account usage - grameen foundationgrameenfoundation.in/.../grameen_foundation_report... · report...
TRANSCRIPT
DECODING BANK ACCOUNT USAGE
BY LOW INCOME SEGMENTS
Supported by
PLACING REALITY IN A DIGITAL ECOSYSTEM
GRAMEENFOUNDATIONINDIA
1
Published by Grameen Foundation India (GFI) team with funding support from J.P.Morgan and
research insights collected by IRMA
Client Insights for Impact Devahuti Choudhury
Associate Director- Client Insights for Impact
Priyanka Bhagat
Associate Program Manager- Client Insights for Impact
Wamiq Zia
Data Analyst- Client Insights for Impact
Innovation in Digital Finance Neeraj Lekhwar
Project Manager
Information appearing in this report is the copyright of J.P.Morgan and GFI and must not be reproduced in
any medium without permission. The report has been prepared based on the research data collected by
IRMA .GFI endeavours to ensure that the information is correct but does not accept any liability for error or
omission. Information contained in this material has been obtained from sources selected by IRMA and
believed to be reliable but no representation or warranty is made by GFI as to the quality and accuracy of
data collection process.
Users are permitted to copy some material for their personal use as private individuals only. Users must
not republish any part of the data either on another website, or in any other medium, print, electronic or
otherwise, or as part of any commercial service without the prior written permission of and J.P.Morgan
and GFI.
If you require any further information on permitted use or to republish any material, contact by email any
of the following:
If you are granted permission to reproduce material you will be required to follow some simple guidelines
about the way the information is displayed. An acknowledgement of the source must be included
whenever J.P.Morgan and GFI copyright material is copied or published.
2
This report has been possible because of the generous funding
support from J.P.Morgan. We want to thank them for their
constant encouragement that has helped us put together this
report as a response to the prevailing curiosity around bank
account usage in India- especially among low income segments.
Our heartfelt gratitude goes to IRMA for sharing the data from
their research that has helped us generate rich insights for
creating evidence backed inferences for this report. We would
especially like to thank Professor Jeemol Unni, Professor Rakesh
Arrawatia, Dr. Hari Nagarajan and their entire team for their
direction to shape the areas of query for the research.
We would be failing in our duties without acknowledging the
support of Child Survival India, Shikhar Microfinance Pvt. Ltd.
and Sonata Finance Pvt. Ltd. in helping us pilot and scale our
Innovation projects and offering their operations as a research
and development backyard.
We would also like to thank our CEO- Prabhat Labh for his
relentless support and constant encouragement to create
content that is useful for all stakeholders- especially the
practitioner community. This report would also not have been
possible without the efforts and hard work of the Innovation in
Digital Finance and the Client Insights for Impact (CII) teams at
Grameen Foundation India.
We thank Kushagra Merchant for his significant contributions to
the conception and articulation of this report.
ACKNOWLEDGEMENTS
List of Abbreviations
1. EXECUTIVE SUMMARY - PAGE 6
2. WHY THIS REPORT? - PAGE 9
3. PROFILE OF THE SURVEY RESPONDENTS - PAGE 11
4. CHANGING FACE OF FINANCIAL SERVICES: PUTTING DFS IN PERSPECTIVE - PAGE 15
5. UNDERSTANDING THE UN-(UNDER)-BANKED: THE PROBLEM OF LOW-USAGE OF BANK ACCOUNTS - PAGE 17
6. WHAT SHAPES PREFERENCES OF LOW INCOME HOUSEHOLDS FOR FORMAL BANKING? - PAGE 21
A. COMPETENCE: IS FINANCIAL LITERACY ENOUGH? - PAGE 22
B. ACCESS: A SIGNIFICANT BARRIER - PAGE 33
C. PREFERENCE : AN ARTEFACT OF UNDERLYING ECONOMIC NEED - PAGE 34
7. BUILDING AN ENGAGEMENT MODEL: DFS AS CATALYST - PAGE 38
8. KEY RECOMMENDATIONS AND CONCLUSIONS - PAGE 44
INDEX
3
Sr. No Abbreviation Full Form
1 AEPS Aadhaar Enabled Payment System
2 ATM Automated Teller Machine
3 BHIM Bharat Interface for Money
4 BSBDA Basic Savings and Basic Deposit Accounts
5 CSI Child Survival India
6 DFS Digital Financial Services
7 FLWs Field Level Worker
8 FY Financial Year
9 GFI Grameen Foundation India
10 G-LEAP Grameen Learning Platform
11 IMPS Immediate Payment Service
12 IRMA Institute of Rural Management Anand
13 IVR Interactive Voice Response
14 JPM J. P. Morgan
15 LPG Liquified Petroleum Gas
16 MFI Micro Finance Institute
17 MGNREGA Mahatma Gandhi National Rural Employment Guarantee Act
18 MICR Magnetic Ink Character Recognition
19 NACH National Automated Clearing House
20 NCR National Capital Region
21 NEFT National Electronic Funds Transfer
22 PMJDY Pradhan Mantri Jan Dhan Yojana
23 POS Point of Sale
24 PPI Pre Paid Instrument
25 UP Uttar Pradesh
26 UPI Unified Payments Interface
27 USSD Unstructured Supplementary Service Data
LIST OF
ABBREVIATIONS
4
5
The banking and financial services sector in India has
been undergoing a two-fold supply-side transformation:
a thrust on opening of bank accounts alongside
Aadhar and Mobile linkage, and the accelerated
integration of digital solutions within the core banking
processes. The policy initiatives around opening of
bank accounts have remarkably reduced the number of
those with no bank account ownership: from more
than 557 million in 2011 to 233 million in 2015 . 1
Further, between FY 2015-16 and FY 2016-17, the
number of digital transactions witnessed a 65%
growth , due in part to the impulse provided by 2
demonetisation.
As these numbers testify, both these supply-side
forces have the potential to impact a large fraction of
the population, including low income households, and
shape the financial inclusion discourse itself. However,
although account ownership is an important first step
to establish contact with the formal banking system, a
subsequent measure of the successful integration of
low income households into formal banking activity is
the quality of bank account usage, as indicated by
frequency of use, average ticket-size of transactions
and the kind of products opted for by households and
individuals.
Our survey from May 2016 to November 2016 of
25,000 individuals across rural Uttar Pradesh (a state
that registered the highest number of accounts opened
under the Government of India's PMJDY scheme) and
Delhi / NCR showed that 58% of the adult rural sample
and 67% of the adult urban sample had bank accounts.
Of those who had a bank account, however, over a third
had not operated their accounts in last three months 3
and a fifth in the last six months. These numbers are
significant from a low income segment perspective,
given that 50% of rural households and 75% of urban
households in the study sample fell below the poverty
line for rural and urban areas as defined by the
Rangarajan Committee . 4
To strengthen the quality of bank account usage,
therefore, requires flipping the question of inclusion
from the stand-point of low income households, i.e.
from the demand-side perspective. It requires taking a
look at two choices that confront every low income
household when it comes to banking: why and when to
open a bank account, and having opened one, when
and how best to use it?
Our survey revealed that neither poverty nor simply
owning a bank account were indicators of the need
and preference for banking. In fact, it was a
household's occupation profile – whether engaged in
agriculture or non-farm activity, and whether self-
employed, employed as casual labour or salaried – that
critically drove these two choices. In making financial
decisions, low income households evaluate trade-offs
between informal and formal sources of banking,
considering factors such as interest rates, the extent to
which cash mattered in their daily economic
occupation activities, and the ease with which it was
possible to meet emergency needs. Ultimately, their
preference for banking, though not always optimal, was
influenced by factors such as prioritising liquidity over
depositing savings in a bank account.
EXECUTIVE
SUMMARY
6
While economic activity was the key factor influencing account
usage for the primary earning member of the household, which in
over 95% of cases in the sample were men, women on the whole
showed a definite preference to bank compared to men and cited
savings as their dominant reason to do so. However, at the same
time the extent of account ownership was lower amongst women
compared to men, with less than half of the women surveyed
having a bank account. Bank accounts in the name of women
also had a higher likelihood of being inactive. These gender-based
differences in ownership and usage are relevant because
traditional interventions in financial inclusion are often anchored
in effective participation by women.
Even when there was a willingness to bank, the issue of access
was a clear hindrance, with a 28% likelihood of an account sliding
into low-usage the farther an individual was located from the 5
bank branch, irrespective of the type of account. Further, the
greater the distance to the branch, the likelihood of an account
having zero balance was nearly 80%.
Given the national thrust around financial literacy, an important
take-away is that to improve the quality of bank account usage
investments in financial literacy are important but not enough. In
the research sample, better financial literacy did not necessarily
translate into improved account usage. Rather, it is important to
look at banking relationships with low income households through
the combined lens of household-level economics, access and
competency.
In a sense, if one were to visualise this, the nature of occupation
of an individual forms the floor of their preference to bank while
access acts as a ceiling. In between these two factors, though,
there is enough room to build competencies. The key, however, is
to design engagement models within the context of the current
reality of the economics of low income households, factoring in
the nuances around gender and rural-urban differences.
Indeed, improving competencies around financial literacy and
lowering the access ceiling are natural areas of strength for any
digitally enabled financial inclusion intervention. Except that these
interventions have to additionally contend with the uneven quality
of digital infrastructure — while 70% of bank account owners in
the survey sample possessed a phone, mostly a feature phone,
less than 50% of the respondents in urban areas and a much
lower 18% in rural areas had phones linked to bank accounts.
Therefore, linkage always does not mean engagement as was
seen through the small number of survey respondents who, on
average, read messages or used services such as helplines and
customer care.
The catalytic potential of Digital Financial Services (DFS) emerges
from the fact that once DFS reaches a critical mass of users who
can latch on to it, it can provide scale. To enable this, DFS
solutions will need to target women as digital gatekeepers.
Women showed a lower ownership of mobile phones compared to
men (especially in rural areas, where only 34% had mobile
phones) but they showed a definite greater propensity to bank
and use the phone as a medium to engage – especially in getting
information around additional products such as loans and savings
products. Women can thus drive DFS adoption, provided such
engagements are designed to be simple to use and extensively
supported by sustained investments in capacity building. The last
point is important in specific contexts — as the case of the survey
sample where nearly 50% of women were either illiterate or had
received schooling up to the primary grade or less thereby making
it imperative for practitioners to use capacity building measures,
engagement designs that take such characteristics of their clients
into account.
Further, these measures are most cost-effective to execute when
built on top of existing practices, field-level structures, operating
models and understanding of client behaviours. In short, supply-
side innovation in engagement models through DFS would work
best when executed at the margin through building the right
partnerships with relevant stakeholders.
Investing in the right engagement model becomes even more
significant given that many low income households do not have
the opportunity to touch-and-feel the digital experience which
makes them wary of trusting digital solutions upfront. The recent
judgement on the recognition of privacy (including informational
privacy) as a fundamental right for Indian citizens adds an
additional dimension and special meaning to safeguarding the risk
posed by digital channels to low income households.
Likewise, the cost of digital transactions is yet another important
7
dimension that goes into building a well-rounded and compelling
alternative to existing modes of financial management – be it
formal or informal – for low income households. Grameen
Foundation India's work with financial service providers
consistently brings out the fact that low income households
compare costs with available alternatives and the lower the costs,
the easier it is to encourage adoption.
The key take-away for the practitioner working with low income
segments is that any supply-side intervention must be anchored
in the context of its demand. Low income households are making
a conscious choice when using a bank account, including
engagements that involve use of a digital medium. Therefore, the
ability to craft solutions that balance convenience against
safeguarding informational privacy, security and costs lies at the
heart of using DFS to achieve the synergistic effects of the Jan
Dhan, Aadhar and Mobile (JAM) trinity.
1 “Disrupting Cash, Accelerating electronic payments in India”, report by
Price Water House Coopers (PwC) in 2015, supported by Internet and
Mobile Association of India (IAMAI) and Payments Council of India (PCI).
2 https://www.thewire.in/152625/digital-transactions-demonetisation-
detailed-analysis/
3 A bank account in which no transactions were carried out in the mentioned
time period
4 Based on recommendations made by Rangarajan committee in 2014, per
capita expenditure of Rs. 972 in rural and Rs. 1407 in urban areas is
considered as the poverty line at an all India level.
5 No transactions over a period of 3 to 6 months
8
WHY THIS
REPORT?
9
There is a general consensus that adoption of formal banking
services by low income households leads to increased resilience to
shocks and ability to manage risks. For financial institutions,
including MFIs, transitioning low income households from cash
transactions for small credit / small savings to formal and digital
modes such as bank accounts is equally imperative.
However, this will make sense to low income households
when they themselves see real economic value in it. Ownership
of accounts is just one of the parameters of financial inclusion.
Frequency and quality of usage of bank accounts are equally
important parameters so that they become an integral aspect of
the economic life of low income households. This aspect
assumes significance when one section of the population,
compared to another, is visibly integrating itself at a rapid pace
into the formal banking system to meet more and more of their
daily economic needs.
Nowhere is this challenge in financial inclusion more visible and
measurable than in the face of persistent incidence of low-usage
and activity in bank accounts. The initiative of opening of Basic
Savings and Basic Deposit Accounts (BSBDA) has been
accelerated through a number of policy interventions including
Pradhan Mantri Jan Dhan Yojana (PMJDY), direct-cash transfers,
Aadhar enabled payment systems. All these have led to a
noticeable percentage of low income households to open a bank
account and thereby establish that their first point of contact with
the formal banking system.
But has this been enough to trigger a sustained integration into the
formal banking sector? While there is enough data and reporting
on the number of bank accounts, is there a corresponding effort to
understand the quality of usage of these bank accounts? Often
cited common causes for poor integration with banking services
include inadequate financial literacy, dominance of informal
economy and poor physical access to banking. But if these
concerns are so obvious then why do they continue to persist and
have the banks attempted to engage with low income households
in a way that addresses these concerns? An important reason is
that inter-play of these factors on the ground is actually not that
straightforward to grapple with. When one adds the fact that
several financial service providers drive change in household
behaviour through women, the nuances multiply.
If financial inclusion matters then focusing on low-activity in bank
accounts acquires prominence. In order to address the issue of
low usage of bank accounts, it is important to directly address the
concerns and needs of low income populations – the demand-
side. To address these demand-side concerns, in turn, requires
service providers to invest in innovations on their current models
of engagement with low income households.
The existing models of engagement are deeply influenced by two
factors: policy and digital technology. While policy formulation is
beyond the scope of this report, it is very difficult to escape
accounting for technology. It has become an integral part of how
banking services are delivered. It has a bearing on how a policy
gets implemented. It modifies the incentives that banks and users
have to engage with one another by changing the costs and
method of transactions. As a result, it is impossible to discuss
about addressing the issue of quality of usage of bank accounts
amongst low income households without bringing in Digital
Financial Services (DFS).
Thus the question of how to marry perspectives on DFS with
quality of usage of bank account becomes important. The way
DFS can help address this question is through helping practitioners
innovate on engagement models. But these innovations are often
triggered and sustained by supply-side considerations. They do not
adequately account for demand-side behaviours – especially
preferences of low income households. Hence, the answer to the
question above would require making technology, especially DFS,
more demand-centric. It would also require putting DFS in its
proper scope, i.e., what it can solve and what it can't, and by
definition, how to account for non-technological considerations to
actually tap into the fundamental potential of technology.
This report provides a framework to think through this problem of
weaving in demand-side considerations into supply-side
innovations. This framework was shaped by the kind of data
insights gleaned from a comprehensive survey carried out in rural
Uttar Pradesh and Delhi/NCR of nearly 25,000 individuals, a large
proportion of whom were low income households. This framework
provides an actionable starting point for the interested supply-side
stakeholders, and also the policy-makers.
10
J. P. Morgan (JPM) collaborated with Grameen
Foundation India (GFI) and Institute of Rural
Management Anand (IRMA) to conduct an extensive
study to explore the current usage of bank accounts,
household and individual level behaviours that act as
triggers and barriers, possible reasons for poor quality
of bank account usage, and mapping of the client-side
ecosystem. The result is the development of this
empirically-backed framework.
The research focused on low income households
spanning both rural and urban areas. Based on the
learnings from the research, J. P. Morgan subsequently
supported a pilot intervention where GFI partnered with
three financial service providers in Delhi and Western
UP to put the findings to concrete use.
The survey covered the state of Uttar Pradesh and the
adjoining urban congregation of Delhi/NCR. Uttar
Pradesh is the largest state by population in India and
is characterised by high intra-regional social and
cultural variations. From a formal banking perspective,
it had the highest number of accounts opened under
the PMJDY scheme – 36.9 million accounts as of 16th
November, 2016 . 6
Conducted between May 2016 and November 2016,
the survey covered a total of 24,966 individuals in
3,450 households across 34 villages of Uttar Pradesh
and 2,000 households across 40 wards of Delhi/NCR
region. Of the 24,966 individuals, 74% of those
surveyed (18,396) were in rural Uttar Pradesh and 26%
of individuals (6,750) in Delhi/NCR region.
PROFILE OF THE SURVEY RESPONDENTS
PROFILE OF SURVEY RESPONDENTS
RURAL UTTAR PRADESH
Total number of villages surveyed34
Total number of sampled households 3,450
Total number of individuals in sampled households18,396
URBAN NCR
Total number of Municipal wards surveyed40
Total number of sampled households 2,000
Total number of individuals in sampled households6,570
11
6 http://www.indianexpress.com/article/india/india-news-
india/deposits-in-jan-dhan-accounts-rise-to-rs-64250-crore-
govt-4394966/
BPL HH DISTRIBUTION
RURAL
54%
URBAN
73%
TOTAL
61%
GENDER DISTRIBUTION
FEMALE HEADED HHS
RURAL
URBAN
TOTAL
13%
5%
10%
RURAL URBAN
9634 3702
8762 2867
18396 6569
12
32%
64%
4%
<15 15-65 >65
25%
2%
73%
AGE DISTRIBUTION IN YEARS
RU
RA
LU
RB
AN
EDUCATION DATA FOR INDIVIDUALS ABOVE AGE 5
PRIMARY AND BELOW
MIDDLE
SECONDARY
HIGHER SECONDARY
GRADUATION AND ABOVE
NO SCHOOLING
RURAL URBAN
29.04% 22.54% 28.53%29.90%
MALE FEMALE MALE FEMALE
13.77% 15.96% 15.19%17.54%
9.59% 17.43% 16.10%14.83%
7.20% 16.95% 11.80%12.84%
5.56% 19.89% 9.51%8.79%
34.84% 7.24% 18.86%16.10%
DE U T CS AE TH IOGI N
H
In terms of the demographic composition of
the survey population, females comprised
47% of the surveyed individuals. The average
household size was 4.6 with roughly a third
of the household members surveyed
comprising of children and individuals below
the age of 15 and adults over the age of 65.
Thus the bulk of our survey sample was in
the working age group of 15 to 65 across
both rural and urban areas.
13
In terms of the economic character of the households, the annual
average household income was INR 62,179 in rural areas and INR
51,398 in urban areas. Over half of the surveyed rural households
and nearly three-fourths of the urban households earned an
income below the poverty lines for rural and urban India of INR
11,680 and INR 17,155 respectively . Hence, the observations 7
coming out of the survey regarding the financial preferences and
behaviours of households can be deemed to be representative of
low income segments.
The sample was evenly distributed between agriculture &
agriculture-related activities (51%) and off-farm activities (38%)
with only 11% of households with the primary earning member
having a salaried job. Over 95% of those in agriculture were self-
employed in agricultural labour and the remaining were employed
in casual labour. The pattern was reversed in off-farm activities
where a majority was absorbed as casual labour with only 12%
being self-employed.
In majority of rural households the primary earning member was a
male. Only 7% of households cited women as the primary bread-
earner. Women-led households showed similar rates of
participation in agricultural self-employment as those households
which had men as primary earning members. They showed lower
rates of participation in non-farm activities (32% against 39%) but
higher rates of participation in salaried employment (16% versus
11.5%).
Similarly, among 95% of urban households the primary earning
member was a male with over three-fourths of them employed in
salaried employment. Of the remaining, nearly half were employed
as wage labourers and the remaining were either self-employed
(6%) or cited pension as an important source of household
income (3.5%). Urban households with women as the primary
earning member either depended on domestic work (40%), a
salaried job (23%) or pension (13%).
OCCUPATION PROFILE OF HH HEAD
RU
RA
LU
RB
AN
SELF EMPLOYEDFARMING
SELF EMPLOYED
NON FARMING SALARIED
NON AGRI-WAGE LABOURERS PENSIONERS
DOMESTIC WORKERS OTHERS
45%
0%
2%
6%
6%
71%
28%
12%
4%
4%
4%
3%
8%
2%
3%
2%
DEPENDENTS
14
7 If we use the Rangarajan line as reference, only 10% of the population in Delhi falls below this line in Delhi/NCR and 33.9% in UP
Today digitization in the banking and financial services
sector in India has become an acutely felt, and an
increasingly inescapable, fact — at least for the already
well-banked. Be it for reasons of convenience, reduced
costs of transactions, or improved traceability, it has
become a dominant trend which is changing the form
of banking itself.
This transformation has been built on a sure-footed
adoption of digital technology by the sector as a whole
leading to development of a range of access points,
from the (now-seemingly vintage) ATM's, POS
machines, net-banking, mobile-banking and of late, a
sudden jump in availability of a variety of payment
solutions that have embedded themselves across a
spectrum of economic activities. For instance, for
those having a bank account today there is the
availability of Unified Payment Interface (UPI) and a
plethora of wallets on a smart-phone; use of the USSD 8
protocol on a basic feature phone which the survey
found to be the most ubiquitous digital device amongst
the low income households; the option of Aadhar
Enabled Payment System (AEPS) powered-Micro ATM
for an Aadhar-seeded bank account; and finally,
POS/Micro-ATM facility for a debit card holder. If an
individual does not possess a bank account s/he can
still access standard POS machines through pre-paid
cards and the option of using an agent-assisted wallet
in case she happens to possess a phone.
Not everyone is fully aware and well-versed in these
options nor is their availability geographically
consistent. Nonetheless, the supply-side of digital
infrastructure is characterised by introduction of a
range of new options at a rapid pace. The supply-side
has also seen active participation from the
Government along with a number of technology
intermediaries. It is also true that post demonetisation,
payment solutions have caught the attention of
businesses, media and retail users to such an extent
that for the layman it is very easy to conflate payment
solutions with Digital Financial Services (DFS).
How does this technology-driven transformation of the
core processes of banking and financial services relate
to the socio-economic objective of financial inclusion?
While financial inclusion continues to remain a
doggedly critical concern for the sector, the debate
around it has a capacity to hide more than it chooses
to reveal. Let us take the case of mobile phones. The
survey found that out of 100 adult individuals who
owned a bank account, whether urban or rural, 70
owned a phone which was more often than not likely to
be a regular feature phone . Of these, only 18% in 9
villages and 50% in urban areas had actually linked
their phones with their bank accounts to receive
regular updates. Barely two-fifth of those bank account
owners who had a phone read messages in general or
used customer care services of any kind.
CHANGING FACE OF FINANCIAL SERVICES
PUTTING DFS IN PERSPECTIVE
15
The survey also showed that smart-phone penetration was 10relatively high in urban pockets but almost absent in villages .
Nearly half of smart-phone owners across the sample actively
used smart-phones to access the internet but a very small
fraction of them used it for financial transactions. In fact, use of
smart-phones for financial transactions ranked below that for
education, health and identifying information related to their 11economic activities . Effectively, out of a sample of 100 users in
urban areas, only 40 had a smart-phone and only 2 out of these
40 cited using smart-phones for conducting financial
transactions. While the ownership of mobile phones is certainly
high, the road from ownership to change in habits and
preferences is not a foregone conclusion, as in the case of
bank accounts.
It thus requires a deeper understanding of all the characteristics
that confront and challenge the aim of inclusion. Some of these
characteristics of poor access and financial literacy seem
obvious. As a result, it is customary to assume that lack of
education in general, and financial literacy in particular, especially
in villages, dominates the inability of households to fully extract
benefits of formal banking. Several digital initiatives, as well as
non-digital, have therefore placed considerable emphasis on
financial education and removing barriers to access.
But are there other factors that act as barriers to realizing the
benefits that digital solutions promise to bring? How do these
factors really impact household preferences? How critical is the
right product design? For instance, will an individual from low
income household be more inclined to transact with a bank if 12she has opened a BSBD account under the PMJDY versus
a traditional savings account? Will there be a tendency to
revert to informal sources of financing if there is
severe economic stress? How tightly are banking
preferences linked to the underlying economic
activities of households given that prior to
demonetisation around 98% of financial 13transactions were settled in cash ? Answering
these questions requires decoding how usage
of bank accounts actually plays out in practice from the
perspective of low income individuals and households.
8 Unstructured Supplementary Service Data
9 In villages, smart-phone penetration was barely 5% while in urban
areas it was about 30% in the sample.
10 Of the households surveyed that owned a bank AND had a mobile,
30% owned a smart-phone in urban areas and only 2% in the 34
villages surveyed.
11 Of the smart-phone owners, 50% of users in villages and 45% in urban
areas cited using smart-phone for education, followed by 29% and
40% respectively for health, and 20% and 22% accessed information
on potential markets (to sell goods and services they had to offer)
using a smart-phone.
12 These are accounts with lower deposit limits, require only one
documentary proof to open an account and have no minimum quarterly
balance requirements.
13 http://www.frontline.in/columns/Jayati_Ghosh/digital-dreams
/article9436091.eece
16
UNDERSTANDING THE UN-(UNDER)-BANKED:
THE PROBLEM OF LOW-USAGE OF BANK ACCOUNTS
In the recent past a number of policy interventions have been
undertaken to significantly increase the outreach and
ownership of bank accounts. This is in line with the general
consensus that financial inclusion is one of the foremost
policy objective underlying the country's economic
development priorities. This is a continuation of earlier
attempts to push formalisation of monetary transactions
across the economy. A number of non-governmental and
private actors have, over the years, become a critical and
permanent feature of these efforts including microfinance
institutions, SHG promoting institutions, agent networks,
regional rural banks, credit co-operatives and now Payments
Banks and Small Finance Banks.
By some estimates, a combination of these interventions have
reduced the unbanked population (those without a bank
account) from 557 million in 2011 to around 233 million as at 14the end of 2015 when the latest account opening drive,
named the Prime Minister Jan-Dan Yojana (PMJDY), was
initiated. Earlier interventions to expand banking penetration
focused on targeting villages above a population of 2,000.
Under PMJDY, the intent was to extend banking facilities to
each Sub-Service area consisting of 1,000 - 1,500 households
so that every household can have access to a bank within a 15reasonable distance, say about 5 km .
Over 182 million bank accounts were opened under this
initiative in 2014, the year of its launch. As a result there is a
measurable increase in the number of bank accounts.
However, does a positive increase in the extent of ownership
of accounts translate to a noticeably greater participation of
the lower income segments of society in the formal financial
sector?
Our survey found that around 58% of adults in rural areas and
67% in urban areas surveyed had a bank account. This meant
that over a third of respondents in the sample still remains 16unbanked . There was an expected 10 percentage point
difference between households in rural Uttar Pradesh and
Delhi/NCR. Meanwhile, the gender gaps were found to be
stark. Only half of the women in either rural or urban areas
possessed a bank account compared to over two-thirds of
men in rural areas and 80% of men in urban areas.
RURAL
4.2Km
PSUBANK
4.5Km
PVT BANK
1.2Km
GRAMEENBANK
3.9Km
URBAN
3.6Km
PSUBANK
3.6Km
PVT BANK
1.3Km
GRAMEENBANK
3.9Km
AVERAGE DISTANCE BETWEEN RESIDENCE AND BANK
ACCOUNT OWNERSHIP BY GENDER
UR
BA
NR
UR
AL
RU
RA
LU
RB
AN
YES
NO
64%
36%
81%
19%
51%
49%
48%
52%
17
These statistics are of interest in themselves – specifically the
gender difference. They point to the need to continue to put thrust
on initiatives aimed at familiarising people with the benefits of
bank account ownership and expanding bank account ownership.
Our survey, however, also showed that even for those who
possess a bank account, there was little evidence that being a
beneficiary of PMJDY would automatically lead an individual or a
household into a more involved engagement with the formal
banking system. This makes it important to treat the distinctions
around the terms 'unbanked' and 'banked' with greater caution.
This distinction – an easy one to skip – is between opening and
owning an account versus operating one. The quality of
engagement is reflected in frequency of usage, average ticket-size
of transactions, transition of households over time from receiving
and making payments to using other instruments such as savings
and investments. While it is easy to measure the opening of bank
accounts, similar measures are harder to come by when it comes
to understanding the extent and quality of financial engagement
especially for the lower income segments. One measure, however,
can help approach this distinction a little better. This is the
frequency and quality of account usage.
It is well-established by now that women are an important agent
of change when it comes to formal financial engagement of lower
income households. Literature points to the fact that when 17
women are targeted effectively as a channel for delivery of
financial services, household level outcomes such as income and
asset-building improve along with the ability to cope during times
of distress. Unsurprisingly then, in our survey too, nearly 48% of
women exhibited a preference for depositing money in formal
banks and 72% in rural banking institutions compared to men who
preferred to keep it at home. For women saving is a key
imperative which takes them to the bank with over half of the
women surveyed explicitly articulating it as their primary motive.
WEEKLY FORTNIGHTLY MONTHLY BI MONTHLY QUARTERLY HALF YEARLY ANNUALLY
RU
RA
LU
RB
AN
1.7%
1.8%
0.4%
0.5%
15.0%
18.0%
13.4%
3.6%
4.9%
0.4%
1.2%
17.2%
27.1%
43.0%
34.0%
25.7%
22.4%
35.9%
13.6%
24.3%
17.9%
6.2%
4.6%
10.2%
5.7%
0.8%
0.1%46.0%
ACCOUNT USAGE FREQUENCY FOR ADULTS ABOVE 18 YEARS
18
Thus, with such strong preference to save and bank amongst
agents of change (women) backed by a reasonable incidence of
bank account ownership (60 to 70%) in the survey population as a
whole, over a third (35%) of bank accounts held in the sample had
witnessed no transaction in the past three months and over a fifth
(21%) had witnessed no transactions over the past six months.
These figures were surprisingly more pronounced in the urban part
of the sample, Delhi/NCR region, where over 40% of accounts were
not in use for over 3 months.
As in the case of account ownership, there was a noticeable gender
difference in the usage of accounts. Accounts owned by women
showed a lower incidence of account usage with a 10% difference
compared to men across both rural and urban areas. In our rural
sample, 72% of men and 62% of women had used their bank
accounts once in the previous quarter while the figures stood at
61% for men and 52% for women in the Delhi/NCR sample.
While there is some comfort in the fact that in rural areas almost
all the households surveyed had at least transacted once in a year,
the fact remains that only a fifth of the households in the sample
reported using their accounts on a monthly basis while under half
reported using their accounts once in two months. Over a third of
households failed to use their bank accounts even once in a
quarter.
This observation around inconsistent usage of bank accounts was
supplemented by examining cases when multiple accounts were
opened within a household. If an individual had both a PMJDY
account and a regular savings account, irrespective of gender the
odds of the regular savings account being infrequently used were
very high (80%). Another similar situation arose when in a
household the wife has availed a recurring deposit product for the
express purpose of savings. If another male household member
opens a PMJDY account (to avail some government benefits) then
our survey found that the likelihood of the PMJDY account being
unused is a significant 37 per cent.
Put together, these observations make one wonder that minus
strong policy-induced account-opening initiatives are there
underlying reasons that would make individuals willing to shift
their financial preferences which could lead to more frequent
usage of bank accounts? In asking this question the rural-urban
and gender differences should be borne in mind. Answer to this
question can also help answer the question of whether the already
established supply-side market-mechanism for financial services,
including DFS, can play a constructive and high impact role in
better integrating low income households into the formal banking
sector.
14 “Disrupting Cash, Accelerating electronic payments in India”, report by
Price Water House Coopers (PwC) in 2015, supported by Internet and
Mobile Association of India (IAMAI) and Payments Council of India
(PCI).
15 http://www.pmjdy.gov.in/files/E-documents/faq.pdf
16 Nationally, even after PMJDY and demonetisation, over one-third of
adult population remains unbanked (http://www.frontline.in/columns/
Jayati_Ghosh/digital-dreams/article9436091.ece)
17 Esther Duflo's study of South African pensions reveals that when the
pension recipient is woman in the household, it translates into strong
health effects for girls in the family. Pascaline Dupas, in her work in
Kenya, shows that access to fairly simple savings tools has a
significant impact on health-related investments of families. Silvia
Prina, in a randomised experiment in Nepal, offered flexible savings
accounts to female-headed households with no opening, deposit or
withdrawal fees. After one year, the study found that 80% of those
offered the account opened one and used it actively. After one year,
households assets had increased by 16^. All these studies suggest that
the gender of the account-holder matters and drives differential
outcomes for the family. Also see,
http://www.ifmr.co.in/blog/2016/10/03/financial-inclusion-indian-
women-have-something-to-bank-on/
18 https://www.thewire.in/152625/digital-transactions-demonetisation-
detailed-analysis/
19 https://www.thewire.in/152625/digital-transactions-demonetisation-
detailed-analysis/
20 https://www.thewire.in/152
19
The findings on ownership and usage presented are based on the
survey conducted between May and November 2016 and are
therefore representative of the period before demonetisation.
During the period of demonetisation (16th November to 31st
December, 2016) the rates of bank activity would certainly have
shown a spike. Post the month of December, there is no reliable
evidence to gauge if the effect on banking activity has tapered or
remains significantly high. This external shock can complicate, if
temporarily, drawing conclusions from the indicator on bank
account activity.
In using the indicator it is important to remember the deeper
underlying point that the activity rate of a bank account is a
reliable indicator of how integrated the account is in the economic
life of an individual or household. Further, the usage pattern of a
bank account is a sticky indicator which means that it is reflective
of underlying habits. Even though the exercise of demonetisation
may have an immediate and sudden temporary effect on bank
account usage, whether this usage has 'stuck' requires further
investigation, and lapsing of sufficient time.
As of date, the figures available in the public domain are in the
context of digital transactions across a number of interfaces
including BHIM, UPI, mobile wallets, debit and credit cards, and
bank transfers. The overall retail payments through digital
transactions have certainly increased in frequency. For instance
the total number of digital transactions increased from 59 billion in 18FY 2015-16 to 97 billion in FY 2016-17, an increase of 65% . The
average transaction value meanwhile declined marginally from Rs.
1,640 per transaction in FY 2015-16 to Rs. 1,440 per transaction.
The growth in number of transactions is encouraging from the
perspective of digital adoption. A disaggregated analysis shows
that bulk of these transactions (95%) are through electronic
clearing which covers NEFT (86%), NACH (6%) and IMPS (which
includes UPI at 3%) with the balance 5% of transactions being
through various kinds of cards including debit (2%), credit (2%)
and PPI (which includes mobile wallets) at 1%. A second relevant
point is that cash withdrawals from ATMs, which stood at a
monthly figure of upwards of Rs. 2,000 billion (Rs. 2,551 billion in 19October, 2016) were inching to similar levels by April 2017 .
There are two caveats worth bearing in mind when using the
above figures. The first is that while the growth in digital
transactions was given a leg-up due to demonetisation, there was
already a presence of a strong under-current of transactions in the
banking system moving from paper-based clearing (cheques,
MICR and non-MICR clearing) to digital modes such as NEFT. This
is evident from the fact that paper-based transactions were 82% of
cashless transactions in 2011-12 which nearly halved to 46% in in
FY 2015-16 (the year before demonetisation). In FY 2016-17, this 20figure further slipped to 37% . Thus, demonetisation may have
accentuated a firmly established trend.
The second caveat is that these figures apply to the population as
a whole. There is no further disaggregation easily available as to
see what volume of transactions is really attributable to low
income households and the average transaction size. The picture
that emerges is one of growth in digital transactions which are
primarily driven through NEFT and debit and credit card usage —
facilities and mediums which, one can venture to speculate, may
not be in regular use by a critical mass of low income and poor
households at present.
This does not take away from the fact that demonetisation may
have triggered some form of shift in consciousness of digital
transactions, and may have even encouraged adoption at the
margin of digital means by low income households. However, it is
difficult to conclude, from the figures available, that this would
have resulted in a significant shift in quality of usage of bank
accounts by low income households in a period of less than a
year.
As a result, the deeper significance of the figures on low-usage
pattern of bank account before demonetisation continues to hold
weight even post demonetisation.
Having said that, it would certainly
be very useful, perhaps as part of a
future exercise, to compare the bank
account activity rates before
demonetisation (expressed in this
report) with the prevalent rates and
make this data available in the
public domain.
20
WHAT SHAPES PREFERENCES OF LOW INCOMEHOUSEHOLDS FOR FORMAL BANKING?
For an individual to bank formally what matters is a genuine economic need and the competency to act on
that need. As our survey shows neither poverty nor simply owning an account strongly influence the need
and preference to bank. If the sector has to allocate resources in improving the quality of usage of bank
accounts through better aligning with the needs of low income households how should it move forward?
There is enough research and anecdotal evidence from own experience of practitioners of what factors
hinder preferences and what aid them. At the most basic level there is an agreement that improved
financial literacy aids a positive shift in preference while physical access is a pronounced hindrance. It is
believed that intelligent and judicious use of digitally driven interventions can help address both these
concerns.
While our survey supports this consensus in general, it adds a number of nuances around it. Beyond
anecdotes and research, practitioners and funders also need a structured way to think through this problem
of usage so that they can build better interventions. One of the critical assertions our survey enables us to
make is that household-level economics actually are a key determinant to household preferences, and
thereby set a floor on the quality of engagement of households with the formal banking sector.
21
Access as a significant barrier is strongly echoed in our findings
and in spite of all else being in place, if access is an issue it drains
a household's preference to formally bank. While structuring
innovations it may be useful to think of access as setting the
ceiling on household preferences.
Within these two aspects there is enough room for households to
build their competency which can significantly shape the decision
of households to bank and their ability to choose the right type of
product.
Any action to address low bank account usage will have to
address one or all three of these aspects. However, the real
practical challenge is: which lever to pull when and what is the real
leverage available in a given context? How does DFS really
intertwine in this picture? This really requires looking at very
specific ground level realities and drawing some learnings from it.
This was the primary motivation for the study: even though it
focuses on the most obvious of concerns, it deepens the meaning
of what these concerns signify for formal financial institutions and
DFS providers.
A. COMPETENCE:
There is no denying the fact that competence to bank influences
the preference of households towards formal banking. This is
because it allows households to get comfortable with the process
of banking itself and thereby choose a product which best meets
the household's immediate requirements. If a household is able to
select an optimal product its likelihood of staying engaged with
formal banking would improve.
It is often assumed that lack of financial literacy really impacts
competence of households. This is due to inadequate or poor-
quality schooling, limitations of language, inexperience in dealing
with formal documentation, and an inability to understand the
design and features of various banking products. For example, in
our survey a third of women in rural areas and a fifth in urban
ACCESS(CEILING)
FINANCIALCOMPETENCY
HOUSEHOLD-LEVEL
ECONOMICS(FLOOR)
WHAT SHAPES HOUSEHOLD PREFERENCES?
22
IS FINANCIAL LITERACY ENOUGH?
areas were illiterate with another 27% (rural or urban) having
primary or lower level of schooling. This means that over half of
women in the sample had little or inadequate educational literacy. This is not an uncommon phenomenon. As a result, it is often
implied that one of the most common ways to build competence
is through improving the household's, especially the women's,
financial literacy, i.e., their ability to make sense of processes,
systems and products of banking by bridging any gaps in
understanding the low income households may have.
The area of financial literacy is also a natural fit for application
of DFS. Thus, it becomes important to ask: can enhancing
investments in financial literacy influence the competency of
households to choose the right type of products and thus address
somewhat the issue of low-usage of bank accounts? A second
related question is that can account ownership lead to
improvement in the competency of households to choose the
right product type? That is, do initiatives like PMJDY that focus on
account ownership modify banking preferences through building
better literacy?
Across the sample, the study looked at this aspect of financial
literacy in some depth. The study has decoded financial literacy in
a graded manner starting from the ability of a household to know
basic functions of banking such as depositing cash / cheques,
withdrawing cash and transferring funds (Institutional literacy
Literacy) to progressively more evolved ones such as the ability to
identify and use basic financial instruments such as ATM Card,
Deposit slip, Bank Statements etc. (Technical Literacy) to higher-
order ones such as knowing whom to approach in a bank for what
purpose (Functional Literacy) to possessing analytical skills of
understanding interest rates, compounding and so forth
(Analytical Literacy).
COMPONENTS OF FINANCIAL LITERACY
YOU GO TO A BANK FOR
1. Depositing Cash/Cheques
2. Withdrawing Cash
3. Transferring Money to other Accounts
CAUSE AND EFFECT RELATIONSHIP
IMPROVING FINANCIAL
LITERACY OF AN INDIVIDUAL
IMPROVING ACCESS TO BANK
ACCOUNTS
COMPETENCE OF HHS TO SELECT
RIGHT TYPE OF PRODUCTS
IMPROVED USAGE OF BANKING
SERVICES
23
INS
TIT
UTIO
NA
LLI
TE
RA
CY
TE
CH
NIC
AL
LITE
RA
CY
F
UN
CTIO
NA
LLI
TE
RA
CY
A
NA
LYTIC
AL
LITE
RA
CY
IDENTIFY THE FOLLOWING INSTRUMENTS
Taking Home and Personal 4. Loans
5. Taking Agricultural Loans
6. Buying Insurance Policies
1. ATM Card
2. Cheque Book
3. Withdrawal Slip
4. Deposit Slip
5. Bank Draft
6. Bank Statement
IDENTIFY FUNCTIONS OF THE FOLLOWING BANK STAFF
1. Bank Teller/Cashier
2. Customer Service Officer
3. Branch Officer
4. Agricultural Assistant/ Bank Mitra
5. Manager
6. Cash Peon
ANSWER THE FOLLOWING QUESTIONS
1. What do you understand by Interest Rate?
2. Define Simple Interest
3. Define Compound Interest
For an individual to engage with banking it is not necessary to be
proficient on all of these levels. A basic ground-level grasp of
institutional and technical aspects can suffice. Hence, the study
measured the capacity of households surveyed on both these
counts and in the process, it found two, somewhat counter-
intuitive, observations.
Improved financial literacy does not necessarily result in improved
frequency of banking transactions with the relationship being
statistically weak. The second observation is that while an 21
individual owning a bank account has a slight advantage when it
comes to knowing the basics of banking better, s/he however,
fares as poorly as one who does not own a bank account when it
comes to the more functional and analytical aspects of banking . 22
The study instead reveals that occupation better explains the
ability of households to choose a product aligned to their
economic needs, a point covered subsequently . 23
From a DFS perspective, several interventions focus on financial
literacy or have an element of financial literacy to strengthen
competence. Given the nascent stage DFS is in, a significant part
of an intervention is invested in providing information and
knowledge about using interfaces such as mobile phones for
conducting financial transactions. For example, Grameen
Foundation India created a learning application for Front Line
Workers to train them on DFS and in turn use the same
application as a training aid for their clients. Furthermore, the
immediate nudge by such DFS related financial literacy trainings
is to access a digital platform for conducting transactions – be it
through a mobile phone, a conveniently located agent or banking
infrastructure such as POS machines. The immediate
access/uptake that DFS provides brings the financial literacy
initiatives to its logical culmination.
However, what the survey reveals is that these intervention also
have to account for and build upon factors which shapes
household-level economics, particularly occupation. There is a
subtle distinction to bear in mind: digitally aided financial literacy
will certainly enhance competence, but it may not be sufficient to
shift preferences
21 In statistical terms, the pair-wise correlation between accounts
where no transactions had been done for at least one quarter and
the four levels of literacy of the account holder respectively were
(starting with Institutional and ending with Analytical): -0.081, -
0.072, -0.062, -0.088
22 On a scale of 1 to 7 (where 1 means unable to answer any
question related to financial literacy and 7 means able to answer
all questions), an individual with a bank account exhibited an
average score of 3.35 for Institutional literacy (deposit and
withdrawal) and 2.81 when it came to Technical Literacy (ATMs,
cheque books) compared to an average score of 3.27 and 2.74
respectively for an individual with no bank account. Meanwhile,
as far as Functional and Analytical literacy scores were
concerned, an individual with a bank account exhibited an
average score of 2.25 and 1.80 respectively when compared to
2.22 and 1.78 for a person with no bank account in the sample.
23 One supporting measure that emerged was that in households
where there are a larger number of earning members are more
likely to have individuals with greater and technical literacy..
24
WOMEN AND
MOBILE PHONES
25
Many digital and non-digital interventions that focus on building
competency are women-centric. This is a continuation of the
tradition from the practice of microfinance, and also because a
fair number of digital interventions are routed through
microfinance institutions, women credit cooperatives and other
similar institutional mechanisms. This approach is driven by the
recognition of the positive impact of women's economic
inclusion on children's welfare and overall household well-being.
At the same time however, women, especially from rural areas
and from low income segments, still grapple with issues such as
social mobility, participation in financial decision-making and
participation in active workforce. Therefore, mobile phone for the
convenience it accords from the confines of a woman's home,
becomes the obvious channel to leverage for furthering DFS. For
the practitioner, it is therefore important to understand
ownership of mobile phones amongst women, especially those
who also own bank accounts.
Unlike men with bank accounts, where the ownership of mobile
phones is similar in rural and urban areas, women in urban areas
showed a decidedly higher ownership (72%) compared to
women in rural areas (34%). This difference is significant and
needs to be borne in mind. Similarly, the presence of smart-
phones amongst rural women was a minuscule 2% in the study
sample while in urban areas one out of nearly 5 women who had
a bank account & a phone possessed a smart-phone. But even
here, compared to men, ownership of smart-phones amongst
women was less than half of what it was for men.
PHONE OWNERSHIP- ACCOUNT OWNERS AGED 18 YEARS AND ABOVE
YES
NO
NORESPONSE
RURAL
86%36%
URBAN
OWN AN ORDINARY CELLPHONE?
12%62%
2%2%
76%66%
23%32%
1%2%
YES
NO
NORESPONSE
RURAL
5%2%
URBAN
OWN A SMARTPHONE?
91%85%
4%13%
16%52%
77%46%
7%2%
26
USE CASES FOR MOBILE PHONE OWNERS
RURAL URBAN
USE ORDINARY PHONE FOR
RURAL URBAN
USE SMARTPHONE FOR
CALLINGCALLING97.5%96.6% 97.8% 98.3%
MESSAGINGMESSAGING37.7%23.8% 60.2% 50.6%
PLAYING GAMES
PLAYING GAMES21.2%14.5% 28.9% 23.1%
EDUCATIONEDUCATION0.5%0.6% 0.6% 0.00%
INTERNETINTERNETBROWSING0.6%0.4% 0.5% 0.6%
FINANCIAL TRANSACTIONS
FINANCIAL TRANSACTIONS0.2%0.2% 0.00% 0.00%
SOCIAL MEDIASOCIAL MEDIA0.0%0.0% 0.00%0.00%
CALLINGCALLING94.9%89.6% 99.6% 99.2%
MESSAGINGMESSAGING80.2%79.3% 97.7% 98.5%
PLAYING GAMES
PLAYING GAMES22.8%10.3% 28.7% 16.7%
EDUCATIONEDUCATION6.1%3.4% 0.8% 0.7%
INTERNETINTERNETBROWSING41.6%51.7% 52.1% 61.3%
FINANCIAL TRANSACTIONS
FINANCIAL TRANSACTIONS2.0%3.4% 0.00% 0.00%
SOCIAL MEDIASOCIAL MEDIA23.3%27.5% 13.8%9.7%
27
OF THOSE WHO HAVE SMART PHONES & USE INTERNET
EDUCATION
HEALTH
CREDIT OPPORTUNITIES
MARKET PRICES
POTENTIAL MARKETS
ONLINEPURCHASES
FINANCIAL MARKETS
READING NEWS
EDUCATION
HEALTH
CREDIT OPPORTUNITIES
MARKET PRICES
POTENTIAL MARKETS
ONLINEPURCHASES
FINANCIAL MARKETS
READING NEWS20.0%
33.3%
0.0%
20.0%
6.6%
13.8%
26.6%
46.6%
28.5%
25.6%
10.9%
42.6%
8.5%
8.5%
51.2%
80.4%
1.6%
24.0%
38.3%
19.0%
22.8%
8.38%
85.3%
80.9%
5.9%
30.9%
32.1%
23.8%
13.1%
0.0%
86.9%
89.2%
RURAL URBAN
28
PHONE OWNERS WHO CAN READ MESSAGES ON PHONE?
3%
64%
31%
2%
53%
42%
1%
24%
58%
3%
44%
46%YES
NO
NORESPONSE
PHONE OWNERS WHO HAVE USED IVR SERVICES
RURAL URBAN
4%
61%
32%
5%
49%
42%
2%
23%
58%
3%
44%
45%YES
NO
NORESPONSE
RURAL URBAN
29
USE CASES FOR IVR USERS
EDUCATIONEDUCATION
HEALTH
CREDIT OPPORTUNITIES
MARKET PRICES
POTENTIAL MARKETS
CUSTOMER SUPPORT
UTILITY PAYMENTS
GRIEVANCE REDRESSAL
EXTENSION SERVICES
ADVERTISEMENT /INFORMATION28%
46%
7%
33%
98%
32%
42%
6%
27%
99%
30%
42%
18%
51%
99%
37%
54%
6%
43%
99%
RURAL URBAN
YES
NO
NORESPONSE
RURAL
1%1%
URBAN
84%84%
12%13%
1%1%
86%79%
6%3%
YES
NO
NORESPONSE
RURAL
2%1%
URBAN
86%45%
12%54%
15%33%
70%62%
15%5%
PHONE OWNERS WHO MAKE FINANCIAL TRANSACTIONS USING CELLPHONE
PHONE OWNERS WHO ARE AWARE OF MOBILE WALLETS
30
INCIDENCE OF BANK ACCOUNT LINKAGE FOR PHONE OWNERS
11%
70%
16%
10%
64%
22%
2%
29%
52%
3%
50%
39%YES
NO
NORESPONSE
PHONE OWNERS WHO SEEK UPDATES ON BANK ACCOUNT ON PHONE
RURAL URBAN
3%
20%
77%
5%
16%
79%
2%
4%
94%
1%
1%
98%YES
NO
NORESPONSE
RURAL URBAN
IF YES
31
Over one in three women in urban
areas had their phones linked to their
bank accounts compared to 55% of
men. In rural areas, the same held
true for only 7% of women in the
sample compared to over 20% of
men. Encouragingly though, women
who had their phones linked to bank
accounts were slightly more proactive
in seeking updates on bank account
activity as men.
One observation which may pique the
curiosity of the practitioner is about
the nature of updates that women
sought through phone. They sought
more updates related to loans and
other information compared to men.
For example, while on average 44% of
men in rural areas and 60% in urban
areas mentioned seeking updates
beyond usual banking transactions
such as withdrawals and deposits,
the figures were 57% and 66%
respectively for women.
RURAL
84%79%
URBAN
74%
38%
53%
49%
75%66%
33%50%
29%
74%
42%
59%
25%31%
PHONE OWNERS WHO MAKE FINANCIAL TRANSACTIONS USING CELLPHONE
WITHDRAWALS
DEPOSITS
ANY TRANSACTION
OF BANK ACCOUNT
INFORMATION ON LOANS/
OTHERS
32
B. ACCESS:
There are factors that increase the actual costs for a household to
transact with formal financial services. An important and easily
visible element of this transaction cost is the sheer physical
distance an individual has to travel to access the nearest bank
branch or any relevant financial service centre or access point
including a POS terminal and the service time at a bank branch.
Distance is lesser of an issue in urban areas as compared to rural
areas and hence the study tested the impact of access in greater 24
depth in rural areas where distance does play a critical role.
Across the 34 villages surveyed in Uttar Pradesh, the average
distance to a bank branch was 4 kms while it was as high as 70
kms for some really remote villages. On paper, a distance of 4
kms may seem small, but it can prevent shift in preferences from
occurring.
Could the right type of banking product help negate some of the
disincentives arising from large distances? For example, would a
PMJDY account with the incentive to access government benefits
induce households to visit a bank branch to withdraw MGNREGA
payments, LPG subsidies and pension on a regular basis? The
survey found that even if an individual owns an account,
irrespective of the type of account, the likelihood of the account
sliding into low-usage was a statistically significant 28% if s/he is
located farther away from the bank . Further, the greater the 25
distance to the branch, the likelihood of an account having zero
balance was nearly 80%.
Thus, various kinds of product features may help in opening of
accounts, but if the physical distance remains a hurdle then either
the accounts are likely to slide into low activity levels or the
households are likely to keep drawing down the payments and not
use the bank account as a medium to build up savings. The
relationship thus becomes largely transactional.
If physical access is burdensome, is digital access through a
mobile phone in a position to significantly lower time and cost
of transaction and thus induce households to stay with formal
channels of banking?
As noted earlier, smart-phone penetration is low especially in
villages and skewed more towards men than women. Even a
higher ownership of regular feature phones at 70% amongst
households with bank accounts has not translated into
measurable linkage of phones with bank accounts and their use
for basic financial transactions. Outside of these household-level
considerations, there are broader infrastructural concerns on the
availability, speed and reliability of mobile connections in rural
areas when it comes to their use for data driven services.
Beyond these there are three additional themes that have not yet
received due significance in the discourse around building
stronger digital access for all. One is that there are real economic
costs to digital transactions part of which will have to be
apportioned to users, including the low income households.
The second theme includes concerns around information security
and privacy. Lower income households are, more than others, at a
higher risk to any negative fall-out from breach of information.
This is complicated because of the fact that low income
households are often not aware of the risk of issues such as
identity theft, misuse of personal information, and inaccurate
inferences about creditworthiness.
In addition to these customer-centric aspects of privacy, the issue
of security and privacy also acquires special legal significance in
light of the recent judgement of the nine-judge Constitutional
Bench of the Indian Supreme Court on privacy as a fundamental
right . The judgement does mention informational privacy as 26
amongst the range of rights covered under the rubric of privacy.
As the jurisprudence on privacy evolves it will likely affect the
nature of regulation which governs data practices and issues of
breach of information by banks and other financial institutions .27
Beyond privacy, the third issue is one of trust. Low income
households are justifiably wary of lack of physical contact when it
comes to digital transactions . They cannot touch and feel the 28
money they are receiving or giving, especially the latter. There is
no transaction receipt they hold in possession as proof of
transaction. This is why even though the intervention may be
digital, it may require a human agent to help them with the
transactions.
A SIGNIFICANT BARRIER
33
In summary, there are definite supply-side considerations both on
the physical and the digital front. These will remain material in the
near-term and together they will continue to define a hard ceiling
on the ability of low income households to engage with formal
financial services even when the households have a clear
preference to do so.
C. PREFERENCE:
A key observation from the survey is that household-level
economics are by far the single-largest determinant of how
frequently households use bank accounts as well as the incidence
of zero balance accounts. A low income household's economic
characteristics shape its desire and competence to bank.
One way to get a deeper feel for this is through digging a bit into
the behaviour of households in rural economies – economies
which may be of interest to those looking to achieve a step
improvement in driving better bank account usage. Earlier when
talking about competency, the report observed that occupation
seemed to explain product choices. What does it translate to in
concrete terms of how households, engaged in different
occupations, choose a banking product, provided they bank?
A good place to start is with those self-employed in agriculture as
they comprised nearly half the study sample. Given the demands
of liquidity in this profession, were they able to select a product
which matched with their needs for liquidity? Relative to those
unemployed, individuals self-employed in agricultural labour were
three times as likely to opt for current and regular savings
account (46% greater likelihood) compared to those unemployed.
Similarly, they were 82% more likely to opt for a current account
over a recurring deposit account as the former makes it easier to
manage liquidity.
Next, the second largest source of employment in the study
sample was off-farm casual labour. This group showed a lower
preference for both PMJDY account (16%) and regular savings
account (11.5%). But at the same time, greater the off-farm
activity at a village level , greater was the preference to favour 29
institutions such as Grameen Banks and Co-operative societies
over keeping money at home.
Overall, over two-thirds of the primary earning members of the
surveyed households in the villages did own a bank account . 30
Their choices of specific products were not always optimal and
there were visible instances of adverse product choices – such as
those self-employed in off-farm activities showing a greater
preference for a regular savings account over a current account
even though their liquidity needs would have better met by a
current account.
On the whole, though, the nature of occupation decidedly
influenced the decision to bank as well as choice of a specific
type of product. But did these choices sustain over time?
MGNREGA enabled the study to collate some observations on 31
this. In the study sample, the workers employed under this
Government of India initiative were 75% more likely to opt for a
PMJDY account and having used such an account to receive
payments, the same workers were 39% more likely to opt for a
savings account.
24 Though when Grameen Foundation India started pilots with organisations
in Delhi/NCR to test insights emerging from this survey it found that even
urban clients of microfinance institutions complained about not having
easy access to a bank branch.
25 This complements an earlier observation stated earlier that amongst
dormant account owners over two-thirds had said that they had opened an
account with an expression intention to avail various kinds of government
benefits.
26 http://www.supremecourtofindia.nic.in/pdf/jud/ALL WP(C) No.494 of 2012
Right to Privacy.pdf
27 There are two litigations under-way in the Supreme Court of India which will
be closely watched in this regard: one on breach of privacy by the
WhatsApp mobile application when it modified its privacy policy to share
data with Facebook; and the other on digitisation of personal information
through the Aadhar identity card initiative of the Government of India.
28 The issue of security and privacy of information cannot be wished away so
easily: in the earlier survey of Awaaz.de cited earlier, 22% of women of
Saath Savings and Credit Cooperative Pvt. Ltd. (Ahmedabad) surveyed
highlighted that they trust in-person transactions more than digital ones.
AN ARTEFACT OF UNDERLYING ECONOMIC NEED
34
Further, greater the scale of MGNREGA activity in a village, the
preference for formal banking institutions (including Grameen
Banks) increased by 32%. On the whole, if an individual happened
to be a MGNREGA card holder, s/he tended to prefer a formal
institution (Credit Cooperative in the context of the sample) to
non-banking – a discernible shift in preference . 32
It can be argued that an initiative such as MGNREGA has created
a ground for households to engage with banking along a very
specific economic motive. Having once engaged and used the
account to meet specific economic needs, the households were
able to make better sense of the banking processes and thereby
improve upon their competency in a limited manner. From there, a
critical number of the same households were willing to identify a
product (regular savings account) which fit their needs better.
Would a similar incentive logic work out in case of cash-transfers
and LPG subsidies? It is feasible to assume yes, though the study
did not test the same. What if PMJDY accounts also offered
specific economic incentives designed in line with the nature of
the occupations of the low income households: for instance,
offering overdrafts against purchase of agricultural inputs?
The above observations confirm the self-evident fact that
households are acting as reasonable economic agents in
choosing whether or not to bank and what products to use. They
are evaluating their options and assessing benefits versus costs.
These choices may not be optimal but nonetheless there is an
underlying economic logic driving these choices.
This perspective was lucidly visible when it came to responses of
low income households to interest rates. Households in villages
have a choice between the interest rates offered by informal
sources versus those offered by financial institutions. In the
survey, both men and women tended to favour financial
institutions when the interest rates of informal sources moved
higher. Similarly, when low income households experienced an
idiosyncratic shock (such as food shortage), they were 30% more
likely to draw down on their PMJDY account but not their savings
in their regular savings account.
The choice between informal and formal institutional sources is
an example of a decision that is hard to decode without adequate
context. Interest rate is only one aspect which governs this
choice. In poorer villages informal sources of credit and savings
played a significant part in enabling economic activity and
unsurprisingly, in such villages the incidence of poor account
usage was likely to be higher. Would that mean in villages with
healthier economies there would be a tilt towards formal sources
by default?
One way to test the health of a village level economy is to gauge
the net cultivated area. Greater net cultivated area implies greater
level of economic activity and employment opportunities for a
particular class of workers. The study found that greater the net
cultivated area in a village the likelihood of an average individual
maintaining zero balance in her/his bank account nearly doubles.
It seems counter-intuitive that prospects of higher economic
activity do not necessarily lead to improved quality of banking.
The reason is that if a large proportion of workers are employed in
agriculture and if the wages for agricultural labour are paid in
cash then the incentive to have positive savings in a bank account
was found to be lower.
Bank accounts are more likely to be used for certain types of
economic transactions such as receipt from sales or loans and
withdrawal of cash to disburse wages to labourers as well as
receipt of payments from governments such as that for subsidies,
dough relief, etc..
There is therefore a hard economic logic behind choices low
income households were making. Some of these choices, such
as between informal and formal choices are more complex and
context dependent than say between different types of products.
From a practitioner's perspective, it is important to be mindful
of these choices before investing in actions to improve financial
literacy or address issues of access to formal channels of
banking. These interventions have to be built on top of the logic
of the occupation profile of the primary earning member(s) of
the low income segment. The degree to which a low income
households are able to see a positive and sustainable link
between their economic activities and choice of a particular
banking service or product influences their inclination to stay
engaged over the longer term.
35
29 As measured by Simpson's Diversity Index, which in the
context of economic activities, can indicate the number
and strength of different economic activities within a
given location.
30 While not related to occupation, the survey also showed
that households with higher numbers of elderly persons
were more likely to opt for regular savings than PMJDY
or current accounts.
31 Mahatma Gandhi National Rural Employment Guarantee
Act 2005 is an Act of the Government of India offering a
guarantee of 100 days of wage-employment in a year to
a rural household; www.nrega.nic.in
32 The insight and arguments around MGNREGA are drawn
from research done by Dr. Hari S. Nagarajan IRMA which
will be presented in his upcoming book. This book, in
turn, is a sequel to his book Decentralization and
Empowerment of Rural Development, August, 2014,
Cambridge University Press, India.
33 On a scale of 1 to 5 (higher scale indicates better):
English proficiency score was 3.06 for those with no
bank accounts against 3.38 for those with bank
accounts; Arithmetic proficiency score was 2.97 versus
3.32; Mother tongue proficiency scored similar at 3.61
and 3.97 respectively.
The survey in Uttar Pradesh and Delhi/NCR showed
that there are consistent and significant differences
between households that are financially included (i.e.
have a bank account) and ones that are not on several
household outcomes. This difference showed up in
the basic indicators on health, education and general
consumption expenditure. For example, the survey
showed that households with bank accounts tended
to spend 75% more on health care than households
with no bank accounts. Households with bank
accounts also reported slightly better indicators on
the health of children as well as better proficiency 33scores on English, Arithmetic and Mother tongue .
The households with bank
accounts also spent 50% more
than households with no bank
accounts (an average of Rs. 3,781
against Rs. 2,466). Interestingly,
households with higher bank
account activity also tended
to spend differently than
households with lower
bank account activity,
specifically on health
and education. Though it
is difficult to generalise
from these findings, the survey
surely hints that there maybe an
element of economic self-
selection at work when households
opt to bank and the extent to which
they choose to bank.
36
HH LEVEL INVESTMENTS
DEPOSITS IN PSU BANKS
LIC INSURANCE SCHEMES
LIFE INSURANCE
DEPOSITS IN PRIVATE BANKS
PRECIOUS METALS AND JEWELLERY
RURAL URBAN
COMMON REASONS FOR HHS WHO DO NOT INVEST IN FINANCIAL PRODUCTS
1. COMPLEX PROCESS
2. PROBLEM IN ACCESS
3. POOR CUSTOMER SERVICES
1. POOR CUSTOMER SERVICES
2. TEDIOUS DOCUMENTATION
3. INCONVENIENT TIMINGS
42% 68%
12% 26%
2% 57%
3% 11%
7% 24%
37
The survey outlines a range of observations that look
at how low income households engage with the
banking system. If the aim is to build upon these
observations then the next question is how can a
practitioner use them to design effective DFS
interventions? The essence underlying all these
observations is that it is necessary to look beyond
mere participation in banking and ownership of bank
accounts towards improving usage of bank accounts
through shifting preferences. To shift preferences, the
bank or a financial service provider has to provide a
competitive and compelling economic financial service
/ banking alternative to the status quo. To be able to
offer such an alternative it is important to decode the
relevant factors pertaining to local issues of access
and economic activities.
Some factors such as — number of bank branches;
distance to a branch; nature of rural economics; nature
of the occupation of the household; the extent of
penetration of mobile phones and types of mobile
phones; self-employment and casual labour as the
dominant form of earning income; continuing reliance
on agriculture in rural areas and off-farm activities in
urban areas; the lower availability of mobile phones
amongst women; a high percentage of women being
either illiterate or educated only till the primary level
among others — are factors which are common to
many situations and are a given. The changes in these
factors, if any, are likely to be driven through policy
initiatives, broader macro-economic and market-linked
forces, or gradual changes in demographics. Any
engagement thus will have to account for these factors
but is unlikely to affect them in any meaningful way.
However, there are other tangible factors —
established habits of transacting in a certain manner;
information asymmetry; improvement in banking
systems and processes which are easier for low
income households to deal with; deepening the digital
infrastructure and simplifying its access and on-
going use; addressing issues of trust, security and
privacy; designing products with features that relate
to household economics; helping households
optimize their choice of financial products;
ability to partner with other stakeholders including
payment banks and agent networks; the historical
investments made in a given geography in building
financial competency of women; the competency of
individuals to more effectively use mobile phones and
other POS infrastructure — that are amenable to
change provided they are consciously factored
beforehand in the design of an engagement. These
factors together constitute a fertile ground for field-
level design innovations.
When these 'brick-and-mortar' factors are taken into
account, the proper role of technology and digital
medium in an engagement model becomes that of a
catalyst. On a stand-alone basis DFS cannot construct
a compelling alternative to shift preferences, but can
certainly aid one. Grameen Foundation India's work
with its clients provides an indication of how this
actually translates in practice.
BUILDING AN ENGAGEMENT MODEL:
DFS AS CATALYST
38
DFS INTERVENTIONS IN PRACTICE-EXAMPLES FROM GRAMEEN FOUNDATION PROJECTS IN INDIA:
39
DESIGNING DIGITAL ENGAGEMENT MODEL FOR SONATA MICROFINANCE CLIENTS
PROJECT NAME:
Introduction to Mobile Financial Services for MFI clients
PROJECT DURATION:
Phase I: 2014-2016; Phase II: 2016-2017
PROJECT LEAD:
Grameen Foundation India
PARTNERS:
MFI: Sonata Finance Pvt. Ltd.;
Technology Partner: Oxigen Services India Pvt. Ltd.
Sonata is one of the leading MFIs working in several states in
India including Uttar Pradesh with an aim to make microfinance
self-sustainable. GFI is working with Sonata Finance in rural Uttar
Pradesh to transition its present cash-based transaction system
to a DFS platform.
One of the most important business process for any microfinance
operations is repayment of loans by customers and its collection.
Sonata customers make weekly/fortnightly loan repayments and
travel to a branch for the same. GFI's research with customers
revealed the nature of costs that clients incurred in travelling to
the branch.
The average distance of the branch from a client household was
11.89 km. As a result, on an average, the clients spent 47 minutes
travelling to the branch locations and incurred Rs. 49 per visit on
travel expenses which could at times be as high as Rs. 180.
Further, 51.6% of customers reported loss of daily work when they
had to visit the branch for repayment losing out an average of Rs.
187 of daily income. These costs were found to be particularly
high for clients residing beyond the radius of 10 kms from a
typical Sonata branch location.
Thus, a physical approach such as the one described above
entails opportunity costs for both customers (in terms of loss of
work and travel expenses) as well as for the service provider (in
terms of managing cash as well as ensuring clients visit the
branch on a regular basis). Hence, there is a role for an
intervention that uses a readily available digital platform to collect
repayments. However, it requires Sonata to provide its clients with
the necessary digital infrastructure in their vicinity as well as
impart training to clients on how to use these platforms. For
those customers located beyond 10 km radius of the branch,
Sonata partnered with Oxigen agents in the neighbourhoods of
customers who helped the Sonata customers recharge their
mobile wallets as well as make the loan repayments.
In this particular example, access was a significant barrier for a
very recurrent business process of microfinance operation, i.e.,
repayment. This created room for a DFS enabled intervention.
However, to design the DFS intervention, it was first necessary to
understand its specific aspects and design an alternative with
properly distributed costs which made economic sense to
customers. It is important to note that at the beginning of the
project in 2015, the client was offered an alternative to use mobile
wallets along with the option of visiting a branch. The DFS
intervention was a layer upon the existing physical processes and
was confined to introduction of a mobile wallet. While it was
primarily a DFS intervention, it required partnening with an
additional stakeholder i.e., agents who engaged with the clients
closer to their homes. The net result was an agent-assisted
mobile wallet option to clients which entailed necessary
investments on part of Sonata.
However, as the project entered Phase II of its implementation,
policy level shifts such as Aadhar seeding with bank accounts and
subsequent event of demonetization (November 2016), the
project evolved its model from a wallet based intervention to an
AEPS based DFS solution. The project eventually installed POS
(Point Of Sale) machines in 150 branches that enabled not just
loan repayments but also bank account balance checks, deposits
and withdrawals from the MFI branch. The transaction costs for
clients are no longer applicable under this model which resulted in
a positive engagement trigger.
An important dimension of the exercise was that the costs
charged per transaction of the mobile wallet, as percentage of the
loan repayment amount, were an important variable in the design.
In the initial phase, the transaction costs were distributed between
Sonata and the low income client. In the subsequent phase, these
40
costs were brought down once Sonata perceived the volumes that
could be anticipated through such a model. With the help of GFI,
Sonata explored a few options on this front and it was very clearly
found that lower the transaction costs, the greater was the
willingness of customers to shift to the mobile wallet option . 34
PROJECT OUTREACH (PHASE I):
Total clients trained: 23,221
Total clients that have transacted at least once on Oxigen wallet:
7000
Total clients that have transacted 3 or more than 3 times on
Oxigen wallet: 3879
PROJECT OUTREACH (PHASE II):
Total clients trained: 58,646
Total clients that have transacted at least once on AEPS platform:
15,760
Total clients that have transacted 3 or more than 3 times on AEPS
platform: 4088
IMPROVING DIGITAL CAPABILITIES FOR IMPROVED BANK ACCOUNT USAGEPROJECT NAME:
Scaling Digital Financial Services: Research and Innovation
PROJECT DURATION:
January 2016- September 2017
PROJECT LEAD:
Grameen Foundation India
PARTNERS:
Shikhar Microfinance Pvt. Ltd., Child Survival India and Sonata
Finance Pvt. Ltd.
Post completion of the survey and analysis of the results for this
report, Grameen Foundation India partnered with three
organisations in the area in which the survey was carried out –
Shikhar Microfinance Pvt. Ltd. and the not-for-profit Child Survival
India (CSI) in Delhi / NCR, and Sonata Finance in rural Uttar
Pradesh. The purpose of these three engagements was to test the
demand-side insights gathered from the study to improve the
bank account usage of the clients / beneficiaries of these
organisations as well as to inculcate the habit of regular use of
savings account. In addition, these organisations were also
looking for means to improve or ease their day to day operations
and their client engagement models.
For this exercise, three sets of clients / beneficiaries were chosen
across the three organisations. Each of these three groups of
bank account users faced overlapping sets of challenges which
primarily revolved around difficulty in accessing the branch, lack
of adequate familiarity with banking procedures and lack of
knowledge of other means of accessing bank accounts (including
digital). The clients of both the microfinance organisations were
also relying on informal channels as substitutes.
Each of the three organisations involved had different strategic
priorities. For CSI it was about providing added value to its
beneficiaries through enabling them better access to financial
services as well as knowledge on health related savings. Shikhar
meanwhile was looking to streamline its repayment solutions to
make it more cost-effective. Sonata, in rural Uttar Pradesh, was
targeting increased penetration of the cashless model across its
operations and transactions with customers.
The base approach that GFI used across all three situations,
however, was similar. This approach relied on three key design
elements: improving competency of women clients / beneficiaries
and field-level-workers (FLW) through trainings; using a DFS
catalyst; and working with the trained women to devise a wealth
management plan based on their priorities and circumstances.
The DFS catalyst for this exercise was the G-LEAP (Grameen
Learning Platform) mobile application. It allows employees of
financial institutions to access learning material anytime,
anywhere during their field work. Just-in-time learning encourages
high level retention since employees can access content and
apply the gleaned information right away rather than at a later
time. All the content is localized to the specific organisation and
the region within which it operates.
In terms of training, as of August, 2017 GFI had trained close to
90 FLWs on the basic Banking and Train the Trainer modules
customised for this exercise and 10,000 women in rural Uttar
Pradesh and 5,000 women in Delhi/NCR on use of the G- LEAP
41
application. Subsequent to the training, GFI signed up 50% of these women for a 3-month intervention after assessing their current engagement with saving accounts.
Women participating in this intervention were guided to select 2-3
financial goals from a total of 9 identified use-cases based on the
profile of the women with an aim to encourage them to use
savings account more frequently. If a woman was already using
the account on regular basis then the goals were selected such
that she opts for saving account associated products like
insurance, Recurring Deposit and Fixed Deposit or she is
encouraged to adopt digital channels for transactions such as
ATM, Point of Sale(POS) or mobile. Once the goals were identified FLWs did
follow up with these clients on the goals during their regular collection meetings and
helped them with issues they were facing. Close to 3,500 clients also
received refresher training and reminder on the goals through IVR
system. Messages through the IVR were followed by a question to
assess their learning.
As of date, the feedback from the FLWs and analysis of IVR
responses is encouraging with a number of success stories
emerging. Currently the program is running and definitely more
will emerge from the end line study once the intervention is
completed. The training exercise and subsequent intervention
shows that competency building measures need to not only
provide knowledge but also adequate hand-holding through an
active human agency to cause shifts in habits.
OUTREACH (TILL AUGUST 10TH 2017):
TOTAL CLIENTS TRAINED: 8,485
Of total clients trained, clients reached through IVR based
messaging for financial literacy: 3469
34 In the subsequent phase of this exercise, Sonata shifted to AEPS wherein the low income client had to bear no cost. There was a
noticeable increase in the use of AEPS by customers.
42
THE CLIENT ENGAGEMENT TRIGGERS FOR FINANCIAL INCLUSION
INFLUENCERS:• Front line Workers• Peer Network• Family Members
INFLUENCERS:• Transaction Cost• Information about
channels
INFLUENCERS:• User friendly
Interface/Processes• Leverage Traditional
Models
INFLUENCERS:• Transparent services• Secure transactions• Singular access for
different financial products
INFLUENCERS:• Grievance redressal• Privacy of Information
(household AND individual)
• Integrated Financial Services Ecosystem
CAPACITY BUILDING
ACCESS
SANCTION AND UPTAKE
USAGE
ADOPTION
• E-learning and digital training aids
• Digital Channels:Apps, POS/MicroATMS
• Custom Interfaces
• Low turn around rate for transaction
• Digital/ IVR based receipts
• Product based messaging
• Low rate of transcationfailure
TECHNOLOGY AND DIGITAL MEDIUMS AS CATALYSTS
43
Timely redressal of grievances
Positive financial outcomes
•
•
KEY RECOMMENDATIONS
AND CONCLUSIONDrawing from the observations in this report, examples
cited in the previous section and from Grameen
Foundation’s cumulative experience across other
countries, it is possible to distil important thumb-rules
to design high-value client engagement models to help
low income households better leverage their
association with formal banking system:
1. The processes for low income clients to sign
up for DFS enabled banking channels need
to be practical and easy to shift to, with
simplicity being the essence of the design.
The simpler the system, easier will it be to
build competency of individuals. This is
especially true for a segment that is largely
used to handling cash and is still to come to
terms with the idea of digital transactions
that does not allow them to tangibly touch
and feel their money. Systems such as
digital receipts, low turn around rates for
transactions, low rates of transaction
failures are important benchmarks to meet
in order for clients to build trust in the digital
medium.
2. Simplicity and trust need to be
complemented by investing in capacity
building measures to ease the client into
using bank accounts through digital
channels. With improvement in basic levels
of literacy and greater familiarity in use of
digital devices the nature of this investment
may change in future. However, at present,
low income households currently in
workforce have limited exposure and training
in using digital channels for bank accounts.
Consequently, for the foreseeable future the
initiatives around opening of bank accounts
and promotion of digital payments have to
be supplemented by improving the skill and
understanding of the use of mobile phones
beyond simply the calling function (which
the study found to be the pre-dominant
mode of interaction with the phone).
3. It is important to find the right gate-keeper
(those with mobile phones) in the household
to ensure transition from merely uptake to
adoption. More consistent use of a bank
account at a household level happens
through participation of as many members
of a household towards better wealth
creation and management through financial
service providers. It is prudent to identify
points of entry that can influence other
household members to adapt and adopt
technology.
4. Costs of digital transactions will be an
important consideration in the willingness of
low income customers to shift to DFS
enabled options. Digital transactions can
certainly alleviate the issue of physical
access. However, clients, including low income
households, will be discerning users. Given our
understanding of the tangible and non-tangible
44
costs involved, bank account access through digital
mediums will have to make financial sense for the clients
to make the shift.
5. Adoption and expansion of DFS by various kinds of banks,
MFIs and financial institutions would require identifying and
partnering with the right stakeholders in the enlarging digital
financial services ecosystem. An essential attribute of the
digital channel to all segments of the population is
convenience. As a result, the robustness of the supply side is
of critical importance — especially for low income segments
that have little appetite for ambiguity in their financial
transactions. The machinery that holds together the
relationship between multiple stakeholders should be well
oiled and efficient.
6. Current usage of bank accounts is largely transactional. If
bank accounts have to become the medium for financial
inclusion, it will also need to become the singular point of
access for different financial products. This is particularly
true for low income segments that have now come into the
fold of formal banking through PMJDY. There is opportunity
to increase the value of these accounts through innovation in
bundling of insurance and investment instruments which
allows for more holistic wealth management for both the
individual as well as the household.
7. Innovation through DFS may be best suited to happen at the
margin. That is, it is far more prudent to build upon existing
relationships, organisational structures, physical systems
of operations and customer practices of traditional models.
For example, in the case of microfinance it would be helpful
to use the likes of properly-functioning groups, centre-
meetings, familiarity of loan officers with the individual
members to impart both knowledge and skill-training around
new alternatives.
8. Finally, it bears repeating once again: make incentives work
harder. It is not enough to get the desired results (e.g.
payments through a mobile wallet instead of visiting a
branch) but to nudge people to see broader benefits of
using digitally-enabled tools to get more value out of their
bank accounts.
In summary, the issue of low usage of bank
accounts is a difficult problem to solve. It requires a
fine balance of policy interventions and market
forces which accounts for a range of field-based
realities of access, competency and economic
activities. DFS is but one element in how both
policy- makers and the market can design a solution
to this problem. It is not an end itself but only an
enabler and catalyst to achieve the goal of deeper
integration of low income segments with the formal
banking sector. Once DFS reaches a critical
threshold – that is when the users of the digital
medium latch on to the medium – it has potential to
drive scale.
In order to arrive at this point though, the supply-
side of DFS has to base its interventions in the
context of the client. At the same time, there are
issues of privacy, trust and costs associated with
digitization of financial services. This makes DFS
enabled alternatives open to comparison with
existing practices and methods – both in the formal
and informal financial sector. From the stand point
of low income households, there has to be a
compelling economic case to adopt digital methods
of transacting. This need to craft a compelling
digitally enabled alternative that safeguards risks to
low income households is what lies at the heart of
the ability of the formal financial services sector to
provide meaningful value to low income households
in the coming years.
45
46
4547
ABOUT J. P. MORGANAt J.P. Morgan we believe that one of the most urgent challenges facing the world is the need for increased
economic growth and more widely shared prosperity.
As one of the world’s largest financial services companies, we have the resources and the responsibility to
make a difference – using our strengths, global reach, expertise and access to capital to support local
communities and build new pathways to economic opportunity.
We are enormously proud of the impact we are making in India, a country experiencing rapid growth but
where many are at risk of being left behind and where vulnerable populations need our support. J.P.
Morgan supports a variety of training programs and initiatives that enable disadvantaged people to acquire
in-demand skills and access job opportunities in high-growth sectors and promote broader access to
financial products and services.
ABOUT GRAMEEN FOUNDATION INDIAEstablished in 2010, Grameen Foundation India (GFI) is a wholly owned subsidiary of Grameen Foundation.
Grameen Foundation India’s mission is to enable the poor, especially women, to create a world without
poverty and hunger. We provide strategic and technical expertise to leading social enterprises, financial
services providers and technology providers to extend financial services and information to underserved
communities, especially women. Our focus is on developing technology-enabled solutions to drive access
and usage of a range of financial services. Our institutional partners include commercial banks, mobile
network operators, microfinance institutions, healthcare providers and others. Together, we create solutions
that help poor people to generate income, build assets, strengthen their resilience and manage risk.
For more information, please visit- www.grameenfoundation.in
ABOUT IRMAThe Institute of Rural Management Anand (IRMA), established in 1979, is the pioneering academic
institution in rural management education and research. It is committed to pursuing excellence along with
creativity and integrity. The unique strength of IRMA lies in its ability to integrate development and
management in all its endeavours and activities. This sets IRMA apart from other management and rural
development institutions, which are largely concerned with either management or development, but not
with both. Today, IRMA is recognized not only as an institution of excellence in teaching and research, but
also acknowledged for having successfully created the new discipline of rural management. This path-
breaking approach of IRMA is being emulated by other institutions in India and abroad.
IRMA’s educational and training programmes provide state-of-the-art pedagogy with emphasis on
experiential learning. The faculty comprises experienced academicians and practitioners of national and
international repute. IRMA has state-of-the-art infrastructure, fully computerized activities, excellent library,
24-hour internet connectivity and lush green campus providing tranquil ambience for learning.
48
Grameen Foundation IndiaC 201, Nirvana Courtyard, Nirvana Country, Sector 50,
Gurgaon Haryana - 122002 | +91 124 4100702/3
DESIGN CREDITS