Ajay Sarkar, a driver in the Capital and a migrant worker from 24 Parganas, a district in West Bengal, dreads early morning phone calls from his father. They are rare but they usually mean an urgent request for money. Sending Rs5,000 through a post office isn’t hard, but it costs Rs250, as much as Sarkar spends on commuting in a month, and there’s no saying when it will reach.
After one such call, Sarkar approached his employer. She transferred money to her parents in Kolkata and Ajay’s father made a two-hour trip to their house to collect the money—all within a day of his original phone call.
There may be help at hand— beyond considerate employers —for migrant workers such as Sarkar. Some microfinance companies are using the banking system and mobile phone technology to feel their way through the virtually untapped local private remittances market. They have reason to: the market for such remittances is estimated at Rs26,000-40,000 crore.
The number is smaller than the around Rs1,00,000 crore (Rs1 trillion) India received as overseas remittances in 2006-07, according to the World Bank. Still, for a local market, that’s a bit much, and industry experts and executives in technology firms say the market for local remittances will only grow.
That’s because mobile phones and banks can combine to speed up and secure local money transfers that mostly take place through postal money orders.
Get connected: AWestern Union counter at New Delhi’s General Post Office. P.K. Gopinath, director, Postal Staff College of India, says deals channelled by Western Union through postal network went up from Rs980 crore in 2004-05 to Rs3,750 crore in fiscal 2007.
“India Post handled 96 million money orders (MO) last year,” says P.K. Gopinath, director, Postal Staff College of India, which trains people for a career in the postal department. Money orders are the costliest way to transfer money, at a charge of Rs5 for every Rs100 sent, up to a maximum of Rs250 for Rs5,000. By contrast, sending a bank draft for Rs5,000 would cost about Rs30 plus postal charges.
Nine out of 10 branches of India’s postal network, the largest in the world, are in rural areas.
Yet, on the ground, the delivery of a money order can take days, or weeks in remote areas, with the postman often asking recipients for a commission for his trouble.
“In 2005-06, the latest year for which such data is available, India Post handled money orders worth Rs7,180 crore,” says Gopinath. And transactions channelled by Western Union through the postal network have also gone up from Rs980 crore in 2004-05, to Rs3,750 crore in 2006-07, he adds.
A Western Union executive did not confirm this number, citing company policy.
The Reserve Bank of India (RBI) says that over 400 million Indians lack access to formal financial services.
According to data from the latest census, which was conducted in 2001, migrants accounted for 30% of the population, or 307 million people.
However, a large proportion of this is marriage-led migration (usually wives moving to be with husbands).
Only 15% of migrants had moved for reasons related to employment. And only one third of that number had to do with people moving from rural areas to cities to take up jobs. That’s around 15 million people who would want to send money to people back home.
Recent data from the National Sample Survey and the National Commission of Rural Labour shows that there are around 10 million seasonal or so-called circular (village to city for a season and then back again) immigrants.
Both sets of numbers, 15 million as well as 10 million are probably underestimates, says Ravi Srivastava, professor, Jawaharlal Nehru University. Adhikar, an Orissa-based voluntary association that works with migrants estimates the size of the all-India local remittance market to be around Rs50,000 crore on the basis of its calculations that there are 30 million instances of work-related short migrations of less than a year’s duration.
Adhikar acts as an intermediary between 12,000 families in Orissa and their members working in Gujarat.
“The average size of a monthly remittance is Rs1,350, starting from as low as Rs500, but our business is currently about Rs60 lakh a month,” says Mohammad N. Amin, director, Adhikar. He adds that the market for local remittances between Gujarat and Bihar alone is worth Rs1,000 crore.
Using Adhikar’s average monthly remittance figure of Rs1,350 and its count of 30 million migrants, the market works out to a meaty Rs40,500 crore.
A study by private sector firm Development Credit Bank Ltd, which plans to enter this market, found the minimum size of a remittance to be a little over Rs3,000 per person per month, costing the sender Rs48 for a bank draft plus postal charges, vis-à-vis Rs185 for a money order along with other indirect costs.
According to Kartik Mehta, head, microfinance and rural banking, DCB, “just the focus areas of our pilot study indicates a market size of Rs900 crore and about 2.5 million migrants.”
The estimates vary, but most experts agree that there is a huge market waiting to be tapped. According to Srivastava, “in some parts of India, three out of four households include a migrant. In just one district of the rice-producing belt of West Bengal, the flow of seasonal migrants, drawn from tribals, Muslims and lower castes, exceeds 500,000.”
Tapping the potential
Some migrants use money orders. Others prefer bank drafts. And estimates by various entities such as Adhikar would seem to suggest that the majority still uses informal means of remittances.
“Most of them ask for help to make a bank draft,” says Preeti Sahai, a coordinator with Hyderabad-based microfinance company Basix. “They don’t mind arranging to send that home, even if relatives often have to travel 6-10km to get to the nearest, and often only, bank branch. Wiring money proves too costly if they have to remit (it)on a regular basis,” she adds.
Basix, which is currently conducting a technology-assisted financial inclusion (TAFI) project connecting Delhi and Muzaffarpur with the help of Axis Bank Ltd, is trying to bring down costs to around 0.5-1% of the transaction amount. Sahai says the service needs to be tied to basic banking services such as a deposit account to be really useful and cost-effective.
Gopinath says it is difficult for India Post to cut its charges on money orders, because the department’s average transmission cost is Rs56. The department uses a VSAT (very small aperture terminal, a small earth station that facilitates transmission through satellite) network to transfer funds to 159 centres, but onward delivery of the money from these centres to 139,000 rural post offices is manual, adding to the overall cost.
India Post is trying to set up a NIC (national informatics centre) network for money orders, which will bring down the average cost of transmission to Rs23, Gopinath says.
The services offered by local post offices and microfinance companies received a boost in January 2006 when RBI allowed such entities (and non-governmental organisations or NGOs) to serve as business correspondents or facilitators for banks. Adhikar’s Shramika Sahajoga, for instance, acts as a business correspondent for Corporation Bank and charges an average of less than 3% (of the value of a transaction) as transfer fees. It collects money from the senders via several collection centres in 12-14 cities in Gujarat and uses its self-help groups to disburse them in Orissa, though, according to Amin, “there are many users of this service outside our micro finance activities.”.
Basix, which operates through sister concern IGS, and a technology partner called A Little World, uses the RFID (radio-frequency identification), contactless smart-card technology in its Muzaffarpur project. The migrant worker in Delhi, a no-frills account holder with Axis Bank, has to register the family members as payees with the bank. The bank then issues a smart card to these family members after they have been identified and vetted by IGS (the latter is Axis Bank’s business correspondent in Muzaffarpur). The card stores each person’s fingerprints, photograph and other details and acts much like an ATM card does.
IGS agents use mobile phones and a fingerprint reader to read the cards, check deposits, and disburse cash.
A Little World is currently working through its NGO arm Zero Microfinance and Savings Support Foundation in 12 states, mostly in remote un-banked areas such as Pithoragarh in Uttarakhand and Warangal in Andhra Pradesh. Another of its associates, Zero Mass Foundation (ZMF), serves as a business correspondent for State Bank of India in seven states and for five other banks in the others. In these states, “ZMF operators act as a full-function bank branch,” says Anurag Gupta, founder and CEO, A Little World.
The Warangal project, which went on stream in May, is already helping villagers receive social security pensions and payments under the National Rural Employment Guarantee Scheme, a government programme that promises work to at least one person in poor households in rural areas. “From such payments to money transfer is but a small step,” says Gupta. “Remittances would be the best possible utilisation for a smart-card and NFC (near-field communication) or RFID phone-based facility,” he adds.
Basix and Zero do not currently charge customers anything, and make do with the commission fee paid by banks (in return for these entities serving as their business correspondents), but both are looking at charging a commission of less than 2% of the transaction value from customers. Gupta, who wants to be present in every village with a panchayat, says he has already got 180,000 subscribers for basic banking services. All of them are potential money transfer customers, he adds.
Technology for inclusion
Even the Vikram Akula-headed SKS Microfinance, one of the biggest players in the industry, plans to use smart cards mobile phones to provide people access to financial services. SKS was all set to roll out its smart cards in 2001, but didn’t do so for technical reasons. Now it is looking at reaching out to 1.1 million customers (with a variety of financial services) through this route, says CEO Akula.
“We have already launched a health insurance service for our clients in northern Karnataka as a testing ground. We’ll probably be ready with the mobile project some time next year,” he adds.