Devahuti Choudhury, Principal Lead, Clients Insights & Social Performance, Grameen Foundation India writes about the findings from a baseline study of poor households in the state of Uttar Pradesh and Haryana.
Kusum understands only too well the value of saving for the future. Her family supports itself selling vegetables in northern India. When her husband fell ill and she had to take care of him, they didn’t earn a steady income for four months. Thankfully, an earlier loan from Margdarshak, a local microfinance institution, had enabled them to expand their business. The increased income meant they were able to save more money. She cannot imagine what would have happened if they did not have their savings.
Illness and other emergencies can be devastating for families like Kusum’s. Without savings, or steady income, they risk being pushed further into poverty. In India, the microfinance sector has diversified to address the myriad needs of the people from low income groups. Although microfinance as an activity was envisaged to address financial services needs to the BoP, regulatory constraints have confined Indian microfinance sector to micro-credit use case while other equally important services such as savings, insurance and remittance have taken a backseat.
Globally, microfinance has managed to create a significant footprint through its outreach to the poor. In countries like India, such outreach is only matched by government programs like the NRLM (National Rural Livelihoods Mission).With an outreach of 35.8 million clients by NBFC (Non Banking Finance Companies) MFIs alone, the microfinance sector boasts not only of a business model that has worked but also a concept that has been honed, improved and embraced by all stakeholders involved. The key stakeholder being the end beneficiary.
Recent trend stands witness to the strides that the sector has made in order to establish client centricity of microfinance activities in India and elsewhere. Current discourse has in fact raised pertinent questions around what is the outcome of a sustained microfinance program for both the client and the service provider? If indeed microfinance is looking to positively impact the economic lives of its clients, is it possible for the sector to lay down clearly the metrics that will indicate such? And can only credit products (that forms that bulk of product offerings by MFIs) serve this purpose?
It is with the above in mind, Grameen Foundation builds a robust, data centric framework around its innovation solution projects that is result oriented with a thrust to measure client level outcomes. Formative research conducted under the project showed a strong inclination for a savings product among clients that are currently being offered credit. The findings led the GFI (Gameen Foundation India) team to come up with a solution that- leverages the current banking ecosystem; is hinged on a technology provider for last mile outreach and serves a need professed by clients themselves.
Given the above context, Grameen Foundation India conducted a baseline survey in July 2016 to capture data for some key metrics that will be observed over a period of time to establish impact. The survey, that was conducted for women from low income households in Uttar Pradesh (UP) and Haryana, also included some contextual questions that allowed for a deeper insight into the client group served by Margdarshak. The baseline study sample was distributed for UP rural & Haryana urban with 330 and 70 respondents respectively.
Some of the key findings from the baseline survey are given below-
Bank account penetration per household-
Out of the interviewed respondents, 92% have personal bank account ownership. In the state of Haryana, 99% of respondents have personal bank accounts and 92% in the state of Uttar Pradesh. Furthermore, 15% of households in Haryana have bank accounts exceeding the number of household member with 2.5 bank accounts per member. Similarly, for UP 10% of the households surveyed have about 2.5 accounts per member. In addition, about 85% of respondents have a fairly reasonable physical access to their banks. As observed, bank account ownership is mostly a given in the current ecosystem which in turn presents opportunities to service providers to diversify their product offerings.But what else do we know about their financial ecosystem?
Prevalence of poverty: What segments are we working with?
Economic poverty is directly proportional to microfinance. GFI’s innovation projects offer solutions to the world’s poorest are based on an empirical outlook to measuring and contextualizing poverty. Hence, using the Progress out of Poverty Index (PPI), the GFI team has been able to segment survey respondents based on their poverty levels. While 71% of the population in UP lies below $4 poverty line, 58% of Margdarshak’s clients lie in the same segment.
The corresponding figures for Haryana is 68% for the base population and 63% for the MFI. MFIs generally have a preference for poverty segments that are more stable with steadier cash flows than for the very poor and destitute. From the perspective of their income sources, 60% of the respondent households have wage labour as their primary source of income. These segments cannot be deemed as non-poor, but are definitely in a better position to service diverse non-credit financial products. Long term usage of such products can potentially help such client households strengthen their capacity to deal with stress and plug in the possibilities of falling into lower poverty segments owing to unforeseen circumstances.
Frequency of usage with accounts is minimal
Despite of having access to bank accounts, we found that 39% of survey respondents have never made a deposit at the bank account in the last six months. However, about 46% of those surveyed have made at least one or two deposits in their bank accounts with 15% having made at least three or more deposits in the same time period. While the survey did not seek to find out about the nature of such deposits, a lot can be inferred by the fact that only about 19% of the total bank account users ever use their accounts for self-determined savings. This, coupled with the fact that 40% of the respondents reported to have received LPG subsidy in their accounts leads us to believe that the accounts are used primarily to receive subsidies, remit funds, maintain banking activity but rarely to park and grow money.
The survey found about 49% of respondents and 12% of respondents have someone in their households with a Fixed Deposit and Recurring Deposit product respectively at post offices and banks, which indicates the client inclination to engage with non-credit financial products. Interestingly, the ownership of fixed deposits among respondents in UP is reported to be the highest with the reported numbers mostly coming from this state.
Applying a poverty lens to “access”-
With data gathered using PPI (Progress out of Poverty Index) , we were able to decipher the segment of Margdarshak’s clients using financial products from those who are not. We looked into how bank accounts were opened for owners. We found that respondents who used agents or facilitation by a SHPI (Self help promoting Institutions) were poorer- 61% below $4 poverty line at 2011 PPP- than those who walked into banks for their account opening- 49% below $4 poverty line at $4 PPP. Therefore, self motivated bank accounts is therefore still a norm for the relatively non poor.
In terms of respondent households that use bank accounts to park their savings (19%) vis a vis their counterparts who keep it idle (76%), there is again a difference in poverty levels with the latter group being 61% below $4 poverty line at 2011 PPP when compared with bank savers, 52% of which fall in the same poverty segment.
Going deeper, 12% of respondents who have access to Recurring Deposit products are disaggregated by poverty levels, to show that the difference between poverty levels of owners and non-owners is almost of 10% points with Recurring Deposits owners at 43% below $4 poverty line at 2011 PPP and non-owners at 54%.
The above insights are indicative that even within the client portfolio that MFIs work with, there are nuances of poverty segments that are reflected by access to both information and financial products.
Tracking outcomes: what do we expect to change?
Apart from access to bank accounts and related products, the survey also seeks to establish a baseline given the assumptions around outcomes and impact that the project is seeking to work with. If the project is able to establish a healthy uptake and sustained engagement with the product, outcomes such as increased ability to build assets, reduction in negative coping mechanisms while dealing with financial stress and consumption smoothening should be realized in the long term.
Some of the baseline metrics that we observed are given below. Going forward, we will monitor the change over time in these indicators to help the project establish impact.
- 32% of the beneficiaries institute household/business budgeting.
- 100% of households with school going children are in the age group 5-18 years.
- 5% of beneficiaries accessed credit for investment in asset build.
- In times of a mishap, 22% of clients used loan repayments as negative coping mechanism and 35% borrowed money from informal sources during health emergencies.
- 72% accessed credit for recovery from shock, 28% accessed savings for recovery from shock, 23% accessed credit for investment into enterprises in the last 12 months, 1% accessed savings for investment into enterprises in the last 12 months.
Next steps : Deepening usage of bank accounts-
While bank account penetration is high, sustained and optimal usage of bank accounts is a challenge and has to be tackled through a multi-pronged strategy:
- Barriers in the typical MFI client household’s ecosystem such as its inability to budget and save in a consistent manner will need to be accounted for in the product design. (Customized financial literacy content)
- With about 60% of the households drawing their income from wage labour, pertinence of a
savings product for such a segment is high with its ability to cushion risks and smoothen consumption even at times of irregular/seasonal employment
- Banking penetration maybe high but viewing bank accounts as a channel to grow money is limited among the MFI clients
- Access, in fact self-determined access is still a function of availability of information and poverty levels of end clients. A nuanced approach to service such segments is required as part of product development efforts
- Visibility of MFIs as a channel to access banking products will need to be strengthened. MFIs are still perceived as lenders of credit products and not as an institution where savings can be parked with the same assurance that a bank is able to provide its member network.