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
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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?
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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
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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?
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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)]
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