Insight of the Day

UNICEF put up a billboard in Juba, the capital of South Sudan, which says in English and Arabic: “Armed conflict is health risk”.

That's from Bill Easterly's recent review of David Collier's book "The Bottom Billion"

The Potential of Post Offices

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.

Keeping NREG Clean and Corruption Free

The National Rural Employment Guarantee Program is the largest and most ambitious poverty alleviation scheme to be launched in India (perhaps the world) in recent memory which is why recent reports that the program is being implemented effectively with relatively low levels of corruption are such good news. This news is all the more remarkable considering the poor start the program got off to. Only a year ago, one of the chief architects of the program, renowned economist Jean Dreze, lamented that implementation in the state of Jharkand was doing nothing other than enrich a few bureaucrats and contractors. One observer claimed that the design of the program was so flawed that dropping money from helicopters would be more effective in delivering money to the poor.

The secret to the success of the program, where it has been successful, has been the use of social audits to keep bureaucrats and others implementing the program in line. According to the original NREG bill passed by parliament, absolutely anyone can request access to the “muster roll” (a list of who has worked when and for how long) maintained at a work site. NGOs have used this clause to keep a close eye on the functioning of the program and to pinpoint and expose cases of corruption.

While the success of social audits at the local level appears remarkable, I would also like to see more aggregated data for the block, district, and state level. Local social audits are great for shaming corrupt local bureaucrats involved in skimming from the program, but it is also important to instigate action at higher levels. A great example of a report which seeks to compare performance of different states in service delivery is Pratham’s Annual State of Education Report (ASER) The report has succeeded in shaming numerous state governments into providing better education to their citizens. I think that if an organization could step up and do the same thing for NREG implementation that Pratham has done for education, the results would be enormous.

Announcing the Creation of the India Development Blog

The Centre for Microfinance blog has officially moved to the India Development Blog. Along with the move, the blog has also received an upgrade and expansion. In addition to the Centre for Microfinance, the Centre for Development Finance will also be contributing to the new blog.

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