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Substituting Money with Ingenuity

How do urban poor create ingenious methods to negotiate their lack of access to formal financial network

 

HINDUSTAN TIMES VIA GETTY IMAGES Despite cold weather people queuing outside the State Bank of India branch to get cash at Batala Road on December 29, 2016 in Amritsar.

A fierce attack on India’s large informal market a year ago, and its resilience in gaining back its conventional character right now are two common themes in the slew of analysis a year after demonetisation.

Data from various reports points at the long-term damage to the rural markets due to a sustained fall in commodity prices and loss of cash wages, which negatively affected the farming sector and consumption in rural areas. Contrary to that, recovery in urban informal markets has reportedly been quicker.

So how do we understand the resilience of urban informality in India?

One way is to know how the urban poor finance their household expenses and small businesses despite the weak conventional financial infrastructure provisioned to them.

One way is to know how the urban poor finance their household expenses and small businesses despite the weak conventional financial infrastructure provisioned to them.

The presence of a large number of banks and formal credit institutions in Indian cities does not facilitate sufficient access to the urban poor because access to finance is also about the processes, spatiality, technology and rules. A bank located in a middle-class neighbourhood requires forms to be filled, needs KYC documents, requires a minimum balance to be maintained, a guarantee for loans, and access to mobile technology. These general ‘gatekeeper’ barriers often make such sites inaccessible to the urban poor.

In India, to an extent, this gap is filled by formal and informal micro-finance facilities who are fundamentally different from banks in how they reach out to the poor even at their door-step to disburse and collect loans. The fact that the urban clientele of micro-finance institutes (MFIs) stands at 67 per cent shows how heavily urban regions are serviced by them, contrary to popular opinion.

In addition, there are other forms of finance too that are prevalent, popular and even more informal, like pawn brokers who generally operate privately but even set up shops where demand is high, like in city markets.

SIDDHANT NOWLAKHA Shivaji Nagar market in Bangalore is dotted with dozens of pawn brokers willing to advance credit in cash without much paperwork or hassle

However the urban poor do not — or cannot — just depend on such instruments that enable access to money to confront weak financial infrastructure. They also adopt tactical choices to cut costs of doing business or to substitute their household expenses.

For instance, they leverage space. For a vegetable seller, using pavements is a way to save on property cost for their business. They leverage mobility. For a plastic commodity seller on a push cart, owning a mobile shop is a great way to reach a high number of customers, save on property cost, and disentangle themselves from the regulatory rules of running a formal business. They leverage pop-up markets. For small businessmen periodic Haat bazaars, festival congregations and public events serve as one-off opportunities to sell more than usual.

BLOOMBERG VIA GETTY IMAGES A snack vendor pushes a food cart on a street in Varanasi, Uttar Pradesh, India

They often wager their physical health. For porters, to employ hand-pulled trolleys instead of fuel-driven ones, or waste collectors handling hazardous material by bare hands is a bet they make to remain competitive in the cut-throat urban labour market. And as we see prominently these days, they leverage accessible technology. The recent spurt of cab services such as Ola and food delivery services such as Swiggy, are examples of how quickly job seekers, mostly from lower income groups adopted smart phones equipped with easy-to-use applications when they saw a big opportunity in app-based work.

SIDDHANT NOWLAKHA
A porter amicably passes through a street in south Bombay

The urban poor also leverage ‘ecological infrastructure’. In her book ‘Nature in the city: Bengaluru in the past, present, and future‘, ecologist Harini Nagendra mentions the importance of kitchen gardens and lakes in Bangalore for serving the household needs of many communities. However, we need more research to know the extent to which, and in what way, the poor use the ecological option in current circumstances of fundamentally changed urban ecology.

Lastly it is not always the poor themselves who find substitutes for formal financial services; the state does too in the form of instruments such as subsidies, credit guarantees and soft loans to compensate what the poor cannot avail through networked financial services.

These observations can extend to many other actors, institutions, equipment and technology, yet these examples are sufficient to say that finance has multiple and diverse channels when it comes to households or businesses run by the poor. While we are still strengthening our banking and credit facilities, and implementing programmes to formalise the economy it is critical to remember that these channels will remain the only buffer for millions of poor until then.

These modes may have a low share in tax and digital economy, yet their biggest utility is in acting as ‘shock absorbers’ for the poor from the disruptive effects of sudden changes in the way transactions happen.

In fact, informal and substitute modes of finance are a critical component of a modernising economy which is still in a transitional phase. These modes may have a low share in tax and digital economy, yet their biggest utility is in acting as ‘shock absorbers’ for the poor from the disruptive effects of sudden changes in the way transactions happen. Therefore, dismantling this crucial component will rather make the transition in the economy more lopsided.

A better policy might have two parallel sets of goals. On the one hand, it would increase banking access, build the capacity of the poor to use banking and payments technology, and create schemes to hand-hold small businesses. On the other, it will open up spaces for street vendors, negotiate time-slots for haat bazaars in city markets, encourage non-polluting options of transport in inner areas and reclaim and reimagine land-use and lakes to support traditional livelihoods.

A version of this article was published by Huffington Post on December 8, 2017

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