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.