By January 2015, 125 million new bank accounts were opened in India as a result of the government’s efforts to create a comprehensive financial inclusion program. But 72 percent of those accounts remained dormant or with a zero-balance. Only 15 percent of adults reported using their newly-opened bank accounts in the past year. Almost no one, it appeared, was using his bank account.
India has a proud 400-year tradition of banking, so why is it that the majority of people don’t use a bank account given to them by the government? We asked Harold Montgomery, CEO and Will Dawson, Executive Vice-President , both of MoneyOnMobile, to discuss some of the reasons behind India’s lack of interest—so to speak—in using bank accounts.
- People aren’t making enough money to keep in a bank. According to Montgomery, the biggest reason for not having a bank account is the impracticality for people with low incomes. “If you make $7 or $8 a day, you’re pretty much moving that money around as fast as you can. You need to buy food, you need to buy clothes, you need to repay a loan, whatever you need to do, you don’t have time to put it in a bank and let it rest.”
- In India, cash is king. Unlike the U.S., where people have their paychecks directly deposited into their bank accounts and use debit cards and credit cards so often that one can go weeks without actually handling a dollar bill; in India, it isn’t uncommon to get a wad of cash for a week’s worth of work. Will Dawson says people in India “are not people with credit cards or debit cards in their pocket that they want to use to make transactions. These are people who are used to doing cash transactions, they get the cash, and then they’d go and use it to pay their bills or to pay for goods and services.”
- Banks charge fees and require minimum deposits. The typical banking business model isn’t compatible with the economic realities of India’s working poor, which make up the majority of India’s population. It’s hard to justify keeping a minimum deposit in a bank account or risking a penalty when you need to withdraw every penny you make to pay bills and feed your family.
- Banks can be inaccessible in rural areas. Harold Montgomery shared an interesting story:
“I was in a small town in India, and I asked a gentleman, ‘Why don’t you use the bank?’ And he pointed to a building a couple of hundred yards away, and he said, ‘Do you see that building?’ And I said, ‘Yeah.’ And he said, ‘That’s the bank.’ He said, ‘It’s closed on a weekday.’ ‘Why is it closed?’ ‘The power’s been out here for six days, and the bank can’t operate.’ I mean what are you going to do if your money’s locked in the bank and you can’t buy food, right?”
The message we can take away from this is that while banks are eager to do business with India and its growing economy, the majority of people of India have yet to reach the economic stability necessary to make regular deposits into bank accounts.
India isn’t stuck in the dark ages, however: with 51 percent of the population owning a mobile phone, more people are adopting mobile money accounts such as MoneyOnMobile for bill payment. According to the World Bank, “Access to digital payments, through a mobile phone or point-of-sales terminal, create opportunities to provide more convenient and affordable payment options.” With tools like MoneyOnMobile, the people of India can enter the digital economy; with or without a bank account.