The flagship Pradhan Mantri Ujjwala Yojana (PMUY) might be a big milestone when it comes to women’s empowerment but it urgently needs a budget push to reach every rural household. PMUY was conceptualised and reached scale under the stewardship of the then Minister of Petroleum and Natural Gas, Shri Dharmendra Pradhan” The scheme, launched in 2016 to reduce the dependency of rural households on polluting and low-cost fuel sources, not only changed the indoor air pollution landscape in rural India but also catalysed a larger social movement towards women’s empowerment.
The scheme reached 80 million households in 2019, but five years after its launch, it seems to be flailing. An estimated 20% of the 80 million households no longer use cooking gas despite having a gas stove and canister. Sixteen million households still use a mix of coal, wood, crop waste or cow dung cakes, and are prone to heavy indoor pollution, between two and five times the ambient pollution levels. As a result, in the poverty bowls of Uttar Pradesh and Bihar, many women are estimated to become fully or partially blind by the time they turn 60.
The scheme expanded access to clean cooking gas to rural households by providing subsidised Liquefied Petroleum Gas (LPG) connections for low-income households. It was a runaway success. Adoption in rural areas was fast and good targeting by the government and oil marketing companies ensured that the poor were first in the queue to get the benefits. As against an LPG coverage of 62% in India as on May 1, 2016, Ujjwala enabled a near-universal outreach of 99.8% by April 1, 2021.
However, policymakers need to address three key challenges – cost, convenience and culture – if India wants to keep its Ujjwala promise. In these targeted households, where the average monthly income is around Rs 4,000-5,000, women are unable to muster the Rs 900 ($12) needed for the refill of a gas canister. The annual refills under Ujjwala are hovering around three canisters as against the national average of six canisters. Coupled with financial woes, access issues pose a major barrier for women. Typically, in villages, Ujjwala gas dealers are located at a distance and women are unable to make the journey on their own. Further, fighting cultural barriers is difficult when the family thinks food cooked on traditional chulhas is more nutritious and tastier, though the government has begun to address these attitudes through behaviour change communication campaigns.
A crucial challenge is to ensure access to a lump sum of funds that enable access to canister refills. Ideally, the product should allow smaller ‘byte-sized’ payments over a period of time. Traditional cooking methods allow for byte-sized payments, just enough for a day or two of cooking. On the other hand, a canister is a one-time payment for fuel that will be used over a month or more. Beneficiaries in the most vulnerable income sections find it difficult to accumulate the entire amount of cash. The government, however, tried to reduce the upfront cash outgo by allowing beneficiaries to choose a five kg double bottle connection (DBC) instead of the 14.2 kg canister.
A joint pilot by oil marketing companies (OMCs), State Rural Livelihood Mission (SRLM) and MicroSave Consulting has shown great success, with the key catalyst being local self-help groups (SHGs).
The programme, launched in Madhya Pradesh’s tribal-dominated district of Jhabua had a little over 100,000 customers who had taken either zero or one refill in the previous six months. With the support of the SHG network in these blocks, LPG distributors reached out to these dormant customers between July and November 2021 to provide a three-month-long loan to finance their refill. From a mere 1,200 women beneficiaries, the campaign eventually saw a total of 36,800 women refill their cylinders under this initiative.
While access-related issues were more inhibiting as compared to availability of cash, loans of Rs 900 enabled poorer households to get clean fuel. Policymakers will do well to consider similar solutions. The SHG model to extend credit can be scaled across India. The government can also provide slightly higher subsidies to Ujjwala customers to increase LPG usage.
This article first appeared in the print version of the Hindustan Times dated 1st February, 2022.
The readymade garments industry is called the “golden goose” of Bangladesh, given its large contribution to the economy. However, the financial health of workers in this industry is far from golden.
Most garment industry workers do not have a bank account. They dream of buying land or livestock, but neither banks nor lenders today provide suitable options to help them attain these goals. Ideally, these workers should use multiple financial products, such as goal-based savings accounts, nano loans, and micro-insurance. In short, they are a readymade market waiting to be tapped by financial services providers who use an innovative approach.
Financial health of garment workers
The readymade garments industry contributes more than 10% of the gross domestic product of Bangladesh and employs around 4 million people, primarily women. Given the importance of this sector, Bangladesh must empower workers in this industry by providing them decent work and better wages and helping them secure their financial future.
At the moment, the financial health of these workers is precarious. Their median monthly income is between USD 70 and USD 300, while their household income is double the amount. Around 60% of the household earnings are spent to cover day-to-day expenditures, according to data from Microfinance Opportunities (MFO), which studies women workers in the garment industry. An additional 28%–33% of these workers’ earnings go toward unusual expenditures, such as unexpected health issues, weddings, or funerals.
In 2020, around 2 million workers opened the “mobile financial service” (MFS) accounts that provide financial services through a mobile phone. To curb the spread of the coronavirus, Bangladesh Bank had made it mandatory for the garment industry to pay employee wages and allowances through these mobile accounts.
Mobile financial services or MFS accounts can be used as digital wallets to receive money and make payments, such as to buy groceries. However, workers in the garment industry cannot use these accounts to their full potential. Although these accounts can be operated on basic or feature phones, some services are best accessed through smartphones. However, only 40% of women workers in the garment industry use smartphones. Among these women workers, many do not own a smartphone or use smartphones borrowed from their partners or family members. Besides, these workers are not trained to use digital wallet accounts and find them complicated to use.
Meanwhile, as the worst of the pandemic has subsided, many employers have gone back to giving wages in cash. This warrants the need for a different, more innovative approach to bring financial services to garment workers.
Different strands of financial services
In 2020, MicroSave and Apon Wellbeing, a local partner that runs discount supermarkets within garment factory premises, surveyed garment industry workers to understand their lifestyle and needs. The study found that these workers require a bouquet of financial products and services across the dimensions of saving, spending, borrowing, and planning and protection from exigencies.
Figure: Components of financial health
1. Savings: Many garment workers hope to buy land in their villages, build a house, or buy a sewing machine or livestock, which will generate income after retirement. One approach to help them achieve these dreams would be to offer them goal-based savings products.
In more digitally-savvy markets like India, smartphone applications like EasyPlan or Lakshya encourage users to save money in small amounts, provide a return on savings, and give the flexibility to withdraw money anytime. Micro-savings products based on similar principles can be created for garment workers in Bangladesh. Ideally, these products should also be accessible on basic or feature phones.
2. Credit: Our study of garment workers showed that they are keen to borrow money, often to meet household expenses or emergency expenses such as on healthcare. They typically borrow from their family and friends or take a loan ranging between USD 10 and USD 60 from their managers to be repaid with interest. However, they do not understand how the interest is calculated, making them vulnerable to overcharging.
Meanwhile, banks and financial services providers are wary of lending to this segment, partly because they view them as risky. Financial services providers can start by offering savings products to garment workers and give them short-term loans gradually to overcome this perception of risk associated with lending.
3. Insurance: Few workers in the readymade garments industry have either health or life insurance because they lack knowledge about insurance or find the premiums too costly. However, they are a ripe market for nano-insurance products to safeguard them from sudden health expenditures or disruption to their regular income, similar to what happened briefly during COVID-19.
4. Tailored Financial Education: It is essential to educate workers about managing their financial life. Rather than giving generic information, it should be tied to decisions of immediate relevance and presented at a “teachable moment.” For instance, they can be informed about investment options to multiply their money when they receive their salaries. It is best to steer clear of financial education, essentially product marketing for financial services providers.
Opportunity for financial services providers and FinTechs
Companies need an innovative approach toward product design to create suitable financial products for garment workers. An ideal product should be intuitive, simple, and easy for customers to comprehend and use. The product should include all components of financial literacy and cater to “oral” customers, that is, individuals who cannot deal with written text or numbers and are more comfortable with visuals. MSC has suggested a conceptual wireframe called mobile wallet for oral segments (MoWo) in its earlier work for “oral” people. We believe MoWO is the first step toward the financial inclusion of “oral” people. Providers can use these models or build more local models to train their agents and further educate the garment workers.
An ideal financial product for small-income earners, such as garment workers, would include notifications or a “nudge” component that alerts users to make the next deposit or pay the next loan installment. Such notifications are easy in a fully digital model, say through a mobile phone, but most garment workers do not have a smartphone. So, a more suitable solution for garment workers would be an assisted or “phygital” model—combining digital solutions with a human interface.
A network of agents who have access to technology and smartphones and can educate the garment workers about various financial products, ways to use these products, and potential adverse outcomes can be helpful for the garment workers. Workers would benefit from dedicated banking agents like this, through whom they can get information about their savings or loans.
While Bangladesh has a network of bank correspondents and agents for mobile financial services, these agents are not based inside garment factories, making it costly and cumbersome for garment workers to reach these agents. Workers prefer to interact with someone close to their factories to avoid traveling far.
Social enterprises such as Apon Wellbeing, which serve the community of readymade garment workers, can play a role here. Through its supermarkets, Apon is already connected with garment workers. It allows them to buy products on credit and recovers the money through direct deductions from workers’ salaries.
Apon can collect and analyze data about the buying and credit patterns of these workers, which in turn can be used by banks or financial technology firms to provide savings, credit, and insurance products for garment workers. Once providers start lending to these workers and get comfortable about their creditworthiness, they can offer a host of other financial solutions.
The initiatives discussed in this blog, if implemented, can help give workers in the readymade garment industry better control of their household finances and make their future golden too.
Nam Nguyen belongs to an estimated one million households in Ho Chi Minh City who had to rely on government support to get through the COVID-19 lockdown. These households represent Vietnam’s low- and moderate-income (LMI) community and comprise farmers, students, daily-wage workers, and nano- and micro-business owners. They are among 70% of Vietnam’s 95 million people earning about USD 2–10 per day.
The third and fourth waves of the COVID-19 pandemic in 2021 severely affected Vietnam and laid bare the vulnerabilities of LMI. It highlighted the need to have a pool of savings to tide them through financial shocks. Construction worker Nam learned this the hard way.
How do LMI people in Vietnam save their money?
Saving after managing expenses remains a priority for LMI people in Vietnam who aspire to lead a better life, absorb income shocks, and strengthen financial resilience. However, ~69% of adults in Vietnam remain un(der)banked and have limited or no access to financial services.
Access to formal savings has been far from uniform, particularly in rural areas. As a result, most LMI people still prefer to save outside the formal sector, using informal means such as keeping cash at home and saving with informal associations/ clubs.
The figure below highlights the saving characteristics of Vietnam’s key LMI customer segments.
Figure 1: World Bank’s comparison of savings pattern between Vietnam and East Asia & Pacific in 2018
Figure 2: Savings characteristics of Vietnam’s key LMI customer segments
What challenges do LMI people face in saving their money?
LMI customer segments in Vietnam recognize that savings are essential for financial security. However, they face multiple challenges:
Small incomes make it hard to save. In rural Vietnam, the average monthly income per capita is around USD 152, while the average monthly expenditure is USD 105. So at the most, they can save USD 47 a month, even if they cut out all discretionary spending. In addition, most LMI people’s income is cash-based, sporadic, and unpredictable, which means that they sometimes have to resort to emergency borrowing, making it even more of a challenge to save regularly. Moreover, those who do save prefer to save in cash because it is convenient and easily accessible.
The result is that many small savers keep their money in informal channels, like “Ho/Hui,” a rotating credit and savings association. However, these can be risky as there have been cases of frauds where participants have lost their money.
Another challenge is the lack of access to bank branches. For every 100,000 people in Vietnam, there are only four commercial bank branches. Visiting far-off branches is costly, involving transportation and opportunity costs during business hours. Many small business owners also want to withdraw their money at short notice, which they cannot do if the bank branch is far off. Moreover, to open an account, customers have to travel to the bank multiple times —to submit documentation, collect a passbook, and so on. For most LMI people, the costs involved are not worth the effort.
Furthermore, Vietnamese commercial banks only offer one-size-fits-all saving products that do not meet the varying needs of the LMI community. For instance, most commercial banks require a minimum of VND 1,000,000 (~USD 44) to open a savings account. The weekly savings of the LMI people is nowhere near this amount.
Most commercial banks prefer middle and upper-class urban consumers. These banks do not target the different LMI customer segments as they don’t save large enough sums of money to cover the costs of acquiring and maintaining them as clients.
MSC is working with organizations in developing countries to help LMI people ease into a more robust savings behavior and improve their financial health. The following elements are required to foster small savings for LMI people in Vietnam using technology, smart product design, and innovative distribution platforms:
1. Product features designed to match the lifestyle and needs of LMI people
Such accounts should be simple to open and maintain, and customers should be able to access their money easily. In addition, there should be no requirements for a minimum balance to be maintained or any lock-in period, which is a big concern for small savers.
Figure 3: Key characteristics of an ideal micro-savings product
A digital savings account can provide these features by offering a simple user interface with clear and short instructions that enable users to deposit and withdraw money easily. These digital accounts can have an inbuilt feature that gives customers periodic reminders or “nudges” to set aside money, even as low as VND 20,000 (~USD 1) a day. Offering a goal-based product, such as saving for a child’s education, can also encourage savings.
Shakti’s women customers do not need to maintain a minimum balance with no lock-in. It encourages savers to set a goal and gives them frequent reminders on their feature phones to add as little as BDT 100 (~USD 1). Users also get information about their account balance on their phones, saving them the trouble of going to a branch.
2. Phygital distribution channels to democratize savings
With innovations in technology and finance, traditional banks can tap into new channels to bring micro-savings to LMI people. These include digital wallet providers, e-commerce platforms, or “super apps” such as MoMo, Grab, Zalo, and Shopee, which have amassed millions of customers in Vietnam lately. These technology-led platforms will reduce the cost of acquiring new customers by accepting documentation online or via a phone and doing an eKYC. Moreover, super app players can market savings products to a strong base of millions of LMI users much faster.
Saving through an app is easier and cheaper for individuals. For instance, users can deposit or withdraw money from their accounts in a few seconds using biometrics or one-time password verification. Meanwhile, the technology platforms also benefit by acquiring new customers and eventually cross-sell them other products and services.
MSC is working with a leading FinTech in Vietnam to offer a digitally-enabled savings solution to enable its users to put small amounts of money aside when they can. The solution provides goal-based savings mapped to the users’ lifestyle, interest rates at par with incumbents/banks (~5%), easy (digital) access and monitoring, and withdrawal flexibility.
3. Agent networks to tap into rural, underserved areas
Agent networks are essential in a context where a significant customer base is rural, underbanked, and yet to try out technology-based, self-initiated transactions.
In 2017, the state-run State Bank of Vietnam (SBV) piloted a ‘cash-in and cash-out’ agents program with MB Bank – Viettel, PGBank – Petrolimex sales points, and Vietcombank – MoMo. Vietnam, however, does not have a formal agent banking network, which will be critical as an intermediate stage in reaching out to and onboarding rural customers.
The National Financial Inclusion Strategy aims to develop and issue regulations on licensing and guiding the operation of banking agents. It also aims to facilitate non-bank organizations with a vast network or operating areas in rural and remote areas to become agents of banks.
The bottom-line
Savings is an essential tool that helps LMI people like Nam strengthen financial resilience. Collaboration among multiple stakeholders, including regulators, financial institutions, and financial-technology firms, is needed to digitize and simplify the savings journey for LMI people in Vietnam. MSC and Startup Vietnam Foundation (SVF) are driving one such multi-stakeholder partnership- the ‘CO4GROWTH’ accelerator program. We are supporting 35 startups under the program to develop innovative, technology-enabled solutions for the LMI people in Vietnam. We expect the regulatory sandbox for FinTechs approved by the Government of Vietnam in September 2021 to foster the development of new services, such as digital savings accounts for small savers. Meanwhile, service providers need to understand this opportunity and innovate —which, if done well, can lead to a win-win proposition for all.
Bangladesh reduces poverty and vulnerability through its Social Safety Net (SSN) programs using cash assistance. These programs support the elderly, widows, persons with disabilities, women, and men of working age with temporary employment. The programs also support young mothers and children. Before digitizing the SSN payments, most beneficiaries had to wait long queues and travel long distances to receive the payments. During COVID-19, many were worried about how they would receive their payments. Then, in the fiscal year 2020-2021, the Bangladesh government introduced a digital intervention through MFS, which supported 25 million beneficiaries. This initiative also ensured that the beneficiaries had financial freedom and easy access in rural areas of Bangladesh.
The digital savings and payments channels carry the immense potential to increase access to basic banking services. The changes in the payments landscape due to the pandemic have altered people’s outlook in Vietnam. Digital payments solutions, such as mobile, QR, and card payments, saw an upward trend in Vietnam as people preferred the convenience of saving and paying digitally.
The “Innovate, Implement, Impact” or “i3” program, supported by the MetLife Foundation, uses digital technology to provide better opportunities for people to plan, save, borrow, and spend safely. Further, the video explores the digital journey of Vietnam during the pandemic.
Usage of smartphones appears to increase household income and consumption. Both quality (relatively) cheap smartphones and 3G+ coverage are increasingly available throughout Africa. But the majority of households have very limited disposable income both to buy a smartphone, but in particular to purchase data. The prohibitive cost of data stops many using the internet/apps and those that do “sip” rather than “surf”. The result is a significant and persistent usage gap, even as the coverage gap reduces. Orality and lack of digital capability mean that icon- and IVR-driven interfaces will be essential to build self-initiated usage. But much of the shift to internet/app usage must be assisted and mentored by agents. Agents offer a range of real advantages but also a wide variety of risks/consumer protection concerns which will require attention.
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