Archive for December, 2009

Savings Circles

Sudha makes and sells floral garlands at Dharavi and as our conversation turned to savings she told me that she used bishi. I’ve spoken to a number of people at Dharavi who participate in bishi schemes (bishi = money matters in Marathi). Bishi is a kind of informal and voluntary local savings club which has a long history in India and has been employed rurally to also save and credit rice and grains. Bishi schemes constitute a type of Rotating Savings and Credit Association (ROSCA) – which are found across the world in base of the pyramid communities under a number of various names.

The schemes have various forms but at Dharavi basically go something like this example: a voluntary group is formed of 12 women within a particular community nominate an amount that they will each put into the scheme each month. (eg. Rs. 500) providing a monthly total of Rs 6000. Every month they will draw a saver’s name on a lottery system to be awarded the collective Rs 6000. Then that person will be removed from the list so that they cannot claim the full amount twice within a 12 month cycle. On occasion one of the participants may require credit from the group rather than waiting for their name to be drawn (eg. their cooker broke and they need to purchase a new one) They can appeal to the group and together they decide whether to award the full amount to them that month instead of using the lottery system.

Initially I had to work hard to put aside my assumptions about the inadequacies of bishi schemes. Yet after talking with a number of women I came to realise that they provide a local savings mechanism in which community participation creates a social pressure to save within a trusted environment with no transaction fees. The potential to fluctuate between emergency credit and the lottery system suits the flexible needs of investors. For some women I spoke to it wasn’t their only form of saving yet seemed to nurture a social platform on which to discuss money matters between women. Many were proud of what they had purchased via the scheme. (fridges, school fees, sewing machines, etc)

Some mentioned that even children run small bishi schemes, putting in Rs 2 each a day amongst 30 kids and drawing on a lottery system weekly to win Rs 420 – providing them more motivation to save than merely putting aside money alone which creates too much temptation to spend. Such incentivising to save is mentioned by all women I spoke to though others mentioned that the tendency to spend immediately on winning doesn’t support planned investment. Some told me it was an effective way of drawing some money away from male control of household finances.

The widespread and trusted nature of bishi schemes have indeed evolved into a number of more complex community run micro-finance models, some of which even intersect with more formalised banking. Merits and demerits aside – bishi highlights the social aspect common to many savings and credit schemes at the base of the pyramid.

Coping Strategies as Food Prices Soar

Surging food prices, partly due to the lowest monsoon rainfall since 1972, are being widely reported in India this month. I’ve been asking  female informants and neighbours at Dharavi how they are managing the pressure on household expenses.

Many tell me that they are adding more water to some dishes – making thinner dhal for example. Some pitch in together between a few households to make weekly trips to larger wholesale vegetable markets by train. Most of them already buy onions in bulk locally and have noticed a sharp increase in current prices so are now using less per meal. Larger families reported that they are cooking without coriander and with less chilli as these items used to be thrown in by vendors for free with a decent purchase but with recent price increases this practice is being curbed. One woman told me she had been experimenting with cooking the leaves of cauliflower which she used to discard.

During earlier price hikes many mention that they would add potatoes to other vegetables to make them go further – but most women I spoke to seemed well aware that potatoes in particular have gone up a lot in the last month. News about the price increases have been widely reported across news channels and most people I speak with have access to television. And for those who don’t – this kind of locally relevant news travels quickly through the community.

Banking on Trust

Following up on the Reserve Bank of India announcement mentioned below to allow small shops and phone kiosks, etc to handle basic services on behalf of banks – I directed questions around potential receptivity today.

I spoke to a woman who runs a terracotta pot making business. It is unusual in this area for a women to do so but her husband is an alcoholic so she manages the operation herself. She currently uses a local community savings scheme on which she receives interest if she makes regular payments for 5 years. She can also take a loan from the scheme to cope with seasonal fluctuation in earning – at slightly lower rates than banks. I carefully described the upcoming developments and her response was that she wouldn’t use shops, etc for banking as a few years back many people in her area got burnt after using outside middlemen for banking services for 6 years and lost all their money. One imagines that perhaps over time she would use such a scheme but she certainly wouldn’t be an early adopter.

This raises the issue of trust in new banking ventures… and indeed any new services.
I noted in the
white paper from the CGAP blog about their initiatives in Malawi that they have: “found that catering to local opinion leaders, developing a road show to build brand awareness, and utilizing radio as a key medium of communication are important components of their strategy that have evolved through their experiences.”

These communities are very close knit and trust is not won easily but is essential to adoption of new services. A further concern was access to her money anytime – which she has with her savings scheme if an emergency arises and is another reason she cited to not wanting to use a formal bank in its current capacity.

My informant also mentioned that she preferred her private savings scheme as she fears a bank account could be accessed by her husband (Indian banks probably need to a better job of countering this assumption if indeed it is not the case). She seems quite successful in keeping her family’s money safe from him but he does menial work at a local liquor store in exchange for alcohol.

Although she doesn’t own a mobile phone… many men and women in the area do. One notes that Indian mobile banking does not include as inclusive initiatives as M-Pesa. It seems that this is partly because the RBI approved banks over mobile network operators to conduct services. The resulting offerings haven’t effectively reduced barriers for the unbanked at the bottom of the pyramid.

Island Life

Shankar Jadhar’s friends describe him as an “all-rounder”. The 40 year old Dharavi resident is married with 5 children and lives close to the traffic island which he has laid unofficial claim to, from where he conducts his business. He had been a barber for 20 years but when the road was altered 5 years back he lost his barber’s stall. Now he’s set up a makeshift stall and a shack to store items for his work in Dharavi’s recycling chain, encompassing multiple sources of income from the single location.

He buys various items (shoe soles, plastic bottles, glass bottles, wiring for its coper content) from local ragpickers which he then sorts and cleans up to sell on to middle men who deliver specific goods to recycling units elsewhere in Dharavi. There are bigger operations that do the same job utilising salaried workers but Shankar enjoys the independence of being self employed and amongst his community as he works. He makes better money from his recycling enterprise than his barber stall so he’ll make haircut & shaving customers wait till evening if he has a big haul of recyclables to get through.

On average he profits Rs 150-200 per day. Sometimes he employs up to 2 others to assist when he has a lot to get through (paying Rs 30-50 per day). On further questioning of his friends it seems that often others help him for short periods at no cost as his spot is a kind of neighbourhood hangout centre – though I’ve noted on numerous visits that Shankar is always busy on something and doesn’t sit around himself. Although he has erected a semi-permanent structure on the traffic island, the authorities have turned a blind eye due to the bribes he pays 2-3 times a year (Rs 100-200). Being well regarded in the area, Shankar has never been a victim of theft.

During monsoon his earnings are reduced by around 25-35%. He also fails to earn if he is sick or during the 3-4 weddings he attends a year plus income drops during the monsoon season. I’ve started to discuss savings and loans with him and will be getting more into this during upcoming interviews. His income is supplemented by his wife’s Rs 2000 per month salary which she earns washing dishes, etc for a middle class family in Bandra for 4 hours daily.

Indian Banking Widens Reach

Yesterday’s Times of India pointed to a development by the Reserve Bank of India (RBI) to extend its services.

“Very soon, the kirana shop and the PCO in your neighbourhood… and the nearby petrol pump, could provide you with a slew of banking services like deposits and withdrawals, opening of accounts etc from their premises. On Monday, RBI permitted banks to appoint these entities to act as their agents and carry out several of the bank’s operations…

In August, an RBI working group was of the view that since the traditional ‘brick and mortar’ banking model had limitations penetrating remote areas of India, the BC model could give banks a workable solution to provide banking services in inaccessible areas in a cost-effective manner. ‘‘Banks need to accept the BC model as extremely vital for achieving the goals of financial inclusion,” the working group had recommended.”

It has yet to be seen how this initiative will be taken up by BoP users both rurally and in urban neighbourhoods not currently not served by banks. And indeed whether it will be appropriately tailored for those on low and unpredictable incomes. Given seasonal income for farmers which need to support them across the year, such services could prove relevant. I’ll be paying close attention to informants’ discussion of savings methods and imagine that Niti (and others who have been researching here) may have relevant field insights and information to add on this development.

Image from Dinesh Cyanam on Flickr

Dharavi: Initial Impressions

Ahead of my research in ernest of unpredictable incomes at Dharavi in Mumbai this month, I am taking this week to explore and photograph the area. I’ll be uploading images in upcoming weeks to my Dharavi Flickr set.

And in the spirit of appreciating those on limited incomes I have opted to take the train to and from the research site. Having visited Mumbai since childhood I have had the privledge of chauffer driven transport in the city or have opted to take taxis. The train from Grant Rd. to Dharavi costs Rs 8 return versus about Rs 300 by taxi. But I’m beginning to appreciate that this also provides a quanitifiable travel time rather than the unpredicatble traffic jams one gets stuck in by car – an important factor if you need to arrive at your destination in a timely manner. Plus for an extra Rs 1 I can indulge in having my fortune told and weight measured by the ubiquitous slot machines at Indian railway stations!

Image: Dharavi youth with 44 gallon drums which are recycled locally for national and global corporates.