When banking came to Dharavi…

When banking came to Dharavi…

FPJ BureauUpdated: Saturday, June 01, 2019, 12:08 AM IST
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Often small changes can make differences, as the emergence of banking in Dharavi shows. Till a few years ago, residents found it impossible to bank their money – now they are getting loans for businesses as banks open branches all over. A feel good story from one of Asia’s largest slums by Khyati Dharamsi.

As late as the 1990s, businessmen running leather tanning or snack-making factories in Dharavi were forced to send cash to branches far away. Housewives saw their savings stashed under the pillows being washed away in the floods of July 26, 2005, because they had no safe place to keep them.

That was then. Today they don’t have to walk very far as banks like State Bank of India, Indian Bank, Canara Bank, Union Bank of India, Corporation Bank and many other Co-operative banks dot the landscape of Dharavi, known to be one of Asia’s largest slums. But it is surprising to know that it was only in 2007 that Dharavi got its first bank.

Banks realized that if they ignored the slums they would keep more than half the Mumbai out of its purview. It changed banking forever for a large number of the city’s residents. As per the World Bank, “While almost 54% of the metro’s inhabitants live in shanties, another 25-30% live in chawls and on footpaths, with just 10-15% living in apartment buildings, bungalows or high-rises.” The WB estimates that 22.5 million people will be living in slums in Mumbai by 2025.

Electrical technician Ponraj Edison has been able to buy four new motor devices from the amount he saved during the past 3 months. “I am going to my hometown and want to buy gifts for the family there,” said Vasanti who withdrew Rs 2,000 she had been saving over a period. These are services much of the city, even the country took for granted.

Convincing people to deposit money initially wasn’t easy and they would deposit Rs 10 and withdraw the same next day. Non-existence of address proofs, which are quintessential to open an account was another hurdle. Most inhabitants of Mumbai slums being migrants didn’t hold a proper address proof. Later, banks agreed to open accounts based on reference by community leaders, which was vetted by bank officers. Recently, RBI too has eased the know-your customer norms. A single document with photograph and address of the applicant suffices to open an account.

Customers, who initially would deposit and withdraw cash, matured into borrowers of small ticket loans. The loans offered to these new entrants into the banking channel are a little different from what the other urban counterparts are used to. Here loans are given out in a group of 5-10 individuals and each member is responsible for the payment. The assessment of repayments is done during the short weekly meetings.

As per data provided by loan data repository CRIF High Mark Credit Information Services the borrower coverage in joint-liability group micro-lending has grown by nearly 100% over last 2 years, covering nearly 4 lakh borrowers presently in Mumbai and Navi Mumbai.

Kalpana Pandey, CEO & MD, CRIF High Mark Credit Information Services, notes, “We are observing significant growth (as high as 50%) in micro-lending for urban poor in Mumbai. Rs 590 crores of joint-liability group (JLG) micro-lending happens in Mumbai.” She adds that the average ticket size on micro-loans – offered by 31 micro-lending institutions – in Mumbai region has grown by 12% year-on-year since 2013. The loans are dolled out through 50,000 centres in the city.

There is a social stigma attached to non-payment of loans, hence the repayment track record is high. Hardly 0.10% of the loans are ever defaulted on. “The microloans in general have a better performance on delinquencies, the situation is reflected in Mumbai as well. The 30 days past due portfolio is about 0.9% and 90 days past due portfolio is about 0.7%,” says Pandey.

Compare this to the 4.5% of regular banking loans being pegged as gross non-performing assets (NPAs) of Indian banks in the current financial year, as estimated by CRISIL. But compared to Dharavi, the growth of banking network around the slums of Navi Mumbai is slow. This is a result of 3-fold higher delinquency level observed in Navi Mumbai, as per CRIF High Mark.

Such consolidated data provided by the credit bureau dedicated to small-ticket borrowers helps banks take effective decisions on small-ticket loans. As a result banks are confidently increasing the loan amount based on the past repayment history.

“Average ticket size now hovers around Rs 20,000 which is what is also observed in areas such as Bhandup and Mankhurd. Dharavi sees around Rs 16000 as average ticket size. The Micro-lenders have nearly Rs 69 crore exposure in these three areas. Higher ticket sizes (of even Rs 25000) are being observed in areas such as Ambivali, Manvali and Ambavadi,” says Pandey.

The low delinquency level and higher appetite for loans have lead to the RBI allowing microfinance institutions to increase the cap on the borrowing limit of their clients by Rs 50,000 to Rs 1 lakh recently.

These loans are used by borrowers to usually buy equipment to help them earn their livelihood. Taxi driver Rahim needed Rs 5,000 to repair his vehicle purchased couple of years ago. He paid the loan in two months as his taxi helps him earn Rs 1,000-5,000 in a day.

Covering the unbanked into the formal banking channel, has the ability to reduce poverty. The upliftment of the poor maybe the reason RBI too zeroed in on Bandhan Financial Services, a microfinance entity with 66 lakh rural-Indian customer base, to open a full-fledged bank, leaving out many other leading corporates of India Inc, except IDFC which would be forming a bank too. The irony is that Chandra Shekhar Ghosh, who is at the helm of Bandhan Bank, was declined a bank account by a public sector bank more than a decade ago.

“We are observing significant growth (as high as 50%) in micro-lending for urban poor in Mumbai. Rs 590 crores of joint-liability group (JLG) micro-lending happens in Mumbai.” Kalpana Pandey, CEO & MD, CRIF High Mark Credit Information Services

Banks, who don’t have physical presence in the slums deploy various business correspondents, to enroll account holders who don’t have to visit the branch to open an account or to deposit and transfer money. A hand-held device, which has a finger-print verifier, can be fed with biometric or smart cards and information of upto 16 accounts can be stored in the chip on the smart card.

These devices and the business correspondents help banks reduce reliance on branches, which are a big drain on banks’ finances. In an effort to cut down costs, banks are relying on automated teller machines ATM machines. So cost-effective are ATMs that Indian Bank, which has a branch in Dharavi has two ATMs outside its branches and has set up another ATM away from the branch in the same locale. Foreign bank FirstRand set up its ATM to cater to slum dwellers and saw 2,000 transactions in the first month itself.

These machines, which were initially just dispensing cash, today can help banks offer a host of services at costs one third that of the regular channel. Cheque collection, passbook updation, statement generation, loan requests, bill payments, insurance premia payments, tax payments and phone recharge too are facilitated by ATMs.

These machines which were hitherto dispensing cash which was manually filled in, can now recycle notes deposited in the machine. The machines first sift the good notes from those deposited in the machine, weed out fake notes and dispense cash to those seeking withdrawals. This helps banks and ATM maintenance companies to reduce the frequency of replenishing cash.

The State Bank of India has been using services of various providers and establishing mini ATMs at Kirana stores and even setting up kiosks at these grocery stores to help customers open an account, deposit, withdraw or transfer money in return of receipts churned out by handheld devices.

The investments in developing alternate channels have paid off. At State Bank of India, 69% of transactions are routed through channels such as ATMs, internet and mobile banking, while the percentage stands at 85% for HDFC Bank, as per Citi Research.

The share of mobile banking is increasing each passing day. National Payments Corporation of India (NPCI) is launching a unified payments interface that would make one’s mobile phone as good as a virtual debit card. The interface would allow customers across banks to send and receive money from their smartphones using their Aadhaar number, mobile number, and a virtual payment address.

Clearly, a small step can go a long way. In a few short years, banking is now a regular way of life in Dharavi—in time, the rest of the city’s slums will also enjoy the same benefits, bringing all citizens under the ambit of this most important activity.

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