As India transforms financial services for low-income communities, new report tackles pervasive problem of low account usage

Survey of 25,000 low-income individuals highlights the role of gender and jobs in transforming India into a digitally empowered and financially included economy

NEW DELHI, September 13, 2017—A new report released today by Grameen Foundation India, J.P. Morgan, and the Institute of Rural Management Anand, provides key insights into the extent and reasons for low bank account usage among low-income households in India, despite new government policies that encourage the opening of accounts. The report, Decoding bank account usage by low income segments: Placing reality in digital ecosystem, also highlights recommendations for overcoming the barriers faced by low-income users of financial services.

The report was launched during a conference on financial inclusion themed Putting the Client First: Creating Demand for Financial Services through Financial Capability, held in New Delhi. Based on a survey of 25,000 people in rural Uttar Pradesh and in Delhi/National Capital Area, the report found that over one-third of bank accounts had no transaction in the past three months, and one-fifth had none in the past six months.

Increased participation in the formal financial system is seen as central to encouraging national economic growth and reducing poverty that affects one-in-five people in India. Policies implemented by India’s National Mission for Financial Inclusion have prompted the opening of over 250 million new bank accounts but lack of account usage is seen as limiting the program’s impact.

“Low income households need to see real economic value to adopt formal banking services,” said Mr. Prabhat Labh, CEO, Grameen Foundation India. “To provide this value, financial institutions need to put the client first and create products that address real needs around financial capability, cost and access. Furthermore, these needs are profoundly influenced by gender, occupation, and geography.”

Gendered opportunity

Survey results identified women as important agents of change when it comes to engaging with formal banking channels.

“When women access financial services, investments in child education and health tend to rise; households save more and cope better during times of distress,” said Ms. Maneesha Chadha, head, global philanthropy, India, J.P. Morgan. “Women can drive digital financial inclusion, provided the services offered are straightforward and supported by training.”

According to the report, nearly 48% of women preferred depositing money in formal banks and 72% in rural banking institutions, compared to men who preferred to keep their money at home. Furthermore, although women were less likely than men to own a bank account or a mobile phone, when women did have access to digital financial services, they more actively sought out information to guide their financial decisions. This was especially true in rural areas, where 57% of women mentioned seeking updates beyond usual banking transactions such as withdrawals and deposits, but only 40% of men did so.

Occupation matters

Based on the survey findings, occupation is the single-largest determinant of how frequently households use bank accounts or have zero-balance accounts.

For example, relative to those unemployed, individuals self-employed in agricultural labor were three times as likely to opt for a regular savings account. Overall, more than two-thirds of the primary earners of village households owned a bank account. But their product choices sometimes worked against achieving their economic needs.

On the other hand, individuals working through the government’s MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) program, (which guarantees work or unemployment compensation to adults who apply for employment rural areas) were 75% more likely than non-MGNREGA workers to open a banking account under a popular government initiative (PMJDY). Once having used their account to receive digital payments, they were 39% more likely to opt for a savings account. Furthermore, on the whole, MGNREGA workers tended to prefer formal institutions to informal banking arrangements – a significant shift in preference.

Digital Financial Services and Financial Literacy

As seen in the survey, digital financial services have the potential to overcome some of the biggest barriers to financial inclusion, including limited financial literacy, transaction costs and access to financial services.

Across the 34 villages surveyed in Uttar Pradesh, the distance to a bank branch ranged from 4 km to 70 km—but even a distance of 4 km could prevent active account usage. On the other hand, 88% of households in India today have a mobile phone. In addition, digital financial services cut the cost of transactions by up to 90%.

Speaking about the report, Steve Hollingworth, CEO, Grameen Foundation said, “Increasing competency around financial literacy and accessibility to financial services should be areas of strength for any digitally enabled financial service. At the same time, it would be a mistake to think digital will solve all woes. Direct person-to-person contact remains crucial to building the trust and capabilities needed for the use of such services.”

In the survey, a third of women in rural areas and a fifth in urban areas were illiterate, highlighting the need to take engagement designs that take such characteristics of their clients into account. However, although the study found that investments in financial literacy, in particular, are important, they are not enough to promote changes in how people engage with formal financial services.

The report launch and the regional conference were attended by experts across the entire financial inclusion ecosystem, including leading practitioners, partners, researchers and policy makers. Anna Roy, Advisor, NITI Aayog, delivered the key note address. Other key speakers included Lauren Hendricks, Executive Vice President for Program Strategy and Institutional Relations, Grameen Foundation; Diana Tsui, Head, Global Philanthropy, APAC, J.P. Morgan; Osama Manzar, Founder & Director, Digital Empowerment Foundation; Alok Prasad, Founder & CEO of Microfinance Institutions Network, (MFIN); Anup Kumar, Managing Director & CEO, Sonata Finance Pvt. Ltd.; and Alok Misra, Professor & Head, School of Public Policy & Governance at Management Development Institute, among others.

Conference speakers pointed out that addressing the issue of low usage of bank accounts requires a fine balance of policy interventions and market forces, and a range of field-based realities of access, competency and economic activities.

About Grameen Foundation India

Established in 2010, Grameen Foundation India (GFI) is a wholly owned subsidiary of Grameen Foundation. Grameen Foundation India’s mission is to enable the poor, especially women, to create a world without poverty and hunger. We provide strategic and technical expertise to leading social enterprises, financial services providers and technology providers to extend financial services and information to underserved communities, especially women.

About J.P. Morgan India

J.P. Morgan is a leading global financial services player, with a presence in India since 1922. J.P. Morgan provides a comprehensive range of Corporate & Investment Banking, Commercial Banking, Asset & Wealth Management, and corporate functions services and solutions to our clients. India is a key market for J.P. Morgan and the firm has consistently invested in the India business, which has been growing steadily. J.P. Morgan is among the country’s leading players in almost all of its businesses and primarily caters to the firm’s global clients with business interests in India and local multinationals growing their footprint internationally. India is also home to the Global Service Centre, which services J.P. Morgan’s businesses around the world in the areas of operations, technology and research.

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