Multiple needs, multiple strategies

Contrary to popular perception, all ‘poor’ rural households are not stuck in a vicious cycle of low resources, low opportunities, and high debt. Many low-income households are ‘movers’, adopting numerous strategies to overcome severe constraints and improve their overall financial status. Profiles of eight customers of Dhanei Kshetriya Gramin Financial Services (DKGFS), an IFMR Trust venture in rural areas of Ganjam district, Orissa, illustrate some of these strategies. The profiles also bring out the variety of needs, perceptions and priorities that have to be addressed by any financial system that hopes to cater to low-income households in rural areas. Some lessons also emerge, as discussed in the last part of this report.

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Careful planner
Jayanti Behera, 33, grocery shop owner, Badakusasthali village

Seven years ago, when Jayanti Behera started a business venture for the first time in her life -- a grocery shop -- she learnt a lesson she will never forget. Eager to please and entice customers, she extended credit liberally. The dues mounted, and payments didn’t come in. Eventually, she recalls, she toted up a debt of Rs 70,000. That’s when she decided enough was enough. Since then, Jayanti has been insisting on immediate cash payment from her customers.

Jayanti Behera, grocery shop owner

It doesn’t worry her that there are six other small grocery shops in the village, which has a population of around 2,500. Member of a scheduled caste (SC) group, Jayanti lives with her husband and three small children in a locality largely populated by SC households, and hers is the only grocery shop in that locality. She stocks vegetables, soap, stationery, oil, rice, dal and other household items.

Business is good and assured. Early in 2009, she took a business loan of Rs 16,000 from DKGFS and prepaid it within six months so that she could take another loan of Rs 23,000. She used the money to increase her stocks. With more goods to sell, income has increased. On some days, daily net earnings touch Rs 400 she says. Average net monthly income is between Rs 4,000 and Rs 6,000.

Jayanti’s husband, a marble mason, earns much less -- Rs 150 a day, for around 20 days a month, or Rs 2,000-Rs 3,000 a month. He cycles to the nearby town of Behrampur every day to seek work, carrying his lunch with him. He often returns late.

The family has no agricultural land, and has no intention of acquiring any. Instead, they have invested in a variety of financial products. They have a life insurance policy, an accident insurance policy, and save Rs 2,100 a month in a private investment company scheme; the agent comes home and collects the money. They have also invested in a recurring monthly deposit scheme with the same private company. They give Rs 300 a month, and, after six years when they have invested a total of Rs 21,600, they will get Rs 30,000. Jayanti is not sure how much that works out to in terms of yield, but she feels it is a good investment.

The family spends Rs 125 a month on private tuitions for their sons, aged 12, 9 and 6. But Jayanti does not have great ambitions for them. “It will be enough if they study till matriculation.” Highly qualified children of their relatives have not been able to get jobs, she points out. Her children could do business like her, she says.

Jayanti’s grocery shop, housed in a wooden stall, was first situated some distance from her home. Fearing theft, she shifted the stall to its current location, near her house. The next step, planned for 2010, is to extend their three-room house and shift the shop to the extended front portion.

She estimates the extension will cost Rs 100,000 -- much more than what DKGFS can offer in its current product range. Citing low interest and daily repayment facility as the two best features of ‘Dhanei’ (as DKGFS is known locally), Jayanti says: “I will seek as much loan from Dhanei as I can get.” She plans to borrow the rest from other sources (there are a number of established MFIs operating in Ganjam district; Jayanti had earlier taken aggregate loans of Rs 99,000 from them, at 36% interest per annum).

365-days-a-year service provider
Lalit Panda, 42, cycle repairer, Badakusasthali village

“My shop is never closed,” says Lalat Panda with obvious pride. One of the few cycle repairers in Badakusasthali village, he is never short of business. A large proportion of the village’s male population cycles every day to nearby Behrampur for work; every day Panda has to repair 50-60 cycles.

Most cycles require only minor work such as oiling, and for several years his daily income was around Rs 150-Rs 200. Then, after DKGFS started a branch in the village, Panda thought of taking a loan to buy a compressor. He could save time filling air and use the machine for other jobs like collaring that he was getting done from units outside the village.

DKGFS gave him a business loan of Rs 15,000. Once the compressor was bought, Panda’s income rose almost immediately. Some days, he reports, he earns Rs 300. He has already set his sights on his next acquisition -- a welding and grinding machine. “I need around Rs 30,000 and have already spoken to the Dhanei people about it,” he says.

Lalit Panda, cycle repairer

Panda is not worried about the prospect of cycles slowly fading out of the rural landscape, as has happened in some parts of western Maharashtra, where motorcycles are more common in the villages. Firstly, he says, there will always be cycles. Secondly, he is a born auto mechanic, adept at repairing anything that moves on wheels, “from a thela (handcart) to a rickshaw”.

Panda’s confidence in his own expertise is so high that he did not panic when he had to close down a cycle shop that he had been running in Rourkela for 15 years; it was doing good business and allowed him to send money home every month. When the land on which the shop stood was taken over, in 1999, Panda cleared all his (business) debts and returned to his village to start afresh, from the front room of his house. The room is still his ‘shop’, neatly stocked with spares and tools.

Panda’s wife, Mamta, is more educated than him. She tutors their only child, a 10-year-old son. He is good at his studies and the couple have high hopes for him -- he could become an engineer or even a doctor, Panda says. “At least till matriculation,” he adds, “he will get tuitions at home itself.”

The couple own no agricultural land and have no interest in acquiring any. They invest Rs 1,500 a month in post office and LIC schemes. They have also recently opted for DKGFS’s money market mutual fund (MMMF) product, which combines the ease of use and liquidity of a bank savings account, and reasonable returns. “Whenever possible, we will invest Rs 50-Rs 60 a day” in the MMMF product, Panda says.

Mamta does some tailoring at home, earning around Rs 1,000 a month. She took a joint liability group (JLG) loan of Rs 15,000 from Dhanei. That and the business loan taken for the compressor are the only loans the family has ever taken from any financial institution. Rate of interest was not what attracted them most to DKGFS. “What I like about Dhanei,” Panda says, “is that they observe rules strictly. And they treat customers with respect.”

Many eggs, many baskets
S Amulu Reddy, 48, agriculturist, Badakusasthali village

Amulu Reddy is the matriarch of a family that owns around one acre of agricultural land worth at least Rs 250,000. But the land does not yield much income. Only one crop -– paddy -- can be sown in a year. Half the produce is retained for family use through the year. The other half, which is sold, fetches a net income of only Rs 10,000 or so. In recent years, net income from agriculture was as low as Rs 5,000.

However, the Reddys are not dependent on agriculture. Amulu’s husband, Debraj, works as a mason, earning around Rs 50,000 a year. One son, who lives with them, works in a petrol pump, earning Rs 20,000 annually. Another son is with a textile firm in Chennai. He earns Rs 48,000 a year, and sends Rs 1,000-Rs 3,000 a month to his parents.

With these multiple sources of income, and little expenditure on food (they don’t need to buy rice), the Reddy family is in a position to save quite a lot of money. But the savings don’t translate to a long-term income stream, as all the money is being put aside for the marriage of an elder daughter. The family appears to have saved around Rs 100,000 for this purpose, but apparently it will not be enough. Amulu says she will borrow from her brother who has a lot of agricultural land and is well-off. It will be a soft loan. “We will repay it slowly,” she says.

The Reddys have another daughter and, interestingly, they have different plans for her. She enrolled this year in a technical institute nearby, run by the Tatas, where she is doing a diploma course in electrical engineering. The annual fee is Rs 33,000. Amulu took two loans from DKGFS to pay the first year’s fees -- a JLG loan of Rs 15,000 and a jewel loan of Rs 15,000. Over three years, the family will spend a total of Rs 120,000 on the girl’s education. But they are not worried about returns: the technical institute assures jobs to students who complete its courses.

Income from this additional source should more than offset an inevitable reduction in Debraj’s income. For the past one-and-a-half years, he had been working in Chennai earning around Rs 6,000 a month and sending two-thirds of the money home. However, in August 2009, he had a violent argument with the labour contractor who hired him, and he returned to Badakusasthali with a twisted arm. The cost of treatment at a local hospital, including nutritious food recommended by the doctor, was around Rs 10,000. Debraj hopes to recover fully soon. He then plans to work in and around the village itself -- at a daily wage rate Rs 150, much lower than the rate in Chennai (Rs 220/day).

The Reddys’ financial priority is arranging their daughter’s marriage. “Then,” Amulu says, “we will think of improving our house.”

“A tiger”
C Sitamma Reddy, 40, tea and grocery stall owner, Narendrapur

Sitamma Reddy suffered a huge blow a few years after her marriage, around 20 years ago. Her husband, a farm labourer, died after consuming illicit liquor. With a small son, and eight months pregnant, she returned to her parents’ home in Narendrapur. For around two years, she stayed at home looking after her children (her second child was a daughter). There was only one source of income -- her father’s earnings as a wage labourer -- and those two years were “very difficult” for the family, she recalls.

Sitamma was determined to earn a livelihood, to support herself and her children. Leaving them in the care of her mother, she started going to the nearby town of Behrampur every day, to sell bananas. The business was started without any investment: she picked the bananas up in the morning from a wholesaler on credit, and paid him in the evening.

She worked like this for around five years. Then her elderly mother fell ill and Sitamma had to think about doing business in Narendrapur itself so that she could also take care of her mother. She started a vegetable vending business at the village’s weekly haat (market). Saving diligently, she managed to buy her own house.

Around three years ago, she purchased a wooden stall to start another business near her house -- selling tea. Recently, with the help of a JLG loan from DKGFS, the business has expanded into a grocery shop selling biscuits, toiletries, stationery, and tobacco products. While the daily turnover of the tea vending business was Rs 150, the grocery shop brings in an additional daily turnover of around Rs 300.

Most young adult males in Narendrapur have migrated long distances in search of work, and Sitamma’s 21-year-old son followed the trend in mid-2008 when he moved to Surat, in Gujarat, to work as a wage labourer. He sets aside all the money he saves for the big event in the family -- his 18-year-old sister’s marriage to a young man working in Hyderabad. The marriage will take place in 2010.

Sitamma herself has saved for the marriage over several years. Around seven years ago, she lent Rs 40,000 to a relative and, after a few years, got back the principal with an agreed interest payment of Rs 10,000. She then lent the aggregate money to another relative and got back Rs 80,000, which she has put aside for the wedding.

Sitamma doesn’t plan to take it easy after her daughter’s marriage. She has already asked DKGFS for a business loan of Rs 20,000 to expand the grocery store. “She is a tiger,” says Dilip Kumar Jena, a cousin who lives near her house.

Lifelong customer
Shashi Sahu, 49, small restaurant owner, New Baxipalli

Landless and illiterate, Shashi Sahu and her husband ran a tiny restaurant outside their house for over 20 years. The restaurant is nothing more than a hearth and a few wooden shelves on the floor. There is no roof and customers have to either stand or sit on a low wall. The Sahus barely managed to make ends meet.

They have two daughters and a son. When they were still minors, the daughters were given away to relatively well-to-do families in Behrampur who promised to look after them (in turn, the girls probably do free housework for the families). The 16-year-old son failed in Std X and went off to Hyderabad in 2008, to work as a wage labourer.

Shashi got a job in a nearby government school as a cook for the midday meal scheme. While this gave her a monthly income of Rs 300, the restaurant brought in a net monthly income of around Rs 1,500.

When DKGFS started operations in the village, Shashi joined a JLG with plans of taking a loan of Rs 15,000 to invest in the restaurant. But soon after she received the money, in September 2009, her husband passed away unexpectedly and most of the loan had to be used to pay for the funeral expenses. Shashi used up what was left on everyday expenditure.

DKGFS manager talking to Shashi Sahu. On the wall is a picture of her husband who passed away after they look a DKGFS loan.

Though still grieving, Shashi has resumed her normal routine. She runs the restaurant outside her house from 4 am to 10 am. Then she rushes to the school to cook meals for the children. At 3 pm, she is back in her restaurant which remains open till around 7 pm. 

She manages to save Rs 100 a week, which she invests in DKGFS’s MMMF product (she does not have a bank account). She says she also has some savings at home, for emergencies like buying medicines. Apart from taking accident insurance for herself, she has bought insurance for one of her daughters, for an assured sum of Rs 50,000. Both products were bought through DKGFS.

Shashi plans to take a loan from DKGFS to finish what was left undone after her husband’s death -- constructing a shed in front of the house so that the restaurant can be kept open on rainy days. However, she is in no hurry to borrow. “I will work hard and first repay the earlier loan,” she says. “I do not want to default.”

Well aware of DKGFS’s three main offerings that could be of use to her -- loans, deposits, and insurance -- she declares: “I will deal with Dhanei till the end of my life.”

Born entrepreneur
Rajia Bibi, 40, vegetable vendor, New Venkatraipur

Rajia Bibi is a born entrepreneur who feels bound by the convention that “a Muslim woman should not step out of the house for work”. But this handicap has not prevented from exercising her entrepreneurial skills.

Her husband, Raja Khan, had a watch repairing shop in a nearby small town. As cheap digital watches started flooding the market, his business began to die. Rajia urged him to move into another line of business -- selling chicken. Her logic: she had many relatives in the meat business, and they were all doing well.

Rajia was a member of a self-help group started by a reputed MFI in her village. She took a loan of Rs 10,000 from the MFI, to help her husband set up a chicken shop in the village. Then she took another loan for the same amount, and from the same source, to set up another chicken shop for her 20-year-old son.

Rajia herself started a small grocery shop at home. As she would not step out of the house, her husband would bring stocks from Behrampur. She ran the business for three years until her husband fell seriously ill. He was bedridden for four months, and the grocery shop ran out of stocks.

When DKGFS entered the scene, offering JLG loans at lower-than-MFI rates of interest, Rajia’s entrepreneurial instinct was rekindled. She began to think about selling vegetables from home. Then another idea struck her, born out of personal experience. “We had to borrow cycles to fetch goods from the market, and usually people would not lend,” she recalls.

Rajia took a JLG loan of Rs 15,000 and used Rs 8,000 to start a vegetable vending business. With the rest of the money she bought three used cycles that are given on hourly or daily hire. Both ventures are doing well. While daily sales of vegetables amount to around Rs 400 -- “enough to pay for our own consumption of vegetables twice a day” -- the demand for cycles is continuous. “Sometimes people need a cycle even at night!”

Rajia doesn’t ask her husband or son about their earnings but is quite sure the chicken business is doing well, although meat is not bought and eaten in rural Ganjam three days of the week. Citing examples from the nearby Gopalpur beach resort, she points out: “People have constructed big buildings with money earned from selling mutton and chicken.”

With expectations of an assured and good income, Rajia does not appear worried about the future of her two daughters, aged 10 and 14. Instead, her sights are set on a “big loan” for house improvement.

As the name of the village suggests, most houses in New Venkatraipur were built within the last 10-12 years, out of brick and cement. Compared to other rural houses in the region, Rajia’s house is modern, well-ventilated and quite spacious. But she is not satisfied. “Look at this,” she says, pointing to the cracked flooring. “You call this a house?!”

Restless worker
Motimala Pradhan, 33, investment agent, Hugulapatta

“The day I got married, I realised I would have to work and earn some money,” recalls Motimala Pradhan. Her husband was a wage labourer. The only substantial asset they had was their house which was given by Motimala’s parents as dowry. Her husband’s earnings were erratic, and he had “wayward ways”. Motimala did various labour jobs, but none that gave her an assured income. Hence, the first 10 years of married life were “extremely difficult”.

Some stability came into their lives around 2003 when Motimala, who has studied up to Std VII, got a job at a government-run anganwadi for pre-school children. The job brought a regular income, paid every quarter into a bank account. But Motimala was not satisfied. The anganwadi work did not use up much of her time and energy. After two years she began to feel extremely bored. Her head used to throb, and she became restless. She consulted a doctor who told her: “The only treatment is to find some other work.”

A ‘golden’ chance came her way in 2007 when a finance company that has ‘golden’ as part of its name recruited her as an agent. Motimala’s job was to get customers who would later work as agents. With her enormous energy and drive, Motimala soon recruited 20 agents, within a radius of 15 km from her house.

Motimala gets a part of the commission earned by agents working under her. Every month she earns at least Rs 3,500 this way, she estimates, apart from an equal amount of money from the anganwadi.

Motimala does not understand finance well. Her 13-year-old son often corrects her usage of common terms like ‘interest’ and ‘insurance’. But with two daughters, she realises the need to save. She has three ‘accounts’ with the finance company that has hired her, involving monthly deposits of Rs 100 in each account, for a period of six years. She has also invested Rs 20,000 in a six-year fixed deposit with the company.

The terms of returns are unclear. The Delhi-based company’s certificates state that the money is being used to buy plots of land in the investor’s name. The location of the plots is not given, and Motimala has no land possession documents. But she has great faith in the company that has been operating in Ganjam district for a number of years; she believes her investment will double in six years.

If that happens, the money will come in handy. Motimala’s eldest daughter is studying in Std X; Motimala estimates she will require at least Rs 100,000 for her marriage in a few years.

Late saver
Hin Swain, 51, daily wage labourer, Hugulapatta

“I wasted too much money early in life,” says Hin Swain, not without regret. Over the last 10-15 years, Hin and his wife Manjulata have diligently saved and invested their hard-earned income. Landless when they got married, they now own two acres of agricultural land, bought in bits and pieces over the years. Similarly, their one-room house was slowly extended to accommodate two growing sons.

The wealth has come through an enormous amount of physical labour. During the first 10 years of marriage, Hin worked as a hala -- a form of voluntary bonded labour, renewable every year -- for a big landlord. Then he did wage labour in Mumbai, Gujarat and Kolkata. In 2007, he returned to Hugulapatta to work as a khalasi, or porter, in the market area of Behrampur town, close to the village.

The work involves loading and unloading heavy cartons. Pointing to Hin’s hands, Manjulata says: “At the start of the day he is not able to pick up the loads. It is only after some time that the hands get used to the weight.” The work, which usually ends late at night, pays Rs 150 a day, and is available round the year for around 20 days a month.

Manjulata herself worked as a farm labourer for many years. After the couple bought agricultural land, she started to look after the paddy cultivated on it. Besides produce for home consumption, the farm yields an annual net income of Rs 15,000-Rs 30,000.

Despite the multiple sources of income, the Swains had to borrow recently when their younger son broke off his engagement and the woman’s family demanded Rs 30,000 as compensation. They took loans from three people in the village, at an interest rate of 36% per annum. When DKGFS started operations in Hugulapatta, the Swains took JLG loans of Rs 15,000 each and cleared their earlier, high-interest debt.

The Swains’ elder son, who is married and lives with them, earns Rs 130 a day as a mason. Recently, after he became a father, the son has stopped contributing to the family income. The younger son lives separately and does not give his parents any money.

The Swains have apparently sensed that they have to be prepared to look after themselves. They invest around Rs 8,500 a year in three unit-linked insurance policies. They have cash savings at home, enough to meet expenses for a week’s break from work, Hin says. And the couple’s sights are set on acquiring more land, as much as they can. “Land we bought 10-15 years ago for Rs 5,000 is now worth Rs 50,000,” Hin explains. “Imagine then the value of land we buy today for Rs 50,000, after a few years!”

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The profiles of these eight customer households, and interactions with several other DKGFS customers in villages in Ganjam, around Behrampur town, bring up some important issues related to the availability of financial products in rural areas.

Firstly, even in an area like Ganjam, which has been penetrated by various MFIs and finance companies, there is unmet demand for many kinds of financial products and services. There are few rural banks where people can park their savings conveniently and safely. There is large unmet demand for home improvement loans. And there is an urgent need to deliver and service a range of safe, long-term investment options. At present, the rural customer seems quite happy to park her money in any available avenue that promises safety and some sort of return, and is close to home.

Perhaps, more crucially, there is a need to fill the huge gap of financial illiteracy. Many rural customers do not seem to understand the complexity of interest rates. Typically, loan interest is understood in terms of how much money is to be paid each month, and interest on investments is understood in terms of how much the money will ‘grow’ at the end of the investment period. The vast difference between flat interest and interest on declining principal is not easily grasped. As for investments, there is little understanding of actual yield and the various competing products available.

This state of affairs provides rich opportunities for exploitation. On the other hand, it also provides a large market for ethical, transparent and customer-centric financial service providers.

 

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