Measured in terms of size of branch network, the Indian Postal Service, with its 1.5 lakh branches offering a variety of financial services, is probably the largest financial institution in the world. (Not all of these 1.5 lakh “branches” are true offices in the sense of being managed directly by the Indian Postal Service, but all branches offer basic financial services.) At face value, the postal service network seems like an ideal channel for mobilizing the savings of the rural poor as well as for delivering government services.
Yet, the reality is that usage levels of post office savings accounts among the rural poor are abysmally low. In a comprehensive study of rural households in Uttar Pradesh and Andhra Pradesh, the World Bank and NCAER found that while 41% of all respondents held a deposit account with a formal financial institution, less than 1% held a Post Office savings account. (for more info see Basu, P and Pradeep Srivastava, “Scaling up Micro-finance to India’s Rural Poor”) Furthermore, for all the hype about the potential of post offices for delivery of government services, there has been very little progress on the ground in implementing any of the proposed pilots.
The key question is why don’t the rural poor use post office savings accounts more? Elizabeth Koshy, a colleague here at the CMF, and I have been looking at this question for a project we are working on and we have been unable to come up with a clear answer. Some of the potential candidates we have come across are…
- The post office staff are corrupt and take a cut out of people’s savings accounts (Yet, we have also heard the exact opposite from many people – that the post office staff enjoy a high level of trust and respect in rural areas)
- That post office staff are lazy and make it a real pain for people to deposit or withdraw money (Yet we have also heard that the people who run the “extra-departmental” post offices, which make up a majority of all branches, actually work quite hard)
- The products are too inflexible
- The poor just don’t need savings accounts
- The incentive structures of agents. Most of the mobilization of savings is done by agents who get a commission for the total funds that they mobilize as opposed to the total number of accounts they service.
All of these answers seem inadequate to me. Whatever the answer is, it will have important implications for the microfinance sector. Many in the sector are pushing for MFIs to be allowed to offer savings products to their customers. Yet, if whatever is causing people not to use post office savings accounts is also present when MFIs offer savings products, it will almost surely be a failure.
If you have an answer to this question, Elizabeth and I would love to hear it.
2 comments:
two thoughts come to mind, a general phobia of government institutions that the 'rural poor' seem to have and perhaps a lack of awareness of the post office as a financial service provider, have any studies quantified or explored these effects?
Hi Siddharth,
Thanks a lot for the comment. These are definitely prime candidates for the underlying reason behind the low observed usage of post office savings accounts. While we haven't come across any studies which seek to quantify these effects, we do have some anecdotal evidence that while the rural poor are aware of the existence of post office savings accounts, they are often under the misimpression that post office savings accounts can only be used to save relatively large amounts. We suspect that this may be because post office agents are compensated based on the total amount of savings they mobilize and so it is in their interest to foster this false impression.
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