Who Says You Can't Do Microsavings in India? Part 2: "Conventional Finance"
MicroSave's Briefing Note No. 46 discusses how the conventional and regulated sector of the Indian financial market can provide microsavings.
Public and private sector banks represent the largest base of savings providers in India. India has 80 RRBs, with over 15,000 branches. Of the 155,000 post office branches reported in March 2008, over 98% offer some type of savings services. Even more encouraging for financial inclusion is that nearly 90% of all post office locations are in rural areas. However, these institutions face the following challenges:
- Banks find processing rural deposits costly;
- Banks see the underserved and poor as highly risky;
- Reserve Bank of India regulations restrict banks ability to recover costs and earn profits;
- RRBs do not have incentives to offer savings to the poor and they lack frontline staff capable of communicating and offering their services;
- RRBs have revolving leadership positions that discourage continuity;
- Post offices offer poor customer service and often do not have the liquidity needed to handle withdrawals.
The note suggests that pro-financial inclusion organizations should undertake initiatives that help rebalance the Indian microcredit market.