citizens out of poverty. However, access to basic services such as healthcare and finance remains elusive for millions more, particularly those living in rural areas. In this viewpoint, the second related to our recent engagement trip to India, we highlight the initiatives some companies are taking to provide access to healthcare and finance, as well as some of the gaps that need to be bridged to enhance long-term shared value creation.

Access to basic services such as healthcare and finance remains elusive for millions, particularly those living in rural areas.

The healthcare dilemma in India

India is often known as being the pharmacy of the global South. A significantly low-cost base that supports a large talent pool of scientists and engineers, and a favorable regulatory environment, have helped the country become a hub for pharmaceutical research and development. The industry has focused on producing cheap generic drugs to improve access to medicines, both in India and across the world. Yet, the chronically low share of public funds spent on healthcare as a percentage of GDP—just over 1%—is a key reason why universal access to affordable healthcare, including medicines, continues to elude the country.


Affordable healthcare

Increasing levels of non-communicable diseases (NCD) such as heart disease and diabetes have led to a significant rise in the cost of healthcare in India. This has had negative impacts on the livelihoods of households as the lack of comprehensive health schemes, either public or private, means that healthcare expenses are usually incurred by people from their own pockets. Within the context of a public health system hampered by weak infrastructure, poor healthcare delivery mechanisms and serious quality issues, people have little choice but to seek healthcare in more expensive private institutions.

Out-of-pocket healthcare payments on medicines and treatments can lead to catastrophic expenditures that push patients and their families into the medical poverty trap. A study by the Public Health Foundation of India estimated that about 55 million Indians were pushed into poverty in a single year because of having to fund their own healthcare.1

Many Indian pharmaceutical companies have made great strides in adopting innovative practices to deliver cost-effective and affordable medicines, in line with Sustainable Development Goal (SDG) 3 to ‘ensure healthy lives and promote well-being for all.’ Cipla and Biocon, two of the companies we met, stand out. Cipla’s access to medicines strategy is not only premised on pricing, but also on high-profile awareness campaigns, patient and doctor education, and optimized distribution logistics to reach lower-tier cities and rural India. Biocon’s innovation strategy involves the development of affordable follow-on versions of biologic drugs, or biosimilars, to provide cost-effective alternatives.

We also met two growing healthcare service providers whose ethos is treatment affordability. Narayana Health and Healthcare Global Enterprises (HGE) have successfully leveraged technology, efficient delivery systems and economies of scale to make high-quality cardiology and oncology treatments, respectively, accessible and affordable. Importantly, both companies have developed pricing structures that set the cost of treatments according to patients’ income levels.

We were encouraged by companies’ efforts to help bridge the healthcare gap for India’s poorest. Going forward, we called for increased collaboration with government to expand affordable access by cutting supply chain inefficiencies, improving the sharing of drug price information among hospitals, introducing stricter drug pricing controls and furthering investments in research and innovation.

We were encouraged by companies’ efforts to help bridge the healthcare gap for India’s poorest.

We spoke at length to Cipla and Alkem Laboratories about these issues. We were impressed by Cipla’s commitment to quality and safety—all plants meet exacting standards, i.e., those required by EU and U.S. regulators, regardless of which market drugs are sold to. Moreover, quality indicators are part of the compensation structure/scorecard for executives.

We plan to continue engaging with major Indian pharma companies to implement similar practices, focusing on quality governance, manufacturing standards and data integrity. We will also press for improved transparency on findings from regulatory inspections as well as the nature of any letters or warnings and, importantly, on remedial actions taken by management to address the concerns raised.

Financial inclusion 2.0

India has achieved significant progress toward financial inclusion this decade. When the first Global Findex Database was released by the World Bank in 2011, it stated that only 40% of adult Indians had a bank account. The second version of the database,2 released in 2018, indicated that almost 80% of adult Indians have bank accounts—a noteworthy addition of approximately 300 million accounts in just a few years.

Importantly, groups that are traditionally excluded shared in these gains. Women saw a 30% increase in account ownership, and the poorest households saw a 40% increase. This remarkable progress was driven by a number of financial inclusion measures launched by the government, coupled with successful efforts from public and private financial institutions to capitalize on opportunities resulting from these measures. However, India has been less successful in usage of financial services, as only an estimated 20% of the population actually use the accounts. People continue to rely on the informal sector, which could explain the mainly dormant bank accounts.

During our trip, we met two financial institutions—Housing Development Finance Corporation (HDFC) and HDFC Bank (in which the former holds a 21% stake)—to discuss their financial inclusion initiatives.

HDFC, the country’s largest mortgage lender, has actively participated in a government subsidy scheme to provide affordable housing to home buyers in middle to low income groups. In 2018-19, the company approved 37% of home loans in volume terms and 18% in value terms to customers from the lower income segments, i.e., those with annual household incomes of up to $8,700. HDFC also partnered with the International Finance Corporation (IFC) to set up a fund for on-lending to developers of affordable housing projects across India.

Given the potential for shared value creation, we expressed our support for these efforts. Going forward, we plan to engage with HDFC to enhance its approach to incorporating sustainable construction considerations into its mortgage lending activities.

Our conversation with HDFC Bank focused on social impact measurement, and specifically how to better capture the outcomes and impact for customers and the bank, as well as for broader society, of financial inclusion efforts. This will require a shift from metrics on access, such as the number of individuals opening accounts for the first time, toward metrics that focus on account usage and financial health.

The bank confirmed it has retained specialist third parties to improve its understanding of how financial products and services are consumed and their effect on living standards. We expect this to help identify and address challenges that prevent new users to fully shift away from the informal financial sector.

We will closely monitor progress and outputs of this work, while continuing to engage on areas of financial inclusion, including the delivery of financial literacy programs and digital banking strategies. We share the belief that financial inclusion can and should play a significant role in attaining many SDGs, including eliminating poverty (SDG 1), promoting gender equality (SDG 5) and creating jobs (SDG 8).

We share the belief that financial inclusion can and should play a significant role in attaining many SDGs, including eliminating poverty (SDG 1), promoting gender equality (SDG 5) and creating jobs (SDG 8).

Concluding remarks

Companies in the healthcare and financial industries in India, and across emerging markets in general, that incorporate access and inclusion considerations into their business strategies are well positioned to take advantage of the growth opportunities an expanding customer base can present. Capturing new, previously underserved customers in an accountable, transparent and ethical way will have lasting effects beyond the potentially positive impacts on companies’ bottom line and shareholder value. Access to basic services linked to healthcare and finance empower people, promote gender equality and increase consumption—all critical enablers for socioeconomic development. As active owners, we can wield powerful influence to promote change that not only addresses material ESG risks but also supports sustainable and equitable development.

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1 Sakthivel Selvaraj, Habib Hasan Farooqui, Anup Karan, “Quantifying the financial burden of households’ out-of-pocket payments on medicines in India: a repeated cross-sectional analysis of National Sample Survey data, 1994–2014,” January 2018.


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Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

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