Millions on the Move: Narratives of Labour Migrants in India – Part 2


Guest post by Rupal Kulkarni, Aajeevika Bureau

As we saw in the previous post, seasonal migrant workers and their families face several endemic disadvantages, both at source and destination. Emerging civil society interventions that seek to reduce these vulnerabilities recognize that financial services offered in tandem with a host of livelihood interventions have the potential to offer social protection and also enhance returns from migration. The protective, preventive, promotive and transformative forms of social protection1 are a useful lens through which one can view the role of financial services and livelihood interventions for migrant communities.

Unni and Rani (2002) assert that the concept of social protection should include promotive measures to improve real incomes and endowments, preventive measures to reduce vulnerabilities and deprivations and protective measures to provide relief from deprivation. In addition to this, Sabates-Wheeler and Waite (2003) provide a conceptual framework on social protection of migrant workers, which also highlights transformative measures that aim to alter the bargaining power of certain groups in the society and focus on empowerment.

The promotive element of targeted financial services has been widely discussed, however, in the context of seasonal migration, the preventive, protective and transformative role of financial services. i.e. its ability to reduce vulnerability, manage risk, create wealth and alter the bargaining power of vulnerable migrant populations has been overlooked.

In recent years, several civil society organizations have begun recognizing the need to engage with migrant communities. Notable among them is the work of Aajeevika Bureau and Shram Sarathi – two specialised organisations set up to provide solutions and security to seasonal migrant workers.

Aajeevika Bureau was established in 2005 as a specialised organisation offering livelihood support services to migrant workers. It started with the premise that the primary resource in agriculturally distressed regions like southern Rajasthan is labour; hence development interventions that focus on enhancing human capital, labour and employment are key to the economic well-being of communities in such regions characterized by high levels of out-migration. Based on this premise, Aajeevika Bureau offers services such as identity and registration, skills training, legal aid and collectivization, enabling access to entitlements for families left behind and health care services for migrant workers through a network of field offices at both source and destination. But it was soon recognized that while livelihood support services were having a direct impact on reducing the vulnerabilities of migrant workers, the existing gaps in financial services to this group also needed to be addressed to enhance the returns from migration.

In view of this, Aajeevika Bureau incubated a non-profit company called Rajasthan Shram Sarathi Association (Shram Sarathi). Shram Sarathi identified that seasonal migrant workers have unique socio-economic needs and hence pioneered a model to provide targeted financial services for migrant workers in India. Shram Sarathi’s model includes a mix of micro-loans at source, informal savings instruments, opening of savings bank accounts, social security linkages, financial literacy and counselling, specifically targeted at migrant workers. Such a targeted model calls for innovations in the design as well as delivery of basic financial services. It also focuses on three key elements of economic choices and vulnerabilities of migrant workers viz. financial planning and management of cash flows; asset allocation and wealth creation; and protection from and diversification of risks.

The Aajeevika Bureau-Shram Sarathi model recognizes that social support services and financial services have to be integrated to address the specific needs of vulnerable migrant workers and enable economic well-being of their households. Under this hybrid model, migrant households receive a customized combination of both livelihood support and financial inclusion services. Both sets of services and outreach to migrant households are carried out at both source and destination locations. Such a hybrid model recognizes that financial services cannot operate in a vacuum, without any supportive services that make migration less vulnerable.


Take the example of Javeriram Gameti, an unskilled mine worker from Kumbalgarh. He revealed that incurring debt was in fact a way for him to manage other shocks such as non-payment or delayed payment of wages as well as the incidence of sudden health episodes at the workplace. Several migrants like Javeriram who are absent from their villages for several months are reeling under crippling debt burdens. In the absence of the men, the women left behind find it all the more challenging to raise informal credit at favourable terms. In this context, another migrant who availed a loan from Shram Sarathi to repay an older more expensive debt, said, “There was a time last year, when I was thinking of making my 11 year old son leave school – but he was able to continue due to some credit assistance. I want to go back to work now and ensure that such a situation never comes.

In this particular case, the availability of timely credit ensured that the migrant could reduce the cost of his future liabilities and spread his repayments over a period of time, instead of one lumpsum settlement. For a migrant family to end up in such a situation of crippling informal debt, which necessitates that the next generation migrate is not uncommon. A simple financial instrument like credit delivered through appropriate channels has the power to act as a preventive tool of social protection, the effect of which is also long term. Yet another migrant who also repaid an expensive informal debt using institutional funds stated that this helped free up his future finances, thereby allowing him to invest more in education and nutrition for his family.

Enabling repayments of older liabilities isn’t the only instance where a simple tool such as credit has demonstrated significant spill over effects on education for example. Babli bai, the wife of a migrant often told us, “Earlier the children could never concentrate and study because 12 members used to live in a two room house”. Two loan cycles later with a house twice as large as earlier, Babli bai now believes that more than the actual security of a home itself, the ability to educate her children comfortably will have far greater future impact. Finance does therefore have a powerful promotive role to play in improving endowments and future incomes.

Nirbhaylal Gameti, who migrates to Bangalore, tells us that he had no form of identity and hence no bank account. Every three months his contractor would settle his dues, however in the absence of a bank account, he was compelled to maintain his savings with the local shop owner in Bangalore. Every time he wished to send money back to his village he would collect his savings from the shop owner, often with unfair deductions.

When Nirbhaylal came in contact with Aajeevika, he was able to obtain a migrant worker identity card authenticated by the state labour department. With the help of this card, he was able to open a bank account and also avoid police harassment during his journeys from Udaipur to Bangalore and back. Nirbhaylal now tells us that because he had a bank account, he was no longer dependent on the shopkeeper and was in fact encouraged to save regularly. His remittances rose from an average of 2000 rupees each quarter to nearly 8000 rupees per quarter. A few years later, while he was in Bangalore, his brother, a migrant as well, was murdered in Surat. Shram Sarathi swiftly offered emergency financing and helped Nirbhaylal bring back his brother’s body back to their village for the last rites. Subsequently, with additional cycle of credit, Nirbhaylal was able to set up a small motor mechanic shop in his village. He hired a young man to run the shop while he migrated to Bangalore. With the additional earnings from the shop he was able to now support both his family and that of his deceased brother’s. For Nirbhaylal, access to finance has multiple meanings. It offered him protection of his money when he most needed it, prevented financial distress when there were sudden shocks and helped promote a local enterprise to diversify incomes and build wealth.

For Gopilal Gameti however, access to finance coupled with a livelihood intervention was also transformative. As a young school dropout, Gopilal spent years moving between multiple unskilled jobs before he was inducted into a skill-building program organized by Aajeevika. As a newly skilled plumber, Gopilal slowly picked up the tricks of the trade and evolved into a skilled worker. An initial loan of 3000 rupees helped him buy basic tools and equipment to start a small plumbing business as a petty contractor. Gradually with additional financing, Gopilal carefully built his contracting business and is now a large contractor, working on multiple projects in Udaipur and Nathdwara.

Gopilal received the opportunity to upgrade his skills that was a pre-condition for helping him avoid stagnation in the labour market. The timely infusion of funds proved to be a critical factor that helped him redefine his position in the labour market and improve his own financial situation. His is a case where the true potential of a livelihood intervention was realized by a significant infusion of loan funds. Younger entrants into the labour markets need to be equipped with technical skills that help them negotiate a better wage and gradually see a rise in incomes. However more significantly, micro-loans provided at affordable interest rates can enable these young trainees to purchase tools and materials and over the years turn into skilled contractors and entrepreneurs.

For Gopilal access to both livelihood interventions and finance was a transformative experience. As a tribal school dropout, the dignity associated with becoming a large contractor (a trade dominated by upper castes) renewed his confidence. The clear shift in his household’s economic situation has also made him a role model in his community. People actively seek his advice and support in financial decisions and he has emerged as a respected thought leader in his community.


Bhanwari Bai has a similar story to share – constantly evolving her identity from being a single mother of two boys to an independent entrepreneur to a community leader. Bhanwari bai’s husband deserted her very early in their marriage and she was left with the task of raising two young boys by herself. Her older son was compelled to migrate to Surat, however Bhanwari bai was determined to educate her younger son. With some credit assistance and technical inputs, she was able to set up a small kiraana store in her village selling small household items. She also joined a solidarity group for women affected by migration and gradually emerged as a peer leader in her community. She says rather emphatically “Earlier I was confined to my home, but because of my shop, I know everyone and more importantly everyone knows me! I didn’t even know who the Sarpanch was, but as a leader of the solidarity group, I know where the Collector sits and who the Tehsildar is. I meet so many people on a daily basis”. Financial confidence and recognition in one’s community can significantly alter one’s viewpoint on migration and in Bhanwari Bai’s case, such transformation is evident.

Financial inclusion of migrant workers therefore cannot be viewed in isolation from their unique social protection needs. In fact it can be viewed as a key component of promotive, preventive, protective and transformative social protection of migrant workers. Conversely the role of financial inclusion for migrant workers is also not limited to offering social protection alone or merely opening bank accounts. Financial inclusion services should enable sound planning that leads to the creation of wealth and makes migration accumulative. It is therefore of significance to expand the scope of financial inclusion of internal migrants to include information flows and services that enable social protection and improve returns from migration for those who are compelled to move in search of work.

1 – Unni, Jeemol, and Uma Rani. 2002. Social Protection for Informal Workers: Insecurities, Instruments and Institutional Mechanisms. Geneva: ILO; Sabates-Wheeler, Rachel and Myrtha Waite. 2003. Migration and Social Protection: A Concept Paper. Development Research Centre on Migration Globalisation and Poverty: Working Paper T2. Brighton: University of Sussex.


Millions on the Move: Narratives of Labour Migrants in India – Part 1


Guest post by Divya Varma, Aajeevika Bureau

Why did I migrate? Because it’s a question of my survival, my family’s survival” – Mogji Meena, Limdi Village, Aaspur Block, Dungarpur District, Rajasthan

As headlines hit us daily of the severe drought conditions plaguing various parts of the country this summer, day to day survival is indeed the deepest crisis that a vast majority of our rural populace finds themselves in. Triggered by water scarcity, persistent drought conditions and a huge decline in agricultural incomes, rural to urban migration has become a pervasive reality in India today. From Bundelkhand to Delhi, from Marathwada, Karnataka and Andhra to Mumbai, they are moving in massive numbers – in search of opportunities for survival, secure livelihoods and a more dignified life.

Though the harsh drought conditions this year has brought some amount of public attention to seasonal migration from rural areas, this is by no means a new phenomenon. In the past few decades, seasonal, circular migration from the countryside to the more prosperous urban centers has in fact, emerged as a critical livelihood strategy for millions of rural poor in India. Growing impoverishment in the villages have been matched by increasing rates of urbanization and an unprecedented expansion of opportunities in the urban labour markets – these have jointly triggered an unprecedented movement of people across the country. Though there is a dearth of formal measures for assessing the large numbers underlying this phenomenon, unofficial estimates peg the number of internal migrants in the country at a staggering 150 million.

Over time, this movement has become more long distance with an increase in inter-state mobility. Analysis using NSS data, specifically in the rural-urban stream shows that the percentage of inter-state migrants has gone up from 19.6 per cent in 1999-00 to 25.2 in 2007-08[1]. While states such as UP, Uttarakhand, Bihar, Rajasthan, Odisha, West Bengal, Jharkhand – with depressed economies and surplus manpower – are the primary suppliers of labour; Maharashtra, Gujarat, Haryana, Punjab and Tamil Nadu, known for their robust and flourishing local economies are the prominent destinations for migrants. Construction sector is known to be the largest employer of migrant workers with 40 million migrants[2]. This is followed by domestic work (20 million), textile (11 million), brick kilns (10 million), transportation, mines & quarries and agriculture[3]. Within these sectors, seasonal migrants are mostly employed to man the tasks that the local labour have long vacated, ones that constitute the bottom end of the value chain and entail backbreaking labour and high risk.

Issues of Social and Political Exclusion

The contribution that the vast community of labour migrants makes to our economy is beyond doubt; yet their entry into urban labour markets is marked by endemic disadvantages. Devoid of critical skills, information and bargaining power, they get caught in exploitative labour arrangements that force them to work in low-end, low-value, hazardous work environments. Lack of identity and any form of social protection accentuates this problem. These hardships are magnified as and when state boundaries are crossed and the distance between the rural “source” and urban “destination” increases.

Establishing one’s identity is central to securing access to citizenship rights as well as public entitlements provisioned by the state. However, an early departure from the village often means that the migrant youth lack all verifiable proof of their identity. Being on the move, they also frequently get left out of the voter registration or Aadhar registration exercises in their villages. An inability to establish one’s identity in the city often becomes a cause of frequent harassment by police and other local authorities, who pick them up as easy suspects in case of a theft or a crime.

The highly mobile nature of their lives, coupled with the absence of documents to establish their identity and domicile in the city means that migrants are left out of the scope of government programmes and public entitlements from both the source and the destination. In the cities, they are unable to access PDS or subsidized health schemes at public hospitals. Further, for households that migrate with children, access to good quality education is a significant challenge[4]. Finally, a large number of migrants remain politically excluded because of their high mobility; they remain unable to cast their votes or participate in elections[5]. Fundamental citizenship issues arise, as the state machinery does not permit the portability of entitlements.

An elaborate chain of contractors and middlemen, who largely operate in the informal economy, mediates migration flows. There are no written contracts, no enforceable agreements regarding wages or other benefits, and no commitments regarding regular provision of work.

Migrants, completely dependent on the middlemen for information, end up working in jobs that demand hard and risky manual labor and are constantly subject to exploitation with little or no opportunity for legal recourse. Their work lives are characterized by exploitative practices such as manipulation in wage rates and work records, nonpayment or withholding of wages, long work hours, abysmal work conditions, verbal and physical abuse. Female workers, especially in the domestic and construction sectors, are often sexually exploited in return for the offer of regular work. Accidents and deaths at workplaces are also extremely common in the construction sector, which is aggravated by the absence of any kind of social protection. The worker never comes in touch with the principal employer; hence it is almost impossible to fix accountability for any of these violations.

While migrants struggle to access a secure and dignified livelihood in cities, the families they leave behind – the women, the elderly and the children, lead vulnerable lives, often finding it difficult to negotiate public life in the absence of men. Women bear triple burden of caring for children and elderly, managing the sparse land holdings along with household chores and keeping household finances afloat, frequently taking up wage labour work available in the vicinity. The families of migrants are known to lose access to government schemes both for lack of knowledge and inability to demand their entitlements effectively.

Unbanked and Financially Excluded

Despite the economic imperatives that drive migration, migrant workers essentially remain an unbanked population. Since migrants do not possess permissible proofs of identity and residence, they fail to satisfy the Know Your Customer (KYC) norms as stipulated by the Indian banking regulations. They are thus unable to open bank accounts in cities. This has implications on the savings and remittance behaviors of migrant workers.

In the absence of banking facilities, migrants lack suitable options for safe-keeping of their money. In order to avoid the risk of theft, they are forced to wait for long periods to settle their wages. This makes them vulnerable to cheating and non-payment of wages at the hands of contractors and middlemen. Sometimes, they are forced to avail safe-keeping services from local shopkeepers, who charge a fee for this service.

Many migrant workers resort to informal channels to send money home. In the case of short-distance migration, workers end up carrying money themselves, which poses a potential threat of mugging or personal injury. Long-distance migrants use courier systems or bus drivers who charge high service rates. The government run money order system involves long delays and leakages and is therefore sparsely used.

Inadequate State Response

Despite the compelling numbers and issues that underlie this phenomenon, the policies of the Indian state have failed in providing any form of legal or social protection to this vulnerable population. The single piece of legislation that governs the movement of people across inter-state boundaries – the Inter-State Migrant Worker Act (1978) – is largely obsolete and inadequate to meet the protection needs of workers in the current economic regime.

One of the serious constraints in framing an effective policy response to internal migration is the lack of credible and robust data on the incidence of seasonal migration. Census and NSS, which have a significant impact on policymaking, are unable to capture seasonal and circular migration. Research that is informed by macro estimates also tends to differ from the discourse emerging from micro studies[6] (see Kundu, 2009), which give a radically different picture of ever increasing labour mobility. The large variances and contradictions between macro and micro level data have created serious hurdles in the emergence of effective solutions in both policy and practice.

There is thus an imminent need for a comprehensive institutional response that is able to address the diverse needs of this vulnerable segment that remains on the fringes of public and policy attention – invisible, disempowered and disenfranchised.

[1] Srivastava R. 2011a. Internal Migration in India: An Overview of its Features, Trends and Policy Challenges, Paper presented at UNESCO-UNICEF National Workshop on Internal Migration and Human Development in India, 6th-7th December, 2011 ICSSR, New Delhi
[2] Deshingkar P. and Akter S. 2009, Migration and Human Development in India, Human Development Research Paper 2009/13
[3] Ibid.
[4] Smita 2007. Locked Homes Empty Schools: The Impact of Distress Seasonal Migration on their Rural Poor, Zuban, New Delhi
[5] Sharma A. Poonia S. Babar M. Singh V. Singh P. Jha L. K. 2011. Political Inclusion of Migrant Workers: Perceptions, Realities and Challenges, Paper presented at Political Inclusion Workshop and their Access to Basic Services, Lucknow 10th-11th March, 2011
[6] Kundu A. 2009 Exclusionary Urbanisation in Asia: A Macro Overview, Economic and Political Weekly, Vol. XLIV, No. 48 pp. 48-58


The Lifecycle of Innovations in Financial Inclusion: From Insights to Scale

By Vaishnavi Prathap, IFMR Finance Foundation

The Indian financial sector is poised for sweeping changes to traditional models and we look to embrace game-changing developments in institutional form and digital infrastructure. These developments are expected to bring millions of new individual, household and small-business users into folds of the financial system but in doing so, they also bring unique challenges. How can financial services providers continue to provide solutions relevant to new market segments? What are the lessons to keep in mind in designing new products and delivering services through unconventional channels?

As readers of this blog might recall, we posed these questions to an all-star panel at the inaugural NSE-IFMR Finance Foundation Conference on Household Finance in March this year. The panel comprised of Anuradha Ramachandran, Director-Investments, Omidyar Networks, Ayush Chauhan, CEO, Quicksand, Chetna Vijay Sinha, Chair, Mann Deshi Mahila Sahakari Bank, Deepa Bachu, Co-Founder & CEO, Pensaar & Rajeev Ahuja, Head-Strategy, Retail, Financial Inclusion & Transaction Banking, Ratnakar Bank. In a lively and candid discussion on the challenge of successful innovation for financial inclusion, panellists shared their stories of success and failure, and fascinating insights on what it takes to embrace new technology and new thinking to deliver meaningful financial services.

For us, one of the biggest takeaways from the event was the rich discussion on customer insights. In the video (see below), you will hear many examples where an insightful understanding of the end-user could go on to make or break a product and practical and inexpensive ways in which practitioners can begin to uncover these insights in everyday interactions with customers. When similar techniques were applied to better understand frontline staff and bank agents, it powerfully informed not just product design but also the design of delivery channels and overall strategy.

We also asked the panellists how financial institutions can drive innovation within their organisations, really hoping to understand what elements of the ‘start-up culture’ are important to mimic, or adapt for larger financial institutions. Much to our surprise, we heard panellists strongly recommend looking away from disruptive innovators and more towards seeking to consolidate relative strengths and build on the diversity that exists within financial institutions. Rather than chase the elusive game-changing innovation or at least, even as we chase this dream, it’s equally as important to focus on innovations that are incremental that add efficiency or value to customers today. In this respect, large Indian financial institutions are indeed well-placed to lead the charge in innovative financial inclusion, with a strong commitment to delivering high value and a superior customer experience.

Watch the excerpts from the panel discussion in the video below:

You can also watch the full panel video here and read tweets from the event at #HHFinance.


A Change in Behavior: Innovations in Financial Capability – An Interview with Elisabeth Rhyne

In this blog post we interview Elisabeth Rhyne, MD, Center for Financial Inclusion, Accion, and co-author of the recently published study “A Change in Behavior: Innovations in Financial Capability”.

Your paper is the result of a global search for innovative approaches to building consumer financial capability. Financial capability is not a well-known concept. What does it mean?

BRWe define financial capability as the knowledge, skills, attitudes and behaviors a person needs to make sound financial decisions that support well-being. The financial capability approach stems from the research that reveals an important gap between knowing and doing. We may know that savings is important, but we spend instead. Financial capability focuses on behavior change as well as the desired outcome: customer financial health. This approach contrasts with traditional financial education, which has generally been focused on knowledge and information transfer, often stopping short of considering whether information is acted upon.

What prompted you to carry out your scan of the financial capability landscape?

I was reading a lot of material by behavioral economists, and so I was aware of the power of their ideas. However, I didn’t see the kind of uptake in practice that I thought the ideas deserved. I wanted to understand why this wasn’t happening. I was also aware of technology developments that opened exciting new avenues for communicating with consumers, and wanted to find the innovators – organizations like Juntos, a data analytics firm which partners with financial institutions to create personalized SMS conversations containing reminders and tips for customers.

We are also grateful that JP Morgan Chase & Co. provided generous financial support.

What were your main findings?

First, financial capability building needs to happen at the right time and place, especially at the moments when financial service providers and customers interact. Education provided at other times is often ignored or forgotten. Much research finds little impact on behavior from traditional classroom-based education, partly because it is distanced from decision-making. Financial service providers have a tremendous opportunity to help customers get informed at exactly the time when they need the information for decisions. Similarly, social service organizations could provide financial capability support at specific “teachable moments” that is, when people experience life events with sizeable financial implications, like a health crisis or new job.

Second, financial capability interventions should be informed by the way real people really act. There is great learning on this from behavioral economics. To make it easier to spread that learning, we distilled seven behaviorally-informed practices that can improve the effectiveness of capability-building interventions (see box below). We’d like to see these practices used very widely.

You did a “deep dive” on financial capability innovations in India. What did you find?

There is a lot of financial capability innovation in India today, especially in the microfinance sector. For example, two of the most creative organizations using behaviorally-informed practices are Indian MFI – Janalakshmi and IFMR’s own KGFS program. These two programs integrate the “Customize It” practice deeply into their business models. KGFS field staff talk at length with customers about their financial lives and then offer advice on financial products tailored to that household’s specific situation. Janalakshmi has a similar interview tool it calls Kaleido to help customers understand their financial situation, set goals and receive ongoing counseling for achieving those goals.

We also found technology being used to deliver financial capability interventions at scale and cheaply. Indian Money, for example, provides automated advice online, backed up by a call center. While today this site addresses the middle class, innovations like Indian Money will become increasingly relevant to lower income people as smart phones and tablets spread.

On the other hand, the Indian government still relies heavily on strategies such as “financial education camps” in which massive numbers of people receive (often boring) lectures on financial products. In the drive to reach as many people as possible, effectiveness may be sacrificed. Such programs could be vastly improved if the seven behavioral practices we advocate were applied in their design and delivery.

What is the evidence base for financial capability interventions such as the ones you profile in the report?

This depends on the type of intervention. It is easier to gauge the results of interventions to increase use of a specific product or channel or increase savings, and harder to measure broad gains in financial capability. We see an urgent need for more systematic measurement and publication of results. Unfortunately, much of the data on interventions we profiled was proprietary. Providers such as Juntos claim to see significant increases in uses and account balances, but they have not made this data public. Also, many of the interventions we found were new and had not fully tested outcomes. Perhaps the best evidence will be when providers scale up from small pilots, as that will reveal that the interventions are having a significant impact.

How does the concept of financial capability intersect with customer protection?

In theory, more financially capable clients will be better able to protect themselves, so the two concepts are closely linked, and certainly they are often referred to in the same breath. In practice, however, we found very few financial capability interventions that specifically addressed how to be a safe and savvy consumer. We’d like to see a lot more. That said, financial capability building efforts could assist but not substitute for strong consumer protection standards and regulations.

Is financial capability a public good? How do you think these interventions could be best financed?

Both providers and the general public have an interest in increasing financial capability among the population. Most financial capability interventions pursue one of three aims: building broad financial life skills, being a more savvy consumer, or being a more active and capable consumer of financial services. In my view, there is both public and private interest in all three, but the first two sit closer to the public sphere while the last one is more for providers.

As for financing, we are very encouraged by what technology can do to make interventions much cheaper and more scalable. And a central point of the paper is that if providers integrate financial capability building into existing customer touch points, costs can be covered through product revenues. We do see an important role for public expenditures to integrate financial capability building into school curriculums, and especially for interventions specific to consumer protection.

What comes next?

The financial inclusion participants who attended our roundtable on financial capability in Delhi (December 2015) were enthusiastic and eager to apply the seven behaviorally informed practices. We would love to see a network of practitioners and providers formed to carry them forward. We hope the practices will be widely spread and known globally. Ultimately, we would like to see all financial service providers learn how to support the financial capability of their customers.

Please see CFI’s financial capability page for more details. There you will find the main report, the India deep dive and a Catalogue of Innovations which describes dozens of models identified in the landscape scan. This post cannot do justice to the rich variety of innovations we found.

Seven Behaviorally-Informed Practices for Effective Financial Capability Interventions:

  1. Teachable Moments. Reach consumers when they are making financial decisions.
  2. Learning by Doing. Let consumers practice using products.
  3. Nudges, Reminders, and Default Options. Timely reminders and default options support good habits.
  4. Rules of Thumb (Heuristics). Mental short cuts help turn learning into habit.
  5. Make It Fun. Games and humor aid learning and retention.
  6. Customize It. Tailor advice to an individual’s specific financial situation.
  7. Make it Social. Leverage the influence of peers and culture.

Exploratory Analysis of Credit and GDP Growth Rates for Tamil Nadu

By Nishanth K & Irene Baby, IFMR Finance Foundation

This post is the next in the credit depth series. While the previous post covered trends in Credit-to-GDP variable for the districts of Tamil Nadu, this post will elucidate trends related to Compounded Annual Growth Rate (CAGR, henceforth referred to as growth rate)1 of Credit, Gross State Domestic Product (GSDP) and Credit-to-GDP variables.

Figure 1 plots growth rate of bank credit outstanding for various districts on the x-axis and growth rate of Gross District Domestic Product (GDDP) for these districts on the y-axis (both in constant prices). The colour of each bubble (as given by the scale on the right hand side) indicates the district’s share in total credit outstanding in Tamil Nadu in 2011-12. The size of each bubble indicates the proportion of each district’s Gross District Domestic Product (GDDP) to Tamil Nadu’s Gross State Domestic Product (GSDP) in 2011-12.

Figure 1: Credit Growth Rate versus GDP Growth Rate of Districts at Constant Prices (2004-05 to 2011-12)

  • Observation 1: There is a catch-up effect (or convergence)2 in credit growth rate, relative to Chennai for districts like Kancheepuram, Vellore and Tiruvallur. However, because of the wide disparities at the base level, the time period for the eventual ‘catch-up’ can be substantial. To elucidate, Chennai with credit growth rate of 23% and GDDP growth rate of 7.5% constitutes more than 50% of total credit outstanding in Tamil Nadu in 2011-12 (indicated by its colour- yellow). Kancheepuram, with credit growth rate of 26%, and GDDP growth rate of 15%- almost twice as Chennai’s- still only constitutes roughly 2% to the total credit outstanding in Tamil Nadu in 2011-123.
  • Observation 2: 12 of the 32 districts, (including Perambalur, Ariyalur, Nilgiris and Dharmapuri) in Tamil Nadu contributed less than 1% each to the state’s total bank credit outstanding. However, it is also to bear in mind that the outliers in the plot: Krishnagiri (on the extreme right, top corner), Tirupur (on the extreme left, top corner) and Ariyalur (on the extreme left, bottom corner) are recently formed districts (as explained in the previous post).

Figure 2 plots the credit-to-GDP ratio for each district in Tamil Nadu in 2004-05 on the x-axis and the same variable for 2011-12 on the y-axis. The colour of the bubbles (as given by the scale on the right hand side) indicates credit-to-GDP in 2011-12.

Figure 2: District Wise Credit-to-GDP Ratio in Tamil Nadu at Current Prices (2004-05 and 2011-12)

  • Observation 3: As discussed in the previous blog post, the credit-to-GDP ratio for Tamil Nadu in 2011-12 was approximately 71.4% (current prices). As evidenced from Figure 2, this high credit depth was primarily driven by Chennai (561% in 2011-12, current prices) and Coimbatore (131% in 2011-12, current prices).

Figure 3 shows a zoomed-in version of the same figure to better understand the trends in districts besides Chennai and Coimbatore.

  • Observation 4: Districts such as Tiruvallur and Vellore had low levels of credit depth with 15% and 18% respectively (current prices). Hence, there was a wide variation in the levels of credit depth in Tamil Nadu as of 2011-12.

Figure 4: Growth in Credit-to-GDP Ratio for Chennai and Coimbatore (2004-05 to 2011-12)

Figure 5: Growth in Credit-to-GDP Ratio for Select Districts (2004-05 to 2011-12)

Figures 4 and 5 show distinct patterns for different districts in their growth of Credit-to-GDP ratio from 2004-05 to 2011-12.

  • Observation 5: Districts such as Chennai (Figure 4) and Theni (Figure 5) have been growing relatively steadily whereas districts such as Thiruvallur and Dharmapuri have relatively stagnated.

Thus, the exploratory analysis undertaken clearly establishes the wide variation in distribution and depth of credit among districts in Tamil Nadu. Our future work will focus on better understanding the factors that lead to this difference, both from demand and supply sides.

(Note: Please note that the figures in this post are interactive files, you can hover or zoom in on these for more details.)

1 – CAGR = [(Amount / Principal) ^ (1/ Number of years)]-1
2 – http://www.econ.nyu.edu/user/debraj/Courses/Readings/BarroGrowth.pdf
3 – Credit-to-GDP of Kancheepuram has increased from 15% in 2004-05 t0 20% in 2011-12.