Mumbai: On a bank’s radar, Dinanath Patel is but a blip—potentially, a big blip.
For banks in search of new clients, his profession of nearly eight million rickshaw pullers presents a Rs100 crore business—if they can be drawn into the financial ecosystem. Punjab National Bank (PNB) sensed the market, offering Patel his first-ever savings account and an instalment plan of Rs25 a day to eventually buy his own rickshaw.
Nearly 91% of rickshaw pullers in India borrow the three-wheeled vehicles daily for about the same amount as Patel’s instalment. In them, PNB sees a significant client base, lying at the bottom of the so-called pyramid but with untapped savings and a proven record of debt repayments.
“It’s a business opportunity no doubt. And it is quite proven that poor people are more bankable than others. They never default on their own,” said G. Banerjee, deputy general manager and project in-charge at the bank.
Conceptualized by the Centre for Rural Development (CRD), a not-for-profit organization, the Rickshaw Bank project started with a new model rickshaw—the first prototype of which was designed by the Indian Institute of Technology, Guwahati.
The design replaces traditional wooden frames with hollow iron pipes to make the three-wheeler both sturdier and lighter, adding more luggage and leg space as well.
As the banker for the project, PNB started its own Jan Mitra Rickshaw scheme in Varanasi in February and followed it up with a similar project in Patna. It now plans to cover another 10,000 rickshaw pullers in Allahabad, Lucknow and Jaipur in 2008-09, and eventually about 100,000 of them over the next five years.
A recent Boston Consulting Group report, titled Next Billion Consumers: A Road Map for Expanding Financial Inclusion in India, says about 30 million households in India have considerable savings but no bank accounts. This segment, it says, “sits just above the poorest-of-the-poor and just below consumers who are already targeted by most banks.”
Such people, the study suggests, constitute the next big business opportunity for financial institutions, as many among the lower classes would like to be in the banking fold but shy away as no bank is ready to offer them its services.
Pradip Kumar Sarmah, a veterinary doctor and founder of the Guwahati-based CRD, sees the project as a way to bring the poor under the banking fold.
PNB chairman K.C. Cha-krabarty agrees: “This is functional financial inclusion. One does not need to go to the remote areas to spread the message of financial inclusion. There is enough scope to this in urban pockets. This is part of the bank’s urban financial inclusion initiative.”
The CRD project started as a sponsorship model in November 2004. Oil and Natural Gas Corp. Ltd (ONGC), Indian Oil Corp. Ltd (IOC) and Hindustan Unilever Ltd (HUL) advertised on the back covers of the rickshaws.
“It was a roving advertisement platform for the companies,” says Dr Sarmah. “They paid us for the space and we developed an asset for the livelihood of the rickshaw pullers out of that fund,”
But it is far from an act of charity; nothing comes free in the project, even for the pullers. At Rs10,000-11,000, the vehicles are Rs3,000 more expensive than traditional wooden-frame rickshaws. This amount includes PNB’s 12% interest rate, licence fee, uniform, a comprehensive insurance, and CRD’s operational cost. The transaction or processing fees have been waived. The bank loan covers the entire amount and the rickshaw pullers do not need to bring in any money on their own, which is known as “margin” in banking parlance. The loan repayment starts six months after the money is given.
Even the rise in raw material costs have been factored in. The recent hike in steel prices has piped up the manufacturing cost to Rs8,000 or more from Rs7,500 earlier.
Before PNB, ICICI Bank Ltd, India’s largest private sector lender, financed the project and sanctioned Rs2 crore to CRD, but its 13.75% interest rate made it unfeasible for the rickshaw pullers.
To avail of the loan, a borrower has to open a no-frill, zero-balance account with the bank. To shield against defaults, pullers must apply in groups of five with proof of identity.
CRD and its partners, such as Jan Mitra Nyas in Varanasi, have assumed responsibility for collecting the instalments daily. This is to ensure that there is no default in repayment of loans.
“It’s a tripartite agreement between the bank, the rickshaw puller and us. Though we are not legally liable for any default, we have a moral responsibility to ensure that the loan is repaid. In fact, the bank will come forward (with the loan) only when we have opened the bank account and have done all the formalities,” said Dr Sarmah.
PNB is also protected under a guarantee from the Union government. “The loan is covered under the government of India’s Credit Guarantee Fund Scheme for Small Industries. Under this scheme, if a lender defaults, we will get back 75% of the principal amount,” said Banerjee.
CRD has partnered with Oriental Insurance Co. and Royal Sundaram Alliance Insurance Co. Ltd. for insurance cover. The scheme gives the rickshaw puller life insurance up to Rs1 lakh and up to Rs20,000 for its passengers. The coverage includes Rs9,000 as insurance for the rickshaw.
The project has won praise from the United Nations under its Millennium Development Goals, which seek to lessen poverty and hunger, improve health care and offer universal education by 2015. CRD had so far concentrated its rickshaw project in Assam and has started introducing it in other cities such as Agartala, Surat and Chennai with assistance from donor agency American India Foundation (AIF). AIF provides funds for the 10-15% security deposits with the bank and supports for initial capacity building when the project is launched in a new city.