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Savings Behaviour of the Urban Poor A Case Study of Rickshaw

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					  Savings Behaviour of the Urban Poor
  A Case Study of Rickshaw Pullers in Delhi


                     Microfinance Researchers Alliance Programme
                            Centre for Microfinance, Chennai
                                    6th August 2010




                                          Mani Arul Nandhi
                            Associate Professor, Jesus and Mary College,
                                      University of Delhi, India.




(This presentation is drawn from a wider study sponsored by the Institute of Money, Financial
Inclusion and Technology, University of California, Irvine, whose funding and support in every way is
gratefully acknowledged by the researcher)
Outline of Presentation

               Motivation
                Objective

           Research Question

           Data and Methods

             Main Findings

              Way Forward

        Concluding Observations
        Motivation
   8.1 million are urban poor in India (India Urban
    Poverty Report, UNDP,2009 )
   Large segment of the urban poor employed in
    informal sector
   High Level of financial exclusion of disadvantaged
    and marginalized population in India (40 %)
   shunned by mainstream financial sector
   Urban poor are heavily dependent on informal
    financial services
   Understanding the financial and money management
    behaviour of urban poor – critical to facilitate their
    inclusion.
        Research Question

   Focus of wider study: Financial behaviour of
    disadvantaged and marginalized migrant group
   A case study of cycle rickshaw pullers in Delhi
   Focus of this paper: Savings behaviour of
    rickshaw pullers in terms of mechanisms used,
    reasons thereof, and the constraints faced as
    well as level of awareness about formal/semi-
    formal financial services.
       Data and Methods
                              Sample
     - 176 Rickshaw pullers randomly drawn from 4 districts
     in Delhi (Central, North, West, South)
     - 10 Key informants (rickshaw owners, mechanics and
     users of rickshaws)
       - 10 FGDs with a cluster of 4-6 rickshaw pullers.
                               Data

    Primary data based on 4 methods
1.   Structured In- Depth Questionnaires
2.   Focus Group Discussions
3.   Key Informant Interviews
4.   Case Studies
       Background Profile of Rickshaw pullers
                                        Average Household size -6.
   Majority illiterates (48% )
   High proportion from socially       Average number of years in
    and economically backward
    groups (59 %)                        rickshaw pulling – 14 years.
    Equal    percentage     from
    landless     and       landed       Homeless, or living in illegal
    households but < 2.31 acres.         settlements & in unhygienic
                                         conditions, with little or no
   Only 9 % owned some asset            facilities for sanitation..
    (wristwatch, radio/transistor,      Majority had no personal
    clock, second hand small TV).        identification proof (no voter’s
   21 % had a mobile phone.             ID or a Ration Card) or
                                         Address Proof in Delhi. In a
   Mostly from wage labour and          nutshell,      rickshaw     pullers
    landless households.                 belong to the poorest and
                                         marginalized groups
      Economics of Rickshaw pulling
   Average number of rides on a normal day – 14

   Rates for short, medium and long distance rides-
    Rs.10, Rs.15 and Rs.20 –Rs.30 respectively.
   Income from rickshaw pulling:
    Gross Earnings = Earnings on a normal day
    Net Earnings = Gross Earnings Minus Rent
    charges paid for hiring rickshaw and daily
    expenses.
      Daily Earnings
   Average Gross Earnings on a normal day (not
    every day’s earnings)
                     Rs.179 (Entire sample)

   Average Net Earnings on a normal day
              Rs.91 ($1.94) (90 % of sample)
   Nil Net Earnings -    9 % of sample
             Average Monthly Earnings


                                        Average
  Monthly         N=176       %         Monthly
  Earnings                              Earnings


Gross Earnings       50      28.41      Rs.3442


Net Earnings        120      68.18      Rs.2321

No Response          6        3.41         -
                 * Some responses total > 100% due to multiple responses.


                              Savings                                        N    Percent
                                                                                     *


Do you put away some portion of your daily earnings as
savings?
                           Yes                                              167    94.89
                            No                                              9      5.11
If Yes, how often?
                                      Daily                                 81    46.02
                                      Weekly                                9     5.11
                                      Monthly                               6     3.41
                                     As and when surplus available          81    46.02


Where do you keep your savings?
1.Keep savings on person/self                                               97    55.11
2.Keep savings with shopkeeper /friend                                      54    30.68
3.Keep savings wife                                                         10    5.68
4.Keep savings with rickshaw owner                                          7     3.98
5.Keep savings with relative                                                5     2.84
6.Keep savings at place of stay                                             5     2.84
7.Keep money buried                                                         4     2.27
8.Remit home regularly                                                      4     2.27
9.Deposit in my bank account                                                3     1.7
10.No response                                                              3     1.7
11.No surplus, no savings                                                   4     2.27
12.Give interest free loan to fellow puller                                 1     0.57
      Savings Practices/ Measures used
            Savings measures      N      Percent
Keep savings on person/place      97       55
Keep savings with shopkeeper      54       31

Keep savings with relative/wife   15       9

Keep savings with rick-owner      7        4
Keep savings in shack/room        5        3
Savings buried under soil         4        2
Remit home regularly              4        2
Deposit in a bank account         3        1.7
No response/No savings            7        4
        Ingenious Saving Practices to Minimize Risk of Loss

   Living on streets and safeguarding savings – by dividing
    saved amount to 4 different people – Rs.150 per day
    divided and given to Chaiwala, Paanwala, Thelawala and 2
    friends living in a rented room (Case of Parichan Paswan)
   2nd case of Gaya Prasad –
   Saves with paanwala (but does not give every day),
   saves by carrying money inside his person and
   remaining buries under soil (not in the same place) Sometimes buried
    amount > amount from other methods;
   Remits home quickly once saved amount is built up to a lump sum.
    Cautious about remittance mechanism – through M.O or a villager (one
    of the rare respondents who use this formal channel).
   Hold on to savings but involve in reciprocal borrowing and
    lending to manage deficits – reason difficult to build up lump
    sum- case of Sunil Kumar Pathak from U.P
         Ingenious saving practices - continued


   Homeless but pragmatic – build up and remit fast – case of Asarfi – keeps
    money in a bundle with him till it becomes Rs.500 or thereabouts and
    remits weekly by depositing in his friend’s account.
   What if I don’t have a Bank account, I have a friend’s account to deposit
    – case of Mohd.Islaam from Madhubani district, Bihar.
   Health crises (wife/daughter), frugal living, juggling of expenses and
    money management skills of wife to build up Rs.10,000 with Sahara
    (Case of Sanjay Singh, Bihar)
   Share expenses to minimize cost of living and save to take care of family
    needs and to repay loans – the case of undergraduate puller – Vijay
    Paswan
   Dispense with avoidable expenses to save and (literally) hold on to it
    tightly – case of Hukam Singh, M.P. (stays on pavement, use public
    conveniences and carries a plastic wrapped bundle with him always.
     Total savings by different methods
     (in the last 30 days in INR)


Saving methods      N     %    Average    Total Saving
1. Self             76    43    2906       2, 20880
2. Shopkeepers      64    36    2503       1, 60250
3. Wife             10    6     1960        19600
4. Rickshaw owner    7    4     1264         8850

5. Bank              2    1     1650         3300
Total of 1+2+3+4    157   89    2158       4, 09580
No response         19    11                   -
      Potential savings of migrant rickshaw pullers



 Projected Scenario of an aggregated market supply of savings
               in 30 days (at a conservative estimate)
 Number of rickshaw pullers in city 6,00,000

 i) only 30 % of sample save with shopkeepers, Assuming on
   a lower side,
 ii) only one half of savings of total savings with shopkeepers
   (~ Rupees1250),
 30 % of 6,00,000 multiplied by Rs.1250 INR

                    = Rupees 22.5 crores
 Clearly, rickshaw pullers are bankable but excluded by formal
                                sector.
       Reasons for informal savings


                     Savings with shopkeeper
1.   No safe place to save due to homelessness (32 %)
2.   Trust and accessibility (34%)
3.   Possibility of spending money on temptation goods (18%)
4.    Lack of awareness about alternatives available (10%)
5.   Convenient to deposit due to physical proximity with
     operational areas
6.   Helpless circumstances but to depend on known
     shopkeepers.
  Costs of saving with shopkeepers

Known costs to rickshaw pullers:
1.  Loss of interest income that could have accrued if
    deposited with banks.
2.  Risks of loss or deception
‘But no other option and compelled to save with such
    ‘neighbourhood shopkeeper bankers’
Therefore, accepted as ‘hidden price’ paid for
    safekeeping by shopkeepers.
This system based on ;Mutual Trust’ and a ‘win-win’
    strategy for both pullers and shopkeepers
       Savings with self /place of stay
   Lack of trust in anyone in the metropolis
   Weak social links
   Bad experience in safekeeping with traders
   Lack of knowledge about safe options in the
    banking sector
   Lack of knowledge about other formal
    sources or unhappy experience in other
    alternatives.
   Storage practices – hidden on persons ,
    earthen piggy banks, wrapped in polybags &
    buried, locked boxes etc.
    Formal and Semi Formal Savings


  82 % had no formal bank accounts either in village or Delhi
 18 % stated that they had bank accounts – but either in
   spouse/mother’s name or had an account earlier but
   became non-operational due to no money available for
   deposit.
            Reasons for no account in bank or post office
- No identify proof –either at Delhi or Village
- No address proof
- No money to deposit in bank
- No awareness about banks or about benefits of saving in
   banks
-  Cumbersome formalities
         Financial Inclusion - Problems

    Findings clear pointer about financial exclusion of rickshaw
     pullers – a disadvantaged and marginalized group in Delhi
    Barriers to financially include this group operates from 3
     levels
                           Economic barriers:
1.   Low, irregular and unpredictable income stream.
2.   Landlessness, nil or negligible assets base.
3.   Low value cash savings
4.   Lack of awareness about benefits of savings in a bank (and
     about “no frill account’)
5.   Lack of financial literacy
      Other Barriers
      Personal Barriers              Social Barriers
   Lack     of    personal   1.   Mobile habitat
    identity or address       2.   Lack of
    proof and no banking           homogeneous
    history                        culture
   Low Levels of literacy    3.   Weak social links.
   Lack of awareness         4.   Social isolation
    about alternatives for
                              5.   Feeling of
    safe, secure saving
                                   hopelessness.
    services
                              6.   Lack of confidence.
   Lack of time due to
    nature of livelihood
      Key Challenges


   Lack of personal identifying documents for opening a
    bank account to fulfill ‘KYC’ norms.
   Lack of awareness.
   Frequent, low value, and high volume cash transactions
   High operational costs of meeting this segment’s need
   No banking history and no time for transacting due to
    nature of livelihood
Therefore, need for     door step and flexible provision of
  banking services
    What is the way out?

         Way Forward and Technology as Enabler
   Financial services for this poor migrant segment requires a
    different outlook and suitable flexible products with door
    step services.
   Technology is the key to offer branchless banking services
    to the urban poor.
   Number of technology initiatives underway and role of
    Mobile Banking holds great promise.
   Relaxation of KYC norms for this segment, financial literacy
    and sensitization of ground level bank staff are prerequisites
    for banking this unbanked segment.

				
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