Interesting article by a team of scholars: Michael Callen , Suresh de Mel , Craig McIntosh and Christopher Woodruff.
They point how a bank in Sri Lanka has pioneered this doorstep banking approach. In this, deposits are collected from houses of people:
In 2008, Sri Lanka’s National Savings Bank (NSB) offered a new remote deposit collection service targeted at business owners within one kilometre of the Banks’ branches. For our project, they extended the service to rural households. These accounts were free, and bank agents came on motorcycles to collect deposits using wireless point of service (POS) terminals that could issue receipts showing the new account balance. So, customers were presented with a free and user-friendly way to save. Our study sample covered a total of 156 rural zones, randomly divided into treatment (those that received the intervention) and control groups (those that did not receive the intervention), with 389 individuals in the treatment and 406 individuals in the control group.
Starting five months before the savings account collections began and continuing 13 months afterward, we collected detailed high-frequency data on both sets of individuals – those offered the accounts, and those not. These data included income, expenditure, microenterprise, and labour market activity. Our results showed that treatment increased savings: The number of transactions with formal financial institutions per month quadrupled, the flow of savings into bank accounts almost doubled, and overall savings increased by more than 15% per month – about US$7.
They report rise in income levels as well.
What was interesting was to read this full paper
written by the authors on the same issue. There was no reference made to the first pioneers of the scheme – Syndicate Bank way back in 1928! An earlier post on the Bank and its origins is here
The founders of the bank particularly Dr TMA Pai had figured that the only way bank could survive was via deposits. Based in Udupi, he did not have luxury of big despositors as at Bombay and Calcutta based banks. Then being a doctor, he was attuned to large scale poverty in the region. He also realised how people just did not save enough to meet basic health expenses. Both these ideas of lack of big deposits and lack of saving made him invent a scheme called pigmy deposits.
Under this scheme, the bank collected as little as 12 paisa from all kinds of people daily for a period of seven years. This translated to something like Rs 310 by the end of seven years and the bank returned Rs 350 to the depositor. The impact of the scheme was so great that no words can describe people’s joy in discovering that they had saved so much money from just 12 paisa contribution. Most had not seen Rs 350 collectively in their lives. It worked wonders for women savers as well. For the bank, they formed a good portion of fixed stable deposits as these people were highly unlikely to withdraw. They formed nearly 30-40% of total deposits in 1940s of the bank, a significant amount indeed.
Now to collect these deposits, bank appointed door to door collectors back in 1928. The bank figured that people are unlikely to come to the bank to make such small savings that too regularly. So a collector went around the town of Udupi (mostly barefoot) collecting all these funds.
The impact of both – pigmy deposits and door to door banking was huge even then. The experiment moved from Udupi to cover other places as well and was well received. But unfortunately as there was no such research to study the impact, we hardly have any such records. Most of it is in form of oral history documented in books on Dr, TMA Pai and so on.
What is more disappointing is how we are not even aware of this oral history bit. For so many years, India has experimented with financial inclusion via policy push and still struggle at it. Whereas history of Indian banking has some very interesting examples on inclusion initiatives taken by bankers both to survive and serve the people. But there is hardly any such awareness of our financial/banking history. Not everything was wrong about our history as is often understood to be the case.
As a result, most of the time when we hear of a new financial inclusion policy by Indian policymakers or by foreign experts, it is usually a case of old wine in a new bottle..