Banking for the Poor

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.

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.'

This article first appeared in Equitymaster.