NEW DELHI // Rajeev Kumar wants to save enough money to send his three children to a better school.
He scrapes together savings of 50 to 100 rupees (Dh2-5) each day from his earnings from his food stall in the middle class neighbourhood of Mandawali in East Delhi.
Mr Kumar had tried to open a savings bank account years back when he was starting a business but felt he would struggle to maintain the 1,000-rupee minimum balance because he was unsure about his income flow. Also, his rented accommodation did not provide him with utility bills to prove residency in the city.
So he would stash his savings at home or give them to a moneylender for safekeeping. But with no interest being earned, Mr Kumar, 40, struggled to convert the 12-14 hours he worked each day into a brighter future for his family.
That changed five years ago when he met Parshuram Kajak, a field officer with Nidan, a cooperative that collects money from street traders and manages savings accounts for the urban poor. Each day Mr Kumar hands his money to Mr Kajak who who deposits it with the cooperative. Mr Kumar is free to give as little or as much of his earnings as he chooses.
“They don’t feel ashamed to giving it to us but to a bank, no,” said Mr Kajak. “They are too intimidated to go to the bank every day with such small deposits.”
Like many other Indians, the street traders who entrust their money to Mr Kajak have no confidence in banks. The reason? India’s financial institutions have no interest in them.
To the banks, Mr Kajak’s clients are people of too little means, often illiterate and geographically remote – in short, a customer base not worth cultivating.
The result is that only 40 per cent of India’s 1.2 billion people have bank acounts.
The rest rely on informal methods of banking, from saving their money in cooperatives to taking loans from unscrupulous money lenders, according to Alok Prasad, head of the Microfinance Institutions Network.
What is needed for the rural or urban poor is banking that is safe and convenient, Mr Prasad said.
“All the formal institutions like banks have safe facilities but they are not convenient for someone who is an illiterate, with very little in savings. The banks are not interested in them as customers,” Mr Prasad said. “What is needed is having a class of institutions that can connect with the bottom of the segment.”
Microfinancing emerged in India in the mid-80s, after the Nobel prize winner Muhammed Yunus popularised the concept in neighbouring Bangladesh. The idea was to empower the poor with small or micro loans, that could be paid back easily. The loans were given out for small projects, to buy a cell phone, a few bags of seeds or a few head of cattle – things that were not traditionally financed by banks.
The runaway growth of the industry in India led to reckless lending to the poor. Some microcredit companies siphoned off their funds into other projects, creating pyramid schemes took with them the life savings of the poor when they collapsed. However, microfinance companies have made a comeback in the past year, after the Indian government issued new regulations, with the backing of the central bank.
The Nidan cooperative is part of an initiative by the National Association of Street Vendors of India to reach out to those in need of a financial intermediary that gives loans at low interest rates.
Nidan charges interest of 15 per cent on loans, and pays 4 per cent on deposits. It now has 3,300 members, most of whom pay in anywhere from a rupee to a few hundred rupees a day.
Mr Kajak’s clients sell a variety of items on the streets, from fruits and vegetables to luggage and jeans, and are among the 10 million street traders in India, according to the ministry of housing and urban poverty alleviation.
Most are migrants from across India who have flocked to Delhi to earn a living and do not have paperwork to prove local residency. They therefore do not qualify for a number of basic services, including a bank account, said Mukut Sarma, senior programme manager at Nidan.
“We require only one piece of ID, and two guarantors who are already part of the co-op,” said Mr Sarma. “And our officers meet them every day. We know our clients, and they know us.”
However, the street traders lack municipal licences. As a result, Mr Kumar, the food vendor, said he spends 200 rupees a week bribing officials to keep his stall running.
The police also harass them, as do local gangs, all asking for money to allow them to operate. Sometimes they are roughed up, or beaten if they refuse to pay, said Bhopal Singh, 53, an executive member of Nidan, who sells cosmetics on the streets and worked with his father, a vendor selling vegetables, since he was 12.
“We are fighting so hard to stop this but it can’t be our fight alone. If the government recognised our jobs, we could give the money to the government instead,” he said.
Ideally, he would like vendors to have identity cards that would give them access to not just government aid, but also enable them to approach institutions such as banks for loans for housing, marriage and expanding business.
“As a government you can offer all sort of handouts to the poor,” Mr Singh said. “But you must respect those who are able to create jobs for themselves and support their families. Recognise them first.”