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Financial Inclusion A View from Below Smita Ramanathan; Rajalaxmi Kamath A large portion of Indias poor is excluded from

m the formal financial sector with many of them lacking access even to the most basic of banking services such as a savings account. RBI sources put the percentage of adult population in India having a bank account at 59%. In rural areas the coverage is only 39%. Having a concerted policy thrust on financial inclusion, the Reserve Bank of India issued circulars to all scheduled commercial, regional rural and cooperative banks in 2005, directing them to open no-frills or zero-balance accounts with nil or minimum balances and charges so that more people could access them. They were also advised to give wide publicity to such facilities. However, the experiences of a few urban poor households in Ramanagaram in Karnataka of opening banks accounts with a nationalized bank seem to indicate that affordable financial services are still not within easy reach of the poor. In September 2007, the Microfinance Group of the Indian Institute of Management, Bangalore initiated a three-month long pilot study tracking the daily financial inflows and outflows of twenty poor families in Ramanagarami. Most households were engaged in filature work, coolies, beedi-rolling, sweepers with the municipality and trading in vessels, fruit, etc. Of the many details that we collected was on the savings done by these households. Only one of the households reported having a family member with a bank account. Four of the households were making daily savings with a private bank whose agent collected money from their doorstep every day. These households were saving between Rs.10 to 20 everyday with one of the households even saving Rs.40 on many days. They reported using this service because it was convenient and one respondent mentioned that she had been promised an interest of Rs.900 on saving an amount of Rs.7500 (12% of the amount saved). However, the security of money saved with such private banks is always questionable; in fact another respondent mentioned that her family didnt save with such banks anymore because her husband had once been cheated of all his savings by a similar bank. These families clearly lacked access to a safe and accessible savings mechanism. Most of them were members of multiple MFI groups and borrowed at terms fixed by the MFIs and individuals have no choice of saving. Another acute problem faced by the urban poor in Ramanagaram, was the costs involved in attending MFI meetings. Since most of the women in our sample were working, attending group meetings entailed taking time off from work. This also was the reason for the popularity of this door-step savings facility, albeit by a dubious private bank. This prompted us to ask the respondents if they would like to open savings accounts with a nationalized bank where their money would be more secure and they could deposit and withdrawing any amount at any time. None of them had heard of the no-frills accounts, however they were all eager to open a bank account especially since we had offered to help them with the formalities. At the end of our study, we decided to hold a debriefing meeting with all respondents to share the preliminary findings. The manager of a nationalized bank in Ramanagaram was invited to the meeting to help the respondents open bank accounts and inform the respondents of the services available with his branch. The idea was to get the respondents formally acquainted with the branch manager so that they would have relatively easier access to the bank. They were told that the formalities required for opening a savings bank account were an address proof document and two photographs of the applicant. The manager was willing to accept a

letter from the municipal corporation confirming the applicants address if s/he did not have a valid document such as a ration card or a voters identity card. In case the applicants did not know anyone with an account in the branch to introduce them, he was also ready to accept as introducers, representatives of SHGs that had accounts with the branch. All respondents were members in one or the other SHG and since most SHGs did have an account with this particular branch, getting an SHG representatives signature as an introducer was not a difficult task for the respondents. The study team helped them fill up forms and 19 of the respondents and seven other members neighbours and relatives of the respondents opened no-frills accounts. In spite of all these efforts, opening a savings bank account was still not an easy task for many of these respondents. Though the manager had been receptive to the idea of getting poor households to open no-frills accounts, the other staff at the bank were not equally receptive. Staff at the counter insisted that they had to deposit a minimum of Rs.500/while opening the accounts. Since the respondents had been informed that they could open zero-balance accounts, none of them was prepared to deposit lump sums of Rs.500. Each time this happened, it required the managers intervention (since the respondents knew the manager personally, they were able to get him to talk to his staff. They also got us to talk to the manager). Nevertheless, a few respondents reported that it took no less than five visits to the branch before they could open an account since the manager was not always available to help them out. The need for the managers personal intervention didnt stop with the accounts being opened. In spite of being zero-balance or no frills accounts, service charges and taxes for not maintaining a minimum balance were still being deducted from these accounts. Two of the accounts had service charges deducted and many accounts had had charges deducted for issue of pass books. One of the account holders asked the staff why tax had been deducted from her zero-balance account, however she didnt get a satisfactory response. We then decided to speak to the manager about this and he mentioned that the computerized system automatically deducted charges and taxes. He asked the respondents to submit a letter requesting that their accounts be treated as no-frills accounts and that the deducted amounts be credited back to their respective accounts. A letter has now been submitted. This is probably the story with no-frills accounts elsewhere as well. For the poor, who cannot afford frequent visits to banks, as these might entail loss of wages, affordable services also mean those that are quick and easy to use. While the no-frills account is a welcome step in providing affordable financial services to the poor, for the banking sector to be truly inclusive, there is a need to sensitize all level of staff managerial as well as the frontline clerical staff to the special needs of the poor.
Notes: Funding for this research was provided by the Microfinance Management Institute (MFMI) through the Microfinance Group, Indian Institute of Management, Bangalore. We are thankful to Prof. R. Srinivasan of the Microfinance Group, Indian Institute of Management, Bangalore. We acknowledge the research assistance by Ms. S. Rathna, and are indebted to the gutsy women from Hajinagar and Ambedkarnagar at Ramanagaram for sharing their time with us. The usual disclaimer applies.



A working paper on the results of this study can be found at