ABSTRACT
The urban poor in India are among the most financially excluded, and therefore, targeted segment for the government’s policy of financial inclusion. A key lesson inculcated through this policy is the need to go from a supply-driven provision of financial services (credit, savings, insurance and other credit plus services) to a more demand-driven one. For this, the financial needs of the urban poor have to be understood through an analysis of their existing financial outflows (expenditures, savings, and loan repayments) and financial inflows (incomes and borrowings). This will help design financial products and delivery mechanisms most suited to their needs.
This survey of financial flows in 502 households in five slum areas of Bangalore city is one such attempt in this direction. The results shed light on the nature of urban poverty, which is vastly different from rural poverty, requiring different mechanisms (both financial and non-financial) for redress. It summarizes the nature of employment and means of income generation of the urban poor and their reasons for borrowing and saving. The study highlights the peculiarities of financial outflows and inflows and the existing usage of financial services that should guide the design of products for this section. In contrast to the rural poor, the level of monetization and frequency of financial flows in urban slums is high, requiring a different package of services. The penetration of the formal sector is poor, and the informal sector dominates. Accessibility to formal financial services and high cost of informal finance are the two biggest hurdles facing these households. There are ample lessons to be learnt for the existing providers of financial services, be it banks, micro-finance institutions or other semi-formal providers, by understanding the demand patterns of these financial flows.
