Locked out of the banking system

Loading video...

Singh proudly thumbs the crease of his pinstriped waiter’s vest, the uniform given to all servers in the upscale Ahmedabad hotel where he works, as he recounts his journey to financial inclusion. A migrant worker from a remote village in southern Rajasthan, Singh works 10-hour days at the hotel as a waiter for nearly eight months of the year. Because he had no identification or “official" residency (he lives in the hotel where he works), Singh was unable to open an account. Without any place to save his money, he would spend most of his wages immediately after receiving them, he said, sending the rest back home to his family through friends and acquaintances. He’s lost thousands of rupees through theft and transit costs. “I used to hide my money in my shoe," he said. “I lost ₹ 500 because a mouse ate through the note."

Financial connect: (Top) Raj Kumar’s (left) shop in Okhla, Delhi, serves as a touch point for Eko India, a business correspondent service for SBI, where he helps migrants send money home through mobile banking; (above) an Eko employee campaigns in Okhla, Delhi. Photographs: Priyanka Parashar/Mint

It was only with the help of a local non-governmental organization (NGO)—Aajeevika Bureau—that he was finally able to open an account at all. The NGO issued him an identification card, and convinced a local branch manager to allow Singh to open an account. In two years, Singh has saved nearly ₹ 30,000.

Singh’s struggle for financial inclusion is the rule, not the exception, for India’s 100-120 million migrant workers. According to a recent study by the Centre for Micro Finance (CMF), only 22% of India’s migrant labourers have bank accounts (that number drops to 12% if a particularly “well-reached" part of the Mumbai slums is excluded). Without bank accounts, saving money is nearly impossible, and sending money home is risky, time-intensive and expensive. To remit money, most migrants are forced to rely on informal networks—friends, families, hawala couriers or bus drivers. Though most migrants would prefer to send money home through banks if they could, only about one-third are able to do so.

“There are lots of stories of migrants showing up at banks and being unable to open an account, and even if they are able to open an account, to actually transact they have to wait in line for three-four hours, because the teller wants to take care of the wealthier people first," said John Oliver, director of CMF, who headed the study. “The difficulties of migrants is a reflection of the difficulties of poor people—but perhaps compounded."

An uphill battle

Migrants hoping to open a bank account face myriad challenges. Most migrant labourers work in the informal economy—as cooks, rickshaw pullers and in construction—living onsite or in urban slums. Without local identification, or official “residential" addresses, it’s nearly impossible to meet banks’ rigorous “know your customer" requirements.

According to the CMF study, 77% of migrants say not having official identity and residency documents is the biggest reason for not having a bank account. Only 11% of the respondents believe they don’t have enough money to save for a bank account to be necessary or even possible.

Also Read Resolving the identity crisis

India’s unique identity programme (known as Aadhaar) has pledged to provide 600 million Indians with ID numbers within the next four years. The Unique Identification Authority of India (UIDAI), which runs the programme, has partnered with banks throughout the country—with the eventual goal of forming relationships with all of them—and gives the option of opening new accounts along with the ID number.

“We know that financial inclusion is an issue," said Rajesh Bansal, assistant director general of UIDAI. “So we trying to ensure that hitherto excluded populations can open new accounts."

But getting an identity—and even a bank account—is just the first of many challenges. For families in rural areas, merely having a bank account does not always translate to easy access to remittances sent from family members working in urban areas.

Dallubai Bansilal Meghwal lives in a remote tribal village in Rajasthan’s Gogunda district. Wife to a migrant labourer, she spends a typical day tending a small shop and taking care of her children. About once every two weeks, she goes to the bank, a journey that takes approximately 7 hours. First she has to walk 10km to a bus stop to wait for a bus that may or may not come. She rides the bus for roughly three hours to the nearest bank branch, where she waits in line for another 45 minutes to make her transaction. Then she catches another bus, and walks the remaining 10km home. Not surprisingly, her husband prefers sending money home through relatives—or even bringing it himself—rather than transferring it into his wife’s bank account.

Meghwal’s experience is typical of such families who generally live in rural areas, and is key to the primary challenges migrants face in sending money, according to Oliver. “Last year, there were 31,625 rural bank branches in India—that is a very tiny percentage of the total number of villages. The chances you’ll have a bank branch will be very low," Oliver said. “It’s inconvenient to travel several villages away, and to spend money on bus fare just to receive money."

In this context, most migrants—57%, according to the study—rely on informal means such as hawala couriers and truck drivers, often risky and almost always more expensive than transferring money through banks. If all migrants were able to remit through banks—at a minimal transaction fee of 3%—they would cumulatively save close to ₹ 1,000 crore, the CMF study found. “Being able to safely send money home is a critical part of everyday life for migrants," said Ratnesh (uses one name), a programme analyst with the United Nations Development Programme (UNDP). “It’s something that everyone needs, but most are still relying on informal channels to send remittances."

The way forward

Tucked away behind a couple of food vendors alongside a pebbled dirt road in the industrial area of Okhla in Delhi is a small, nondescript shop owned by a man named Raj Kumar. Every weekday around lunch hour, migrant labourers from Bihar who work in nearby factories swarm the establishment.

Set up conveniently between two slums, it serves as a “financial touch point" for Eko India Financial Services Pvt. Ltd, a business correspondent (BC) service for State Bank of India (SBI), the country’s largest bank. Eko provides no-frills bank accounts and deposit, withdrawal and remittance services to customers (nearly 80% of whom are migrants) through mobile banking.

For Rajesh Kumar, a migrant labourer from Bihar who works at a nearby export factory, the small shop has quickly become invaluable. Kumar does have access to bank branches—his first bank account was with Jammu and Kashmir Bank Ltd, which didn’t have branches anywhere near where his parents stayed.

Each time he wanted to send money home, he’d have to take a half-day off from work. After withdrawing money from the bank, he would go to the post office to send the cash as money order, which would take two-three days to arrive. It would take another day for his parents to travel to the post office to pick up the money. Now, the entire process takes approximately 10 minutes, thanks to mobile banking.

Eko is just one of a growing number of BCs that are zeroing in on remittances as an essential financial service. Financial Inclusion Network and Operations Ltd, one of the oldest BCs that provides banking services through biometrics and mobile automated teller machines, recently began working with UNDP to expand banking access to six districts in six states across India. Banks are jumping on the bandwagon, too. In September, Axis Bank Ltd announced it will be experimenting with mobile banking, targeting migrants along the Orissa-Surat migrant corridor.

Banks have another incentive to provide remittance services to migrant workers—the allure of potential profitability, which has so far evaded most BC models.

“Remittances offer the biggest potential for profitability," said Purva Gupta, assistant manager for product and marketing at Eko. “Migrants are willing to spend money on remittances because they can’t easily do them elsewhere—so we can charge more vis-a-vis our other services."

But banks are still hesitant to invest in the infrastructure necessary to achieve the scale that’s needed in order to generate returns. “There needs to be a critical mass of infrastructure," said Greg Chen of CGAP, the microfinance arm of the World Bank. “Building infrastructure is the first step, but it also needs to be viable—you need to generate sufficient volume of revenues to pay for the infrastructure. It’s a chicken and egg (situation). Do you build the network force and hope you can generate the volume to pay for it, or do you offer the service first."

Another problem is trust. Abhishek Sinha, Eko’s chief executive, said that because the model is still relatively new and untested, most banks have yet to open their core banking services—which allow customers from one bank to perform financial transactions with customers from other banks—to people with accounts enrolled through BCs.

Prior to August, he said, Eko account holders could only interact with other Eko-enrolled SBI account holders. When SBI opened up its core banking services to Eko-enrolled customers, allowing them to make real-time transactions with all other SBI account holders, business surged. “We were doing about ₹ 20 lakh transactions per day," Sinha said. “Now we process ₹ 5-7 crore per day."

This is the last of a two-part series on the plight of migrant labourers in India.