Savings Behaviour of the Urban PoorA Case Study of Rickshaw Pullers in Delhi

Microfinance Researchers Alliance ProgrammeCentre for Microfinance, Chennai

6th August 2010

Mani Arul NandhiAssociate 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 methods1. Structured In- Depth Questionnaires2. Focus Group Discussions3. Key Informant Interviews4. Case Studies

Background Profile of Rickshaw pullers Majority illiterates (48% )

High proportion from socially and economically backward groups (59 %)

Equal percentage from landless and landed households but < 2.31 acres.

Only 9 % owned some asset (wristwatch, radio/transistor, clock, second hand small TV).

21 % had a mobile phone.

Mostly from wage labour and landless households.

Average Household size -6.

Average number of years in rickshaw pulling – 14 years.

Homeless, or living in illegal settlements & in unhygienic conditions, with little or no facilities for sanitation..

Majority had no personal identification proof (no voter’s ID or a Ration Card) or Address Proof in Delhi. In a nutshell, rickshaw pullers 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

Monthly Earnings

N=176

%AverageMonthlyEarnings

Gross Earnings 50 28.41 Rs.3442

Net Earnings 120 68.18 Rs.2321

No Response 6 3.41 -

Savings N Percent*

Do you put away some portion of your daily earnings as savings? Yes No

1679

94.895.11

If Yes, how often? Daily Weekly Monthly As and when surplus available

8196

81

46.025.113.4146.02

Where do you keep your savings?1.Keep savings on person/self2.Keep savings with shopkeeper /friend3.Keep savings wife4.Keep savings with rickshaw owner5.Keep savings with relative6.Keep savings at place of stay7.Keep money buried 8.Remit home regularly9.Deposit in my bank account10.No response11.No surplus, no savings12.Give interest free loan to fellow puller

975410755443341

55.1130.685.683.982.842.842.272.271.71.72.270.57

* Some responses total > 100% due to multiple responses.

Savings Practices/ Measures usedSavings 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 croresClearly, rickshaw pullers are bankable but excluded by

formal sector.

Reasons for informal savings

Savings with shopkeeper1. 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 savings4. Lack of awareness about benefits of savings in a

bank (and about “no frill account’)5. Lack of financial literacy

Other Barriers

Personal Barriers Lack of personal

identity or address proof and no banking history

Low Levels of literacy Lack of awareness

about alternatives for safe, secure saving services

Lack of time due to nature of livelihood

Social Barriers1. Mobile habitat2. Lack of

homogeneous culture

3. Weak social links.4. Social isolation5. Feeling of

hopelessness.6. Lack of

confidence.

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.