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

1. Savings Behaviour of the Urban PoorA Case Study of Rickshaw Pullers in Delhi Microfinance Researchers Alliance ProgrammeCentre for Microfinance, Chennai6th 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)

2. Outline of Presentation • Motivation • Objective • Research Question • Data and Methods • Main Findings • Way Forward • Concluding Observations

3. 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.

4. 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.

5. 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 • Structured In- Depth Questionnaires • Focus Group Discussions • Key Informant Interviews • Case Studies

7. 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 Background Profile of Rickshaw pullers

8. 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.

9. 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

10. Average Monthly Earnings

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

12. Savings Practices/ Measures used

13. 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 lumpsum- case ofSunil Kumar Pathak from U.P

14. 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.

15. Total savings by different methods (in the last 30 days in INR)

16. 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.

17. Reasons for informal savings Savings with shopkeeper • No safe place to save due to homelessness (32 %) • Trust and accessibility (34%) • Possibility of spending money on temptation goods (18%) • Lack of awareness about alternatives available (10%) • Convenient to deposit due to physical proximity with operational areas • Helpless circumstances but to depend on known shopkeepers.

18. Costs of saving with shopkeepers Known costs to rickshaw pullers: • Loss of interest income that could have accrued if deposited with banks. • 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

19. 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.

20. 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

21. 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: • Low, irregular and unpredictable income stream. • Landlessness, nil or negligible assets base. • Low value cash savings • Lack of awareness about benefits of savings in a bank (and about “no frill account’) • Lack of financial literacy

22. 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 Barriers Mobile habitat Lack of homogeneous culture Weak social links. Social isolation Feeling of hopelessness. Lack of confidence. Other Barriers

23. 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

24. 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.