For a number of us, regularly saving money can be difficult. Sometimes our jobs are such that we do not earn regular amounts of income. As a result, what we earn is used to meet our regular and one time needs and we believe that what is left is too little to be saved. We feel that keeping aside Rs. 5 at the end of the day does not amount to much. But that’s not true. Deposit collectors in poor areas in Vijayawada, Andhra Pradesh, help their clients, who are mostly women, to save by collecting small amounts like Rs. 5 at the end of each day. They come to the homes or work places of their clients at the end of each day and take the money. Then at the end of 220 days (if the client has actually contributed everyday) they return a lump sum of around Rs. 1000 to the client and keep a fee of the balance Rs. 100 for this service.
While such systems help us to save, we are paying for a savings service instead of getting paid for the money that we save.
Using that example of small savings, let’s take the case of someone employed under the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA). He will earn Rs.. 100 per day for at least 100 days. Now, if he is able to save Rs.. 30 per day during his days of employment, he can collect a total of at least Rs.. 3000. This can be used for times when employment is not available or saved in formal financial schemes, wherein he will receive interest on the money earned.
Sometimes, although we do save small amounts regularly, we do not have a safe place in which to keep this money. There are many examples of people who save by putting money into hiding places within their homes, bury it in the earth, roll it inside hollowed-out bamboo or keep it in clay piggy banks. The problem with these methods of saving is that the money can be lost or stolen or just rot (in the case of notes) due to moisture. In addition, the value of your money will decline due to inflation. There are other risks too. are the least of the problem. People who are aware of your savings – like neighbours, children, alcoholic husbands, etc. may help themselves to the money that you have painstakingly collected.
When it comes to loan products, under traditional systems, there are three ways in which we usually get access to loans. The first is by selling assets that we already hold or expect to hold (like advance sale of crops). The second is by ‘pawning’ assets that we own or expect to own. This method is similar to the first one, where we sell the asset but have the opportunity to buy it back within a pre-decided time frame. But when we do buy it back, we have to pay a hefty premium (a large amount of money over the amount we sold it for). Lastly, we turn to money lenders or borrow from friends and relatives. The problem with this form of borrowing is that we are charged an extremely high rate of interest by the former. In the case of the latter, we run the risk of spoiling relations with friends and relatives, if somehow we are unable to pay them back on time.
Where insurance is concerned, there is very little scope available in the non-formal sector. So, in the case of an untimely death of an earning member of the family, or an expensive illness or damage to home or crops or other assets, we have to turn to our savings or loans.
With the spread of formal financial services such as banks, post office accounts and micro finance organisations, we need not face these unfair, inconvenient or unsafe financial situations anymore.
Banks, insurance companies and rural microfinance now offer a range of different products for people in the rural areas. These broadly include:
All we need to do is make the effort to learn about the options available to us and take a confident step towards using them.
When it comes to formal savings products, we all broadly look for the same features – simplicity and convenience (the product should be easy to understand and easy to use), safety (we should be confident that what we save should be returned to us) and to our advantage (have some benefits over the traditional methods of saving).
Post office schemes are also called small savings schemes. These are designed to provide safe and attractive investment options to the public and at the same time to mobilise resources for the postal department.
Post office savings accounts:
These accounts are very popular as they can be opened at any post office in India with a minimum of Rs. 20. On the outer limit, a maximum of Rs. 1 lakh can be deposited per single holder (across all post office accounts held in that name) and Rs. 2 lakh for joint holders (again Rs. 1 lakh per person across all post office accounts held).
Post office time deposit accounts
These deposits can be compared to bank fixed deposits and like the post office savings accounts, they can be opened at any post office in India.
Post office monthly income accounts:
This account is somewhat like a bank fixed deposit too. Only one deposit can be made.
National Savings Certificate:
National Savings Certificates are available for purchase at Post Offices.
Kisan Vikas Patra:
Kisan Vikas Patra are available for purchase at Post Offices.
Public Provident Fund Scheme:
Public Provident Fund schemes can be opened at certain designated post offices throughout the country and at certain designated branches of Public Sector Banks throughout the country.
Micro finance is a concept that started in India in the early 1980s. It involves small self-help groups (SHGs) and Non-Government Organisations (NGOs) coming together to provide credit and saving services to people who do not have access to the formal banking system. They undertake these activities more from the objective of bringing about development in areas which need it and less from any profit motive. These organisations are sometimes supported by large government bodies like Small Industries Development Bank of India (SIDBI) and the National Bank for Agriculture and Rural Development (NABARD). Sometimes they are also supported by large trusts set up specifically to make funds available to people at the lowest levels of society.
These organisations – self-help groups, mutually aided co-operative societies, farmers clubs and micro finance institutions - devise unusual means of savings such as group deposits and accounts that accept very small, ad hoc amounts. For instance, they enable monthly or weekly savings at joint-liability group meetings. Here, the people who form the members of the group save from week to week (or month to month). This money is used for lending to people within the group when they require it. Sometimes, NGOs and government organisations also contribute to the kitty of such groups.
Such organisations try to help groups of people plan their entire personal finances with packages of measures, specifically designed for them. Some of them do not treat savings, loans and insurance as separate products but part of a financial solution for an individual.
Some banks are set up in the rural areas with the special purpose of funding agricultural and other activities in the rural areas. They give loans to small and marginal farmers, agricultural labourers and rural artisans.
Their savings accounts and savings products are structured to meet the needs of their customers. They offer their customers the chance to save through regular savings accounts, “no frills” accounts and term deposits.
No frills accounts offered by banks
In a recent move, the RBI – our country’s central bank - has urged the banking community to introduce “no-frills” accounts. These accounts are designed to introduce the concept of banking to those who have no access to it so far. Every bank that offers such accounts has the freedom to design them. However, the basic characteristic remains the same across banks – i.e. no frills accounts have to have a zero or a very low balance requirement with limited transaction facilities. For instance, take the State Bank of India’s (SBI) no-frills account. To open a no-frills account with SBI, you must be at least 18 years or age and earning a gross income of Rs..5000 per month or less. You have to make an initial deposit of just Rs. 50 and you are not required to maintain any minimum balance while operating the account. Your account can hold a maximum of Rs..10,000 as the total value of business connections of the account holder, including other deposit accounts. You receive a passbook, an ATM-cum-Debit card free of cost and you are also able to avail of the cheques facility.
Each person’s borrowing needs are likely to be different. Studies by a microfinance organisation called SafeSave have found that women need longer-term credit to build assets such as houses, to buy land and lease land, either under their own names or at least jointly. They also need credit to purchase ‘female assets’ such as jewellery, or redeem them from pawnbrokers and moneylenders. They also need access to credit for investment in their small business ventures, which may not be farm related.
Similarly, they found that agricultural workers and farmers need consumption loans to avoid turning to moneylenders in slack and ‘hungry’ seasons. Farmers also need loans during the production season. If they can get loans from formal financial services, it would help to free up significant amounts of money, which would otherwise go towards paying high-interest rates to moneylenders for investment in production.
Lastly, they found that in the category of special needs, households need loans to pay for children’s education and to meet social obligations that are essential in maintaining social capital and the wellbeing of children, particularly daughters after marriage.
Banks and micro finance institutions offer loans for all these purposes and more. Banks offer agriculture loans, mortgage loans, car loans, education loans, gold loans, loans for purchase of land, home loans, personal loans, business development loans and govt sponsored subsidy / low interest loans. Authorized Business Correspondents (BC), sometimes called Kiosk Banks, have been set up in the rural areas to meet the needs of the local people. These offer agriculture and personal loans, amongst others. Microfinance Institutions, Self –Help Groups (SHGs) and Federations, Farmers Clubs, Mutally Aided Co-operative Societies, Cooperative Banks, Primary Agriculture Cooperative Societies (PACS) and Local Area Banks also offer loans to meet specific consumption, income generation and business needs of people in the rural areas. Most of them also offer government sponsored subsidies and low interest rate loans.
Indira Awas Yojana (IAY)
Swarnajayanthi Gram Sswarozgar Yojana Scheme (SGSY)
Prime Minister’s Employment Generation Programme (PMEGP)
The PMEGP is a credit linked subsidy programme of the Government of India. It has been introduced by merging the two schemes, namely, Prime Minister’s Rojgar Yojana (PMRY) and Rural Employment Generation Programme (REGP). The objectives of the programme are:
Swarna Jayanti Shahari Rozgar Yojana (SJSRY )
The three key objectives of the revised Swarna Jayanti Shahari Rozgar Yojana (SJSRY) are:
The delivery channel of the Scheme is through Urban Local Bodies (ULBs) and community structures.
National Scheduled Castes Finance and Development Corporation
This scheme provides concessional finance for setting up of self-employment projects and skill-training grants to unemployed SC persons
National Minorities Development & Finance Corporation (NMDFC)
The NMDFC provides financial support to minorities in areas such as Agriculture & Allied activities, Technical Trade, Small Businesses, Artisan & Traditional Occupation and the Transport & Service Sector
The agricultural policy of the Government of India aims to provide a substantial flow of credit to farmers to increase agricultural productivity. Under the direction of the Government of India, banks provide term finance to farmers for development purposes and short term loans for production purposes. They also finance farmers who wish to purchase land to expand their activities and make existing small and marginal units economically viable.
Source: Portal Content Team
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