Gopal G., a native of West Bengal, moved to Delhi 14 years ago to find a job to support his 11-member family. In Delhi, he works with a goldsmith, earning Rs 3,600 a month, much of which he sends back home. Like most low-income migrants, Gopal lacks the necessary documents to open a bank account and relies on informal methods, which are very risky, to send money home. The other option is to carry cash when he travels home. So far, Gopal has had nearly Rs. 60,000 stolen while travelling home by train.
After being robbed several times, Gopal decided he would make more frequent trips, carrying smaller amounts of cash each time. Each trip involves missing days of work, which results in loss of income.
In India, approximately, 100 million people who migrate outside their native towns and villages for work face the challenge of sending money home. To remit funds, migrants require access to financial-service-points.
Formal service-points include banks, post offices and mobile-banking-points, while informal channels are friends carrying cash or hawala/tappawala couriers (based on informal agreement between a hawala courier at the sending end, who collects deposit from the sender, and a courier at the receiving location, who disburses the cash, minus a fee, to the recipient).
A 2010 study “Putting Money in Motion: How Much Do Migrants Pay for Domestic Transfers,” by the Centre for Micro Finance (CMF) at IFMR Research, found that 57 per cent of migrants use informal channels.
The study also found that while over 50 per cent of migrants in the study sample expressed a desire to remit through banks, only 31 per cent actually did so. Despite the existence of formal options such as India Post, which has 150,000 branches across India, why do a majority of migrants use informal channels?
The answer lies largely in the ease of access to informal sources compared to formal ones. Opening a bank account for migrants and their families requires address and identity proof, which are, invariably, difficult to obtain. Further, the transfers are generally slow, especially in remote locations.
The working hours of formal channels overlap with those of the migrants, most of whom are daily wage labourers. Time per transaction is higher in formal channels — clients spent 48 minutes per hawala transaction compared to an average 150 minutes at a bank. Barriers to accessing bank accounts also include softer issues, such as the attitude of bank staff, compared with the hawala couriers, who are easier to deal with. However, while informal channels are easier to access, the biggest disadvantage is the risk they pose.
Technology, such as mobile phones, smart cards and biometric authentication, could play a significant role in reducing costs, apart from making transactions faster and safer.
One successful initiative is the SBI Tatkaal, initiated in partnership with EKO, where customers are provided access to formal banking services by opening no-frills accounts with minimum KYC documentation, along with remittance facility.
Banks could do much more to make their services more accessible to the migrant population. New bank branches could be strategically placed along large migrant corridors at both source and destination to make transferring money easier for migrants. Further, banks could appoint business correspondents, a system in which licensed individuals and institutions offer services on behalf of banks.
This can help bring remittance and savings services closer to families who live in rural and hard-to-reach areas. Technology, such as mobile banking, can help in making the services of business correspondents more efficient and accessible.
The National Payments Corporation of India (NPCI), has unveiled an Inter-bank Mobile Payment Service (IMPS), under which fund transfer is enabled even if both sender and receiver do not have accounts with the same bank.
The facility can be used with any mobile-phone, including low-end ones that use SMS for fund transfer. However, a constraint in this system is that both remitter and beneficiary need to have bank accounts, albeit not with the same bank.
The present IMPS structure allows cash-in/cash-out through bank branches or ATMs only, and therefore the remitter and receiver have to visit their respective bank branch (or ATM) to transact. SBI Tatkaal, is more customer-friendly, wherein the remitter and beneficiary’s banks have linked their networks to their respective BC channels, allowing customers to perform cash-in/cash-out with the local BC.
For Better Services
Though the India Post has a large network in rural areas, it cannot assure sound and fast service given its current systems and is, in fact, losing clients.
According to the CMF study, post office remains the most expensive remittance option costing nearly 6 per cent of the total amount remitted in fees.
Further, nearly 70 per cent of remittances transferred through post offices are low value — below Rs 500 — increasing cost per transaction. India Post must modernise its electronic transfer system to make its money transfers faster, cheaper and more secure.
The Central Government’s Adhaar programme (Unique Identification Authority of India) should expand swiftly to areas that send out a substantial number of migrants. Having unique identifiers would help migrants prove their identity to banks, lowering a key barrier to formal financial access.
If policymakers want to achieve universal financial inclusion in India, they must address the special needs of domestic migrants, who are both socially marginalised and largely unbanked.
Making remittances easier, cheaper and safer is an important step towards including this critical population into the formal financial sector.
This article first appeared in The Hindu Business Line.