X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Banking for the Poor - Outside View by Help Your NGO
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Banking for the Poor
Dec 9, 2016

Demonetisation has led to many debates about whether the poor are worse affected by the cash shortage than the rich. Many in the middle class complain volubly at being forced to stand in line for their money. Yet for many low-income groups, this represents their routine frustration with formal banking systems. In 2014, India, China and Indonesia accounted for almost half of unbanked adults across the world. (India has since brought more people into that banking system with the Jan Dhan Yojana.) As it turns out, the 'unbanked' tend to entrust their money to moneylenders, co-operative banks and other non-banking associations.

So why do the poor1 not use banks? Many banking conventions (address proof, proof of education, employment, collateral, etc) are designed for formally educated, salaried professionals and retrofitted to the needs of others. Banks profit more from lending than through savings services. When deposits are small, as it is with low-income groups, it leads banks to look at more profitable clients.

However, we all share social mores that assume that poor people's time, money and work is not worth much thought. This contributes towards the general apathy that banking systems demonstrate towards the poor. We have a simplified notion of poverty, and of the needs of the poor. Surely, some poor people idle away their time without participating in any productive work. But as Muhammad Yunus ('banker to the poor') realised in Bangladesh, people worked hard and engaged in complex forms of work. Yet they remained poor "not because they are untrained or illiterate but because they cannot retain the returns of their labour. They have no control over capital, and it is the ability to control capital that gives people the power to rise out of poverty."

As experts have found, poverty is not just a lack of money, but the lack of access to systems that help the poor get of debt, grow their assets and protect their earnings. The good news is that some have worked to rectify it. This is the story of Shree Mahila Sewa Sahakari Bank (SEWA Bank), a financial system that was built to cater to the needs of low-income women.

"She said she been selling at Rs5 a kg, but could now afford to drop the price to Rs3. When I asked her why, she gave me an amazing explanation, which had to do with having covered her fixed costs and now being able to earn a profit at variable cost, though she didn't use those words. I've learnt more about finance from Sewa's members than I did from corporate clients." - Jayshree Vyas, MD, Sewa Bank

SEWA Bank is a women's bank. In fact, it has been a women's-only bank since 1974, long before the Government set up one of its own. Uniquely, they're also a poor woman's bank. SEWA Bank grew out of the work of the Self-Employed Women's Association (SEWA), a trade union of women workers in the informal sector. Their members were ragpickers, textile workers, vegetable sellers, manual labourers, agarbatti workers... all the least likely people you are likely to run into at your own bank. Many of them were uneducated, earning a few rupees a day, but unable to access banking systems that would keep their money safe. Their daily surpluses would be a few rupees, leaving them outside the ambit of formal banking.

They saw the hard work their members were doing, and the struggles they faced to save and grow this money. They realised that, "self-employed women workers and producers are economically very active and contribute to the growth of the economy..." Yet they were not treated with dignity. They set out to remedy this. As one of their members said, "we may be poor, but we are so many. Why don't we start a bank of our own?"

In 1974, 4,000 women contributed share capital of Rs10 each to establish the SEWA Bank. Since then, the bank has been providing savings, credit, pension and insurance services to its members. In a rarity for Indian banks, they provide housing loans and housing-related finance for women! Their condition is that the house should be in the name of the woman, thus creating an economic asset for her. The Bank realised that women in the informal sector face a loss in wages when they have to go the nearest branch. They pioneered the concept of doorstep banking for low-income households, currently a privilege offered by many banks only to premium account holders. Their efforts have paid off - SEWA Bank now has over 400,000 accounts and 100,000 shareholders.

The economic potential of those 'at the bottom of the pyramid' is formidable. Our understanding of financial systems is dominated by the Sensex, big banks, venture capital firms, and other corporate entities. Yet there are other success stories everywhere. SEWA's Bank had a turnover of Rs 200 crores and a net profit of Rs 2 crore. Grameen Bank, which is now present in 97% of Bangladesh's districts, has lent 11,000 crore taka to its members. It's time we paid attention to other systems that work for the benefit of people who are 'not like us.'

Help Your NGO is a Mumbai based organization that's striving to make the world of NGOs and charity giving more effective and transparent. HelpYourNGO.com is the only place you can see what NGOs spend on their beneficiaries.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Banking for the Poor". Click here!

  

More Views on News

What They Forgot to Tell You About Sensex at One Lakh (Smart Contrarian)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

Jun 10, 2017

Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

Have You Submitted Your Tax Saving Investment Declarations? (Outside View)

Feb 17, 2018

PersonalFN explains the care to be taken while submitting tax saving investment declarations.

The Foundation for Sensex 100,000 is Laid (The 5 Minute Wrapup)

Feb 17, 2018

Top three reasons for Tanushree's presentation at Equitymaster Conference to be centered around a possible 30% correction.

Vignettes From Ireland (Vivek Kaul's Diary)

Feb 17, 2018

Bill bonner discusses how the US government have created a phony picture of the real condition of the country.

More Views on News

Most Popular

Here's What You Should Do in this Market Crash(The 5 Minute Wrapup)

Feb 6, 2018

The market correction has provided a golden opportunity to buy five high-quality safe stocks.

The Era of Easy Money is Coming to an End. What Happens Now?(Vivek Kaul's Diary)

Feb 9, 2018

The easy money policy of the Federal Reserve of the United States, which drove up stock markets all over the world, is ending, with the Federal Reserve looking to shrink its balance sheet.

The Markets Want Your Money. Don't Give It to Them.(Smart Contrarian)

Feb 9, 2018

MFs are having a gala time taking money from over-eager investors and funneling it into equities. Smart investors, though, know better than to do that.

When Small is Not Always Beautiful(Chart Of The Day)

Feb 6, 2018

Big companies enjoying tax deductions and exemptions have an edge over the small companies.

What Should Mutual Fund Investors Do After LTCG Tax Norms(Outside View)

Feb 6, 2018

PersonalFN explain what investors should after LTCG tax norms.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Feb 16, 2018 (Close)

MARKET STATS