Sending Money Within India? Don't Hold Your Breath

Sudip Bandyopadhyay

I still remember an incident which took place
a few years back when my next door neighbor's
son needed a large sum of money for admission
to an engineering college.
[Sudip Bandyopadhyay]


He had only a few hours to complete the formalities
within the deadline. They made a few phone calls to
his uncle in London and within 15 minutes they collected
the money from the neighborhood Western Union outlet
after the uncle remitted money from Britain to our
small town in the outskirts of Kolkata.

Another shocking and quite different incident took
place recently. My driver in Mumbai wanted to urgently
send money to his wife in his native village in Bihar
for some immediate need. The poor guy was running from
pillar to post trying to figure out how to ensure that
the funds reached his wife within 24 hours.

Unfortunately, he cannot use money transfer agents
as they cannot be used for domestic remittance.

Since his illiterate wife doesn't have a bank account
and the village where his family stays, in any case,
doesn't have a bank branch within 10 kilometers,
he had no other option but to ask his family
to borrow money from his village money lender at
an exorbitant interest rate for a week.

Ultimately, he remitted money through a postal money
order and he is hoping that his money reaches his wife
within seven days.

Financial inclusion is one of the main planks
of India's drive to wipe out poverty – equal
to the efforts put in to build physical infrastructure.

Government experts define the policy as the
"delivery of financial services at an affordable
cost to the vast sections of the disadvantaged
and low-income groups." Officials estimate that
more than half of Indian rural households -
about 46 million homes – do not have access to credit.

“Inclusive growth demands providing financial
services to this un-banked population."”

Two thirds of the country's population doesn't
have a bank account and this situation is not
expected to change dramatically in the near future.
Inclusive growth demands providing financial
services to this un-banked population.

The attempt by the government is now rightly moving
towards using alternate non-banking channels to route
financial services into the interiors of the country.

As a part of this process it would be only
appropriate if the domestic remittance market
is opened to recognized money transfer agents
who already are authorized to receive inward
remittance from abroad.

In fact, it is quite paradoxical that a person
sitting in India can receive remittance from
anywhere else in the world but not from other
locations in India. So a person in London can
remit money to a person sitting in a remote
village in Bihar by using the services of
Reserve Bank of India-approved, private money
transfer players, while a person sitting
in Mumbai cannot do the same. The only option
open to him is to use the postal department's
money order service and borrow
in the meantime if necessary.

The problems in India's rural sector are well
documented and the lack of remittance services
is but one of the many inequities that plague
this part of the country and keep its inhabitants
outside of mainstream finance

Consider some of the others.

About 72% of the country's 1.14 billion people
live in rural areas, yet agriculture produces
only about 21% of gross domestic product,
according to the World Bank.

That leaves the majority of the population
living off a small chunk of the economic pie.
While the government has claimed it can
end poverty by 2040, at present,
more than 250 million Indians live
on less than $1 a day.

Small and marginal farmers, with two hectares
(five acres) of land or less, comprise three
quarters of the nation's farming households but
own less than one quarter of its farmland.
In the poorest states, such as Bihar, small
and marginal farmers comprise about 96% of those
working the land, according to industry experts.

A lack of transport and other infrastructure
forces these farmers to sell their produce
to village "aggregators," the middlemen,
at less than market value. With a better
knowledge of prices than many of their
poorly educated clientele, the middlemen
dupe farmers into steep discounts.
They also double up as money lenders,
providing farmers with credit for seeds
and equipment, often at crippling interest rates.

This is where micro-finance and non-bank
financial companies can play a huge role
so that financial inclusion reaches the remotest
levels of the country and India can truly progress.

—Sudip Bandyopadhyay
is managing director of Reliance Money in Mumbai