Sunday, October 2, 2011

Human ATMs bring banking services to the rural poor

At a recent United Nations Development meeting, Ela Bhatt, lawyer who founded the Self Employed Women's Association in Gujarat, India, spoke on the "100 miles principle" and how it applies to rural poverty. According to Bhatt, an individual needs six things: food, clothing, housing, primary health, primary education, and primary banking. These six needs can be produced within a range 100 miles. If unavailable within the 100 miles, however, development of knowledge and information technology can make the six "needs" possible. In short, decentralization fosters accessibility to such needs. Read more about the rural-urban divide on India here.

Kolad, a small town 70 miles south of Mumbai, India's financial capital, may have found a plausible method of addressing one of its needs: expanding primary banking. In a recent New York Times article, Vikas Bajaj reports an increasing trend of "human A.T.Ms," a hybrid of human tellers and automated teller machines. These "roving" tellers, armed with laptop computers, wireless modems, and fingerprint scanners, travel to rural areas to open accounts and process financial transactions for farmers and migrant workers.

These bank accounts earn 4 percent annual interest and incur no maintenance fees or charges for deposits and withdrawals. One mobile agent, Swati Yashwant, is a 29-year-old mother of one. Ms. Yashwant has been stationed in Kolad as a correspondent for State Bank for about four months now and is one of an estimate 60,000 group of "business correspondents" in India. As a business correspondent, she earns a monthly average wage of $200 on commission, which far exceeds the $65 monthly average income in rural India.

The "banking correspondent" project started roughly five years ago, at the urging of the Reserve Bank of India. The Reserve Bank seemed to realize that the traditional banking system was too costly and too inaccessible to the rural population. By literally bringing the services to the doorsteps of the farmer's home, the Reserve Bank has found a "relatively inexpensive way to recruit customers." Ms. Yashwant alone has set up 74 million bank accounts. The central bank predicts the number of business correspondents will more than double, to 126,000, by March.

Although the project has already produced promising effects, it is not without challenges. Business correspondents such as Ms. Yashwant must first travel to these remote villages by bus or even rickshaws. Once there, the wireless connections often falter and disrupt work. Blackouts are common. Additionally, many fingerprint scanners aren't able to read the calloused fingerprints of many farm laborers. Furthermore, the State Bank loses money on most of these accounts because the sums are so small. Ms. Bhatt cautions that the success of the business correspondents largely depends on who is establishing a banking relationship at the local level.
Banking is a relationship based on trust, so this cannot be easily built up. But it’s a good effort. Our Indian School of Microfinance for Women also does training for Business Correspondents.
Despite reservations as to whether the necessary trust can be built, the use of business correspondents still seems to be a step in the right direction. In Brazil, Mexico, and Kenya, similar use of mobile tellers aim to help the rural poor save and protect money. Abhijit V. Banerjee, who co-authored with Esther Duflo "Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty", considers the use of business correspondents to be "something that could be quite powerful." By setting up accounts, the poor are more likely to save the money they earn rather than spend it. As officials report, the average account balance has been steadily increasing. In March, the balance was just 100 rupees, whereas in August, the average increased to 160 rupees.

More importantly, as both Ms. Bhatt and Ms. Yashwant point out, a large reason why the rural poor stay poor is because they are simply financially illiterate, and do not think to save their money. Bringing banking service to their doorsteps helps the financially illiterate better understand banking. Regardless of the current challenges, the project has shown promising benefits. As Krishna Kumar, managing director at State Bank comments, the business correspondent project is currently more of a "social obligation," but "in a few years, it will be significant." The business correspondent project offers a viable economic solution for places like Kolad, but more importantly, it offers an example of how technology coupled with diligent effort can bring help to those in need.


JLS said...

What an interesting concept! There are man poor Americans (rural and urban) without a basic checking or savings account, even though they may have access to a bank. In particular, I remember hearing about residents of New Orleans' 9th Ward who felt unable to leave their homes because they lacked any savings or a credit card. They were financially immobile.

I wonder if a system like this could be utilized in the United States? Or maybe a version of this that focuses on educating the population about the importance of saving?

KevinN said...

This is a great example of how mobile technology can greatly improve the services that are available in rural areas. One thing that struck me was the statement that "the rural poor stay poor is because they are simply financially illiterate, and do not think to save their money." I wonder how many of the rural poor would have liked to save their money prior to this service, but simply did not have the resources available to them. The fact that the average bank account has increased by 60% in under 6 months suggests to me that these people might have understood the importance of a savings account all along, but that it was simply not a viable option before the roving bankers arrived.

I also wonder how much effort it takes to start a program like this. If the rural residents are truly ignorant of banking practices, I imagine it would be a tough sell to convince them to hand over what little money they have with the promise of getting it back someday.

KB said...
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Azar said...

This really is a creative idea and with more and more implementation, I'm sure a lot of the difficulties with the process will be improved upon. I wonder how feasible this is to apply in other countries- it sounds like a fairly simple concept.

KB said...

I think this is such a great idea. I also wonder if the United States could use a similar program in both rural and urban areas.

One thing that I think really makes this program successful is the personal touch. There is someone on hand who can answer all questions and who can educate those who are "financially illiterate". This certainly beats having to call a financial institution and go through a series of steps to reach a customer service representative in a faraway city who is usually not familiar with your situation. While I believe some services providers can deliver their services over the Internet or phone, I always like knowing I have the option to walk into my bank and talk to someone who is sitting in front of me.