India Opens 15M Bank Accounts in Modi’s Inclusion Drive
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The government, via Reserve Bank of India, earmarks specific sectors, in line with their current policy, as "priority sector". This can be housing, agriculture, rural electrification, etc. And banks are mandated to increase their focus and show metrics that prove they are engaging bona fide with the "priority sector". Rural banking is one such.
The cash deposits and reserves from these customers, broadly speaking, are not that much. They tend to be big in Gold Loans and a source of Agriculture / Animal Husbandry loans.
Indeed the deposits by the very poor aren't much. But this is a government scheme targeted at enabling the poor, not to help the banks.
My mom once mentioned, how nice it was when my parents first got a bank account. They started saving. Money became easier manage. To enable 15Mn people to have bank accounts is a good step.
That sounds like a terrible idea. This opens up the door for further extortion, corruption and exploitation of the masses. Say the government hands out $15 per child for education, there way to prevent debt collectors to harass the poor into paying that money to them. Plus, the extorter knows he can collect at least $15 per child!
I think offering a service instead of "free money" is much more valuable.
We should give money to the poor so they can not be poor. Even if 10% of them get robbed, even then 90% will be better off than before the money transfer.
Services are nice but central planning of services provides worse allocation than well functioning markets. Even for the poor.
1. The Zamaindari (Zamin = Land ZaminDar = Big Land Owner ZaminDari = A system of exploitation set-up by British now dismantled.) system is over. Period. There are some big land wonders left but I am not going into it. 2. Poor borrow from money lenders who may or may not be big land owners. But in almost all the cases these money lenders are local muscle men, like everywhere else in the world. This is how parallel money lending works all over the world. The local moneylender lends money. Charges exorbitant rates. In case of non payment the life is made hell for the debtor. In many cases the debtor borrows money and spends it on gambling and alcohol and ends up loosing all his wealth to the money lender. BTW the money lender also accepts deposits. But they don't usually pay interest on the deposits. Many times these deposits work in an interesting way - what is called a "committee" in some parts of the country. Lets say there are 1000 contributors in the "committee" each depositing Rs 500 every month. Let's say duration of the committee is 2 years. Each month a lottery is conducted with one winner. The winner gets Rs 24 x 500 = 12,000 and stops contributing. The remaining members keep contributing. At the end of 24 months each remaining member gets 12,000 each. If a member misses a payment his/her contribution till date is forfeited. These moneylenders also accept deposits for safekeeping. Usually no interest is paid. Government's scheme plans to break this. 3. Government owned banks lend billions of Rupees every year to poor farmers and other economically/socially weaker sections. These loans were usually waived off by the Central (Federal) government. Populism over economics. 4. Opening of bank accounts is first step towards financial inclusion. 5. The number 15 million should be taken with a pinch of salt. Some banks like Bank Of Baroda were opening zero balance accounts and many who already had accounts opened another one with such banks. Branches were given targets and many opened accounts for family and friends who already had bank accounts.
The thing you talk about are also knows as BC (or the link) and its quite common even in metros. There is also a variation of it run by jewellers (and gold traders) where one pays a fixed amount every month which is invested in gold.
If you don't mind me asking, which village? My roots are from a small town in UP which I have only visited once. But I am deeply intrigued by rural India and it always blows my mind when I realize most of the country's population is in rural India.
1. They will start saving: No. They won't. They will have what little money they have put into a system outside of their control and systematically syphoned away. 2. The benefits of saving are not something people need to learn; the benefits of saving money are harder to justify to someone who isn't already wholly dependant on it (and maybe even perceives it as a tool used against his people for centuries). 3. True, but I fail to see a major difference between a government and corrupt middle men. Most government people run businesses, is that the same in India? Conflict of interest? 4. The 2000's called...give it a couple years and whatever legislation you think protects the poor will be watered down, eroded away, or completely worked around.
The textbook justifications for predatory capitalism don't work anymore. I'm sorry, but the more involved the poor are in finance, the more they are preyed upon; because there is opportunity and reward. Taking candy from a baby.
"Positive-spillover". FFS.
You are forgetting people are being saved from the clutches of money lenders which have enslaved these people for a long time now. Now the poor have the opportunity to get a loan from the bank and a real insurance cover. This change can not be trivialized.
Though, the situation isn't that simple. Money lenders often accept undeclared assets as collateral. So for some people (the uneducated or the unscrupulous) money lenders are a boon, not a clutch.
1. Banks were inaccessible to poor people. Too much paper work. Too far away. Too difficult to conduct business. I hope with new bank accounts all these are changing too.
2. Saving is not new. People save money; even poor people do save. But, then, if the savings are in women's hands, it is spent more wisely. Historically, the only way women could store the money was in gold. Eventually, gold itself because such a coveted possession, it's monetary value was not exploited for capital needs. Bank accounts may not have these problems.
3. Historically, the only reason rural folks went to bank is to take loans, under some government project. And, that had a big potential for corruption. People had to pay money to take the loans. The funny thing was the underlying assumption is that the borrowers need not pay money back, since the government will write it off, for some election purposes.
4. Money transfers for poor is new. I think that would work lot better. And, perhaps giving to women would make it work whole lot better. In my observation, there is lot of social and cultural conditioning in seeing the kids doing better than the parents, the mothers will try to put the money to use. Whether they have the financial education or not, different issue.
5. Any system will be exploited over time. I think it is important to shake them up every few years to disturb the existing power structures, especially in the relationship between the government and the people.
With direct welfare payments over over other benefits in particular it allows poorer people to get money without any middle men in between.
No, this is wrong. The real tragedy is that poor people do have credit cards. The credit card system overwhelmingly favors those at the top -- people who automatically pay off their balances each month and enjoy 30-day interest free loans the rest of the time, versus people at the bottom who have a perpetual negative balance on their cards and who pay exorbitant interest rates that would be illegal in a civilized country.