Tài liệu Informal Savings of the Poor : Prospects for Financial Inclusion doc

When the poor have a choice, they choose to save. Saving safely provides them with a cushion against shocks. Even today, 100 million households have informal saving which are outside the fold of the formal financial system. Tapping the informal saving of the poor and using these resources for development is necessary. Designing deposit products appropriate to the needs of the poor, ensuring convenience and developing mechanisms to mobilise the informal saving is required. Informal Savings of the Poor : Prospects for Financial Inclusion M.L. Sukhdeve* Introduction It is recognised that high domestic savings and investment are crucial for sustenance of high stable rates of growth of the economy. India continues to remain one of the highest savers among the emerging market economies. Gross Domestic Saving (GDS) comprises savings of public sector, private corporate sector and household sectors. In India, it is the household sector which occupies a position of dominance over the institutional sectors like private corporate sector and the public sector in terms of generating savings. This sector comprises individuals, non-government, non-corporate enterprises, off-farm business and non-farm business like sole proprietorships and partnership. The savings are for smoothening * General Manager, National Bank for Agriculture & Rural Development, Mumbai 32 CAB CALLING January-March, 2008 The estimated magnitude of savings indicated above mainly comprise formal saving by households, corporate savings and public savings with the formal financial system. Beyond this, there is a scope from household savings of the poor who are still outside the financial system. National Council of Applied Economic Research (NCAER) and Max New York Life Inc. conducted a survey in 2005 - 'How India Earns, Spends and Saves' to gain deeper insights into the motives for financial savings, the degree of financial security of Indian households and the degree of sophistication that households bring to bear on their saving and investment decisions. According to the findings of the survey, for meeting unforeseen expenses, over 81% of the How Indians Save? consumption across one's lifespan in the face of any expected or unexpected fluctuation in the level of income and acts as a net saver during his / her working years and dis-saver in the post retirement life. The rate of GDS as a proportion of Gross Domestic Product at current market prices has more than doubled from an average of around 10% in the 1950s to over 23% in the 1990s, scaling a peak of 25.1% in 1995-96. After dipping to 23.6% in 2001-02, it recovered to 26% in 2002-03 and reached a new peak of 29.1% in 2004-05, the highest saving rate ever achieved in India since 1950-51. As per the Eleventh Five Year Plan Approach Paper Projection, rates of GDS sectoral and overall for Eleventh Five Year Plan (2007-08 to 2011-12) has been estimated as under : Source: Working Group on Savings for the XI Five Year Plan - 2007- 08 to 2011-12 - RBI Bulletin - May 2007 Particulars Real Gross Domestic Product Growth 7% 8% 8.5% 9% XI Plan Approach Paper Projections (Rate of Gross Domestic Saving) I Household 20.1 20.5 20.7 21 II Corporate 5.0 5.5 5.8 6.1 III PSEs 3.1 3.1 3.0 2.8 IV Government -1.1 0.5 1.5 2.4 27.1 29.6 31 32.3 households save. Over a third of the 205.9 million households still prefer to stash cash at home, which does not earn any return. About 51% or close to 103 million household park their savings in banks. In other words, 49% are still outside the coverage of the formal financial system. It is further observed that 58% of the labourers and 20% of salary earners prefer to keep their saving at home. The survey has observed the saving of various types of households per year as under: Type of Household Savings per annum (Rs.) Landless 7,608 Marginal land owners 7,991 Small land owners 13,550 Medium sized land owners 22,370 Large land owners 42,490 Landless form 40% of the total households. From the above findings it is apparent that landless, marginal and small farmers, agricultural labourers also save. Although 51% households park their saving in banks, remaining save their money in informal ways. When poor have a choice, they save. Another encouraging revelation of the survey is that poor households saved despite being in debt. Poor can be classified into two categories - Rural poor and Urban poor. Rural poor include small and marginal farmers, small fishermen, landless labour, agricultural tenants, micro entrepreneurs, destitutes - both women and men, while urban poor include labourers, artisans, and micro entrepreneurs. As per June 2000 estimate, 37.3% and 22.5% of the total population are below the poverty line in rural and urban areas respectively. If this is converted to family size of 5, around 100 million households who have informal savings can be the potential depositors who could be brought under the banking fold. These household need mechanisms, products and facilities for coverage under the financial system. Saving is defined as consumption foregone. Money saved is for future use. When people have a choice, they often choose to save. Savings is made by the poor out of the income from economic activities. In rural areas, money is saved from sale of agricultural produce, wages and income from enterprise while urban poor save mainly from wages earned and Who Are Poor? How Do People Save? 33 CAB CALLING January-March, 2008 income from enterprise and services. Due to seasonality of cash flow in rural area mainly through sale of agricultural produce, availability of work, source of income, saving is seasonal and irregular. As regards urban poor, they migrate to urban areas from rural areas after completing agricultural operations - sowing and harvesting. Their income depends on the availability of work and also the income they receive. From the income received, they have the tendency to save for future. On account of seasonality, the savings motive of the poor is irregular. The poor prefer informal savings which offer easy access and convenience. Informal savings mechanism prevailing in India can be summarised as under: (i) Stashing cash at home: The poor men and women save out of their income and keep in the house sometimes in the backyard of the houses, in pots. (ii) Keeping money with neighbours: The poor keep money with neighbours. Wherever the poor are engaged with contractors or work providers, they keep money with the contractors / neighbours/relatives. (iii) Community savings: Community saving prevailing in the rural area as well as urban area through contribution by members of group is observed as under i. Contribution of equal amount by members on weekly / monthly basis and collection given to one of the members through draw. ii. Contribution of equal amount by members and loan given to members on interest. Amount collected is distributed together with interest at the end of the year. ii. Contribution of equal amount by members on weekly/monthly basis and amount given to the highest bidder for interest. Interest is distributed among the members. (iv) Investment in kind: Purchase of gold, silver or household goods through contributing fixed amount on weekly / monthly basis. Different households had different reasons for keeping away some money as savings - ranging from emergencies to marriages and social events, children's education and gifts. Saving for old age is not the important drive for setting aside some cash, though India does not have a social security Why Do the Poor Save? system. The priorities of households for using their savings as per the NCAER-Max New York Life Inc. survey findings are: 81% for education 69% for old age financial security 63% to meet future expenses like marriage, births, and other social ceremonies 47% to buy or build houses 47% to improve their business 22% to buy consumer durables and 18% for expenses towards gifts, donation and pilgrimage Based on the observations made by various surveys / social workers, the usage of savings by the poor can be classified as under: Emergency - sickness, injury, death, natural disaster Social - birth, education, marriage, funerals, festivals Investment - jewellery (gold or silver), animals (milch animals, goat, sheep, poultry), land, home improvement The informal saving system is fraught with many risks: Savings in kind is illiquid, indivisible, price fluctuations At home Theft and destruction Relatives demand Trivial spending No returns Community Savings Scope of money depending on fund availability Wait for turn Pay high interest Rigid rules Limited sources Risks Involved in Informal Saving 34 CAB CALLING January-March, 2008 Total Branches Urban Branches Commercial Banks 70711 33018 Regional Rural Banks 14506 13925 State Co-operative 919 - Bank (31) District Co-operative 12729 12529 Bank (369) Primary Agricultural 106376 106376 Credit Societies SCARDBs (20) 866 866 PCARDBs 696 696 Urban Co-operative 7453 Banks (1813) Rural and Semi The coverage of population by saving deposit accounts of scheduled commercial banks was lower in rural areas at 24.4 accounts per 100 persons as against 41.6 in urban areas at end - March 2005; the number of saving deposit accounts was 29.2 per 100 persons at all India level. Besides banks, post offices in India also provide certain financial services. The India postal service with 155516 post offices (March 2005) was one of the most widely spread post office systems in the world. The number of post offices was more than two times the number of bank branches in the country with large presence in remote areas. Number of post offices in rural areas at 139120 (89.5% of the total post offices) far exceeded those in the urban areas 16396 (10.5%). Indian post offices offer various small savings Financial System in India Indian banking system comprises Commercial Banks, Regional Rural Banks and Co-operative Banks. The co- operative banking system consists of Urban Co-operative Banks (UCB) and Rural Co-operative Credit Institutions. The rural co-operative credit system is divided into short term co- operative credit institutions - State Co-operative Ban (SCB), at state level, District Central Co-operative Banks (DCCBs) at district level and Primary Agriculture Co-operative Society (PACs) at village level and the long term co-operative credit institutions - State Co-operative Agriculture and Rural Development Banks (SCARDBs) at state level and Primary Co-operative and Rural Development Banks (PCARDBs). The network of branches of the banking structure is as under: Source: Report on Trend and Progress of Banking in India - 2006-07 schemes and other financial services to their customers. Small Saving Schemes include Saving Bank, Recurring Deposits, Time Deposits, Monthly Income Scheme, Public Provident Fund, Kisan Vikas Patra, National Savings Certificate and Senior Citizens Savings Scheme. The number of savings accounts in various schemes in operation aggregated about 160 million with an outstanding balance of Rs.4,59,760 crore as at end March 2005. Despite the rapid expansion of network of bank branches, particularly after nationalisation of banks in 1969 and 1970 and establishment of RRBs in 1975, and large number of post offices, financial services are yet to reach the poor both in urban and rural areas. Various studies conducted show that 49% of the households are outside the purview of the banking fold. Various limitations have been observed in bringing the informal saving into the formal financial system. They are mainly: Inconvenient location of bank branches Operating norms - timings Time consuming procedures Inappropriate transaction size Minimum balance requirement for Savings Bank account Non-availability of transport Loss of daily wages The requirement of poor for saving with the financial system has manifold constraints, problems and limitations. Taking into account their seasonal inflow of income from agricultural operations, migration from one place to another, seasonal and irregular work availability and income; the existing financial system needs to be designed to suit their requirements. The expectations of the poor to encourage saving in the financial system is as under: I. Security and safety of deposits ii. Low transaction cost - a. Proximity b. Convenient operating time c. Minimum paper work iii. Appropriate design for d. Frequent deposits e. Quick and easy access f. Product suitable to income and consumption and g. Reasonablereturn Steps Taken for Financial Inclusion What Poor Savers Expect? 35 CAB CALLING January-March, 2008 Steps Taken for Financial Inclusion Role of Banks and Microfinance Institutions in Mobilising Informal Savings Various steps have been taken by the RBI and banks to bring more and more people within the fold of banking sector like introduction of basic banking "No-frills" account with nil or low balances in November 2005. By end March 2007, the number of “no-frills” accounts was 67,32,335 by public sector banks, private sector banks and foreign banks. Similarly, business facilitators, business correspondents, door-step banking, Self Help Group concept, etc. have also been introduced to facilitate the poor to have access to the banking network. Besides these measures, different approach is required to bring informal saving of the poor into the formal financial system. The formal financial system, despite various measures, may not reach the poor because of locational disadvantages, rules, regulations, approach towards poor, cost effectiveness, staff constraints, etc. MFIs can play an important role in mobilising informal savings. Local feel and understanding, easy approach, convenience, product safety and faith are important to tap the resources from the poor. The issues that need to be addressed both by banking institutions and MFIs to suit the requirements of poor are: a. Develop mechanism to allow for frequent and small savings and withdrawals - collection of money on weekly/monthly basis b. Develop deposit product keeping in view their seasonality of income - weekly collection schemes c. Develop purpose centric saving product for medium and long term like Education requirement Marriage Old age plan Replacement of assets d. Door-step / work place service so that depositor need not travel for depositing money/withdrawal more than a kilometre. e. Use of technology for spot collection and withdrawal of money f. Mobile financial services on fixed day / market day g. Promotion of Self Help Groups and linkage with banks h. Postmen / Postmasters as business facilitators i. Awareness and education on financial services. The Committee on Financial Inclusion headed by Dr. C Rangarajan, Chairman, Economic Advisory Council to Prime Minister has made various recommendations for ensuring access to financial system by the poor and vulnerable groups. In fact, providing access to finance is a form of empowerment of poor people. The financial services like saving, credit insurance, remittance of fund will be ensured to the poor. Bringing informal savings into financial system will also help utilize the resource for developmental activities. Conclusion Financial Inclusion - Working Definition Holding a bank account itself confers a sense of identity, status and empowerment and provides access to the national payment system. Therefore, having a bank account becomes a very important aspect of financial inclusion. Further, financial inclusion, apart from opening and providing easy access to a No Frills account, should also provide access to credit, perhaps in the form of a General Credit Card (GCC) or limited OD against the no frills account. It should encompass access to affordable insurance and remittance facilities. It should also include credit counseling and financial education / literacy. While financial inclusion, in the narrow sense, may be achieved to some extent by offering any one of these services, the objective of “comprehensive financial inclusion” would be to provide a holistic set of services encompassing all of the above. Based on the above discussions, the following working definition of “Financial Inclusion” was considered by the Committee : ”Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.” [Source: Report of the Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan)] 36 CAB CALLING January-March, 2008 . the needs of the poor, ensuring convenience and developing mechanisms to mobilise the informal saving is required. Informal Savings of the Poor : Prospects. saving which are outside the fold of the formal financial system. Tapping the informal saving of the poor and using these resources for development is necessary.