To The Last Mile: Digital Financial Services In Rural Communities

by | Dec 13, 2020

Ever since I completed my graduation, got a job and became financially independent, I do not remember transacting much in cash, except for the few instances of grocery shopping at a local market or paying for an auto rickshaw ride. There was always a digital alternative – mobile wallets, net banking, UPI or debit/credit cards. Before that, I would get some pocket money in cash and would consequently also do only cash based transactions.

As I was setting up my home in Gogunda, which is just a 30 minute ride from Udaipur, Rajasthan, I was not expecting to find as many cashless transaction options. My mother had advised me to keep enough cash handy till I get the time to visit an ATM. To my surprise, I could complete all my initial purchases without having to use paper currency. Surely, Gogunda had gone “digital”.  

Contrast that to a few kilometres into the field areas where Shram Sarathi works, it is quite common to find people with inactive bank accounts and inability to do non-cash based transactions.

Over the past twelve years, Shram Sarathi has been dedicatedly working towards the financial inclusion of migrant households in the South Rajasthan belt. More recently, Digital Financial Services (DFS) are seen as a means to achieve greater financial inclusion for the underserved population in rural parts of the world. It is a means to provide access to low-cost and decentralised financial services so as to enable more targeted service delivery for these households. 

Digital Financial Services (DFS) refers to the host of services such as savings, remittances, credit, insurance, etc. through a digital medium such as internet, mobile phones, ATMs, biometric devices or other digital modes. 

Since the launch of Unified Payment Interface (UPI) in 2016, there has been  a steady rise in adoption of digital transactions.1 The push for financial services to go digital has been made possible due to various factors like improved infrastructure including bank and non-bank financial service providers, digital identification and bank linkages, opening of bank accounts, proliferation of internet, mobile phones, etc. – all prerequisites to digital financial services. 

DFS are facilitated through bank branches, ATMs, bank agents and other agents. However, the proliferation of DFS has not been as substantial in rural areas due to continued engagement in cash-based transactions. In fact, this study highlights that cash plays a significant role in switching to digital transactions.

As users gradually shift from only cash to cash and digital means of transacting, the need for easy cash to digital money conversion services increases. Hence, these areas need rapid expansion of modes of conversion of cash to digital money and vice versa, to be able to engage in or avail digitally enabled services. These last mile cash-in/cash-out (CICO) outlets play a crucial role in the financial inclusion of the community. 

A woman getting her biometric authentication for cash withdrawal from her Aadhar linked bank account by a DFS Agent in Sayra, Udaipur

As I started my journey of understanding financial inclusion levels and reasons for low penetration of DFS, it became important to internalise the context of the region. It is an overlap of both demand and supply factors that affect the proliferation and delivery of DFS and as a result, impact financial inclusion levels. The interconnectedness of the supply and demand side is such that DFS providers e.g. agents are motivated by the volume and value of transactions which in turn is dependent on the demand from people, generally low. Hence, it is not a sufficient incentive for the agent to continue operating. Some of the inherent features of this ecosystem themselves are the reason for low DFS adoption:

Firstly, the local rural economy is heavily dependent on cash. Almost all transactions are cash based. In addition to that, it is interesting to note that these households are also dependent on barter like exchanges. As almost all households here grow gehu (wheat) and makka (corn) here, it is often exchanged for some kirana items such as chai patti, sugar or even vegetables. 

Secondly, inactive bank accounts are also a common phenomenon. Most of the inflows are in cash and as a result only the residual cash reaches a bank account after all expenses are taken care of. Even if an individual has a fixed daily wage rate, he/ she would often receive only a fraction of the income once in two or three days for meeting commute related expenses. The remaining wages are received after the completion of the work and often used entirely for meeting monthly expenses. 

Digital inflows are mostly received for pension, payment for NREGA work, money received as a part of a Government scheme or remittances from migrant family members. Most of these inflows are sporadic and of low value. As a result, the need to interact with the bank is reduced.

Another deterrent for visiting a bank branch is that it is a time consuming and an expensive affair. Hence, these families tend to save money at home rather than depositing it in the bank.

Gopi Lal* works as a helper at a construction site in Udaipur. He doesn’t have a fixed monthly salary and gets paid for the number of days he goes to work. His home is 25 km away from the bank branch. For him to deposit money in the bank, he will have to miss a day’s work and spend almost Rs. 100 on conveyance. He says that he can’t afford to lose a day’s work once or twice a month to go to the bank.

Thirdly, access to digital infrastructure is another barrier in rural areas – both in terms of public as well as personal resources. One of the issues is less availability of service providers and lack of proximity to the existing ones. On a personal level, even among members of the community who are literate and are aware of banking services, ready access to a digital device such as a smartphone to transact on their own is not available. Women especially are more disadvantaged in this scenario because the literacy levels are generally lower among them and they don’t own even a basic mobile phone.

In the current scenario, holding just the formal banking sector responsible for reaching the remotest parts of the country to provide access to DFS would not be entirely right. There is a need to make these services more accessible and cost effective by creating trusted access points for services such as withdrawals and cash deposits. Last mile agent networks have been on a rise since the last couple of years. These agents operate through various Payments Banks and Fintech companies providing commission based platforms for DFS.

Shram Sarathi too has been making efforts for enabling financial inclusion and literacy of these communities, consequentially helping them to transition to digital mediums. In fact, all of Shram Sarathi’s loan disbursements are fully digital. We are gradually also moving towards digital collection of monthly repayments. What this does is not only familiarise the individuals with the use and maintenance of bank accounts but also helps build their confidence in dealing with the bank and other stakeholders digitally.

Additionally, the organisation has been trying to improve access to DFS service providers by identifying members from within the community to function as agents. They are well known and trustworthy individuals who are generally engaged in entrepreneurial pursuits like owning a Kirana shop, stationery shop, mobile accessories shop or a state government citizen services delivery portal.

Financial literacy workshops and community engagement is one of the core focus areas for the organisation. The field officers conduct multiple meetings every month with a group of 10-15 people (both clients and non-clients) from the community to understand their financial behaviour and concerns. During these meetings, special emphasis is laid on knowing the demand for DFS in the region, identifying potential agents and also reporting any transactional frauds or malpractices. Shram Sarathi also closely works with Aajeevika Bureau that focuses on advocacy, bringing more transparency in and formalising the wages and payments of migrant workers. 

On the whole, for creating an ecosystem that is more inclusive, a move towards DFS is imperative. The many challenges need to be addressed by concerted efforts on creating awareness and formalising the functions of various players along the chain.

*Name changed to protect identity


  1. How digital adoption will help India get economically stronger

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