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Rediff.com  » Business » Bank welcomes India's poor

Bank welcomes India's poor

June 04, 2008 09:02 IST

The tangled streets of Sunder Nagri, a slum in east Delhi, bustle with morning activity. Motorcycles buzz through the narrow lanes and vendors sell their wares from carts. Sunder Nagri lies across the Yamuna River, far from the manicured streets of south Delhi where prosperity is obvious. But a transformation is quietly taking place in this slum of more than 75,000 people.

Chamal Lal, a tailor in his 40s, stands in his cramped storefront and measures cloth on a white countertop.

Behind him, an employee runs fabric through a humming sewing machine. Mr Lal bought the machine and more fabric with a Rs10,000 ($237, pound 121) loan through Basix, one of India 's largest microfinance institutions. The weekly instalment of Rs 250 for a year is easy to pay, says Mr Lal, and offers a big improvement over extortionate rates charged by local moneylenders.

"I didn't have money for raw material before," says Mr Lal. With his new machine, he hopes to move into more lucrative ready-made garments.

Cities are new territory for Basix and other microfinance institutions, which first flourished in India 's rural villages, usually distributing loans to small groups of women. If one defaulted, it meant the group had defaulted. This created a sense of communal obligation that helped foster the industry's reported re-payment rates of 98 per cent.

India is the largest emerging market for microfinance, with 300m poor households, of which only 15-20 per cent have access to the formal financial sector, according to a new report from Celent, a consultancy.

But cities are a riskier market. Urban microfinance is "very different from rural because there are all different kinds of people", says Preeti Sahai, programme manager for Basix in Delhi. "There's no community bond." However, urban poverty is swelling as more migrants pour into India 's cities. Financial services - whether credit, savings, insurance or remittances - are in great demand.

"There is a lot of money changing hands in urban areas," says Ms Sahai, pointing out that a rickshaw driver or vendor could clear hundreds or thousands of rupees a week. But very few of them have access to a bank account - there are just two bank branches in Sunder Nagri with restrictive policies that bar small savers.

In some ways, saving is more critical than lending in cities because of the lack of social cohesion. "Savings are a valuable starting point especially for the urban poor," says Ms Sahai.

In east Delhi, Basix lends only after a customer has opened a bank account. It has brought savings accounts to Sunder Nagri through a joint venture with Axis, an Indian bank. Indian microfinance institutions are not allowed to accept deposits because that requires a banking licence.

Basix, based in the southern Indian city of Hyderabad, began piloting urban microfinance several years ago. It is also taking the bold step of diversifying beyond its core markets in south India to the north, which is reputed to be less progressive and slower to change.

In cities, Basix loan officers meet potential customers several times to gain their trust. Locals are familiar with extortionate loan sharks and Basix must do its share to convince people it is different. "It's an uphill task to get people to understand we're genuine," says Ms Sahai.

"At first, people would withdraw their deposits the next day to check if we're actually doing this." But a combination of the Basix brand, education about its services and written contracts have helped win people over. In east Delhi, Basix has opened about 6,000 bank accounts as of mid-March after launching its pilot programme in September. It has disbursed $38,000 of loans in the area.

To help make savings accessible, Basix is piloting a "mobile ATM" comprised of a mobile phone, a fingerprint reader and a scanner. Biometrics make it easier for illiterate or semi-literate customers to access their accounts. Basix hopes to reach 40,000 customers in the area within two years.

In a narrow lane, a stone's throw from a gigantic garbage heap, more bank accounts are being opened. Men, women and children crowd around a Basix field officer who takes a client's photo, scans her fingerprint and types in information gleaned from her identity papers. Basix opens about 30 accounts a day in Sunder Nagri.

Brijsh Kaur, a 35-year-old housewife with a seventh grade education, sits on a low stool to have her fingerprint scanned.

"I had no idea a bank account should be opened," she says. "I want to save money for my children and want to save for their education."

Amy Lee
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