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Case Analysis: Fix The System

Money in the bank has a psychological effect. We are familiar with the sense of well being that comes from a healthy bank balance. Will we have that same sense if we are not certain of accessing our money whenever we want to?

Photo Credit : Subhabrata Das


Money in the bank has a psychological effect. We are familiar with the sense of well being that comes from a healthy bank balance. Will we have that same sense if we are not certain of accessing our money whenever we want to? Cash is the predominant means of transacting in rural India. This makes it important to assure people about the accessibility of their money in cash.

Rural households save whatever little they can for things like marriages or medical emergencies and yet a lot of these savings are not in banks. Only 14.4 per cent of the country’s population aged over 15 puts their savings in institutions while 40 per cent accounts have no transactions, according to the RBI and The Institute of International Finance’s Center for Financial Inclusion. These all-India figures become much worse for rural India.

So, what is stopping rural savers from using banks? The answer lies in the difficulty of withdrawing their own money through the daunting doors of a bank.

Easy and timely access to money is one key reason for the growth of microfinance (and the continued relevance of moneylenders) even where bank branches exist. A farmer who can’t get money for sowing can miss a season and a herd of sick cows not provided urgent medication during a disease outbreak can ruin the owner.

Visiting a bank branch is often an unnerving ord-eal for the rural saver. Moreover, rural branches are usually considered punishment postings by bank staff, making them apathetic to customers. The unhelpful staff is complemented by unfriendly processes and cumbersome documentation. This creates an unequal relationship where customers do not feel empowered to argue for their own rights. When Arumugam was denied cash for his granddaughter’s wedding, he meekly accepted, thinking that “the bank manager was king”. The act of handing over their precious cash to a bank can feel like it has been snatched away by a hostile entity.

The idea of travelling, at their own expense, to feel unwanted in an unfamiliar environment is unsavoury for most rural savers. It is no surprise that they prefer to keep their cash with themselves. Amma’s first reaction on hearing about the shortage of Rs 100 notes was to start hoarding cash. Nandi, who barely survives on his daily wage, wants his cash with him just in case dal prices go up suddenly. The privacy of cash is especially useful for women who often put aside some money to protect it from their family. Converting their cash into a printed line on a passbook makes their secret public, which heightens their vulnerability.

The demonetisation has brought reluctant rural citizens face-to-face with an ill-prepared banking system resulting in the worst fears of rural Indians about banks coming true. Every single case of a personal or family tragedy caused by someone not being able to access their own money in a bank, takes people farther away from trusting the banking system. The Arumugam family’s shame of not wearing enough jewellery at the wedding will be witnessed by scores and narrated to hundreds as will Nandi’s observation that ‘posh manager type’ customers were withdrawing large amounts easily. In the absence of clear communication on rules, rumours will travel faster than official notifications and reduce trust further. Given the cash shortage in banks, they are resorting to their own rationing methods, which do not match the announced government rules, creating further confusion. In the case study, the bank branch serving the village allotted just one day every fortnight for transactions and instead of the expected Rs 3,000 gave only Rs 1,000 and even zero as a horrified Arumugam found out.

An NRI friend on a visit to India was made to stand in line and get her family’s passports signed in exchange for releasing a small amount of cash. She remarked that it was like signing your life away for a little bit of money. That’s what dealing with banks often feels like to rural Indians the whole year around. While my friend was probably joking, the crowds at banks in rural India are not a joke and no one in those lines is laughing.

The writer is the co-founder of MandiBridge and a vice president with MicroGraam. After a career in commercial banking, he is working in microfinance and rural entrepreneurship with the firm belief that rural India has to form a key part of the nation’s growth story

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Mohit Charnalia

Charnalia is the CEO of MandiBridge Microventure

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