An amazing New York Times story on the State Bank of India’s outreach efforts to India’s poor offers insight into what it looks like when a bank serves its least likely customers. Perhaps American banks could learn a thing or two.The story follows Swati Yashwant, a sort of freelance banker who helps India’s rural poor set up bank accounts with the State Bank of India, which is India’s biggest bank, and which is owned by the government. She is not an employee of the State Bank of India, but she works for commission based on the number of transactions she completes for her client bank.
This system was actually set up by India’s central bank, the Reserve Bank of India, to deal with the severe lack of bank branches in the developing nation. The New York Times explains “about 70 percent of India’s population is dispersed among more than 600,000 villages [but] the entire country has only 33,500 bank branches.” Because of this, only half of all of India’s households have bank accounts. And presumably because so few people have accounts in rural villages, and little money to save anyway, banks are hesitant to open branches. The Reserve Bank, according to the Times, assigns certain villages to certain banks, and ordered banks to serve them.
So their low-cost solution to this mandate is to hire “business correspondents,” armed only with laptops, fingerprint scanners, and wireless modems, to expand their banking services to the country’s poor.
These Are Small Accounts
As a result of the poverty in rural India, the account balances are minuscule by our standards: on average 160 rupees, or about $3.30. That’s paltry, but keep in mind that the going rate for a savings account in India is 4%. In five years that account will be worth $4. Can you imagine savings rates like that in the States?
The article closes on an interesting note. State Bank claims they lose money on most of the accounts people like Swati open, but that they see it as a “social obligation,” which might become profitable in the coming years.
Now the United States is nowhere near as poor as India. And only 7% of our population — or 21 million — are unbanked, compared to 500 million in India. Poverty and banking are quite different here and in India. But just as striking are the differences between bankers’ attitudes towards the poor, and towards their social mission. Namely, Indian bankers who work at big banks think they have a social mission, and can think in the long term to make their social mission profitable. Big American bankers, save for their low- or no-interest lending to CDFIs, don’t seem to feel similarly compelled.