India research: healthcare and financial inclusion

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

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Risk disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. Investing in emerging markets is generally considered to involve more risk than developed markets.
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 a growing market and increasing revenues, companies can and should play an active role in improving peoples’ livelihoods by making these services affordable and inclusive. Our research and engagement trip to the country in the summer allowed us to gain valuable insights into companies’ efforts in these areas.
The economic success India has had 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 who live in rural areas.

Risk disclaimer

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.

Healthcare

Increasing levels of non-communicable diseases, 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 private or public) means that healthcare expenses are usually incurred by people from their own pockets. Within the combination 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.

The economic success India has had 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.

Many Indian pharmaceutical companies have made great strides in adopting innovative practices to deliver cost-effective and affordable medicines. Two of the companies we met stand out. One of them has an access to medicines strategy that is not only premised on pricing, but also on high-profile awareness campaigns, patient and doctor education, and optimised distribution logistics to reach lower tier cities and rural India. The second one has an innovation strategy that 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. Both of these businesses have successfully leveraged technology, efficient delivery systems and economies of scale to make high-quality medical treatments affordable through pricing structures that set the cost of treatments according to patient income levels.
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 stocks or products that may be mentioned.
Financial inclusion

India has achieved significant progress towards financial inclusion this decade. However, there has been less success in the 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 one of our bank holdings, to discuss their financial inclusion initiatives. Our conversation 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 (e.g., number of individuals opening accounts for the first time) towards metrics that focus on account usage and financial health. The bank confirmed it has retained independent 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 from fully shifting away from the informal financial sector.

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