Can microsavings work without microcredit? A case study of India Post Payments Bank

• DOI: http://doi.org/10.1002/jsc.2332
• Author: Arvind Ashta,Satish Pillarisetti
• Published date: 01 May 2020
• Date: 01 May 2020

RESEARCH ARTICLE

Can microsavings work without microcredit? A case study of

India Post Payments Bank

Arvind Ashta

1

| Satish Pillarisetti

2

1

Burgundy School of Business, Université

Bourgogne Franche-Comté, Dijon, France

2

Sa-Dhan, New Delhi, India

Correspondence

Arvind Ashta, Burgundy School of Business,

29 rue Sambin, 21000 Dijon, France.

Email: arvind.ashta@bsb-education.com

Funding information

Banque Populaire and Conseil Régional de

Bourgogne Franche Comté

Abstract

Microsavings institutionsthat cannot provide microcredit areunlikely to be self-sustain-

ing. Payments banks are Indian microfinance institutions that can collect microsavings,

but cannot givemicrocredit. They have beenmainly unsuccessful owingto low spreads

between interest given to savers and interest received from the reserve bank or com-

mercial bankson interbank deposits. Thecommission income from transfer payments is

too low to pay the high overheads of rural outreach. Payments banks would like to

transformthemselves into small savings banks that canprovide microcredit.

KEYWORDS

microcredit, microinsurance, micropayments, microsavings, postal services, remittances

1|INTRODUCTION

One of the destructive impacts of information and communication

technologies is on the post. People no longer need to send letters or

postcards to each other since they send emails. As a result, many

postal workers risk being unemployed. On the other hand, owing to

economic development and online mail order, the post is increasingly

delivering parcels. At the same time, international parcel delivery costs

go up because of controls of counterfeit goods, leading to delays and

increased working capitalrequirements. Post offices all over the world,

therefore, needed to make a complete SWOT analysis to understand

what they could do to remain profitable. Their main strength was an

extremely high-qualityservice team, found all over the country, visiting

rural areas of low population densitywhere no other official ventured,

and the strong trust that people had in postal officers. Their foremost

opportunity was that poor persons could not afford to travel to obtain

services while governments had a universal service obligation toward

their citizens. This gap caused the government to use the depth and

reach of the posts. The experiments of postaloffices have been varied:

for example, in Finland, postal workerswill cut grass for their clients in

return for a monthly subscription. In France, the post officers will talk

to old lonely people and spend time with them. On the other hand,

with parcel deliveries through drones in large low-density countries

such as Australia, Canada, and certain regions of China, again, the

employment of postal workerscould take a hit. In 2017, Germany was

already using drones to supplymedicines.

With the growth in microfinance, postal offices recognized an opportu-

nity to take a more significant part in financial and economic development.

Microfinance is often limited to urban and high-density areas. Nevertheless,

there was a social need to supply financial inclusion to rural areas. This

social need translated into votes, especially crucial in countries where a sub-

stantial part of the population was still living in rural areas. As a result, there

was political pressure to provide financial services to rural areas. However,

banks were not geared to doing this.T hepostal banks had always had, since

the nineteenth century, a small business for money transfers through postal

orders and had offered post office savings accounts at their branches. They

decided to expand on this. All over the world, we see postal offices expan-

ding, or trying to expand, their inclusive financial activities.

In this article, wereview the press reports on one of the most sig-

nificant postalbank operations, the India PostPayments Bank (IPPB), to

understand howit started, how it expanded, and the problemsit faced.

The case study highlights the difficulty with applying a purely micro-

savings model,much touted by those disillusioned by microcredit.

2|ACADEMIC LITERATURE ON

MICROSAVINGS

Microcredit is often acclaimed as a social innovation that lifts people

out of poverty, and some literature suggests a positive impact

JEL classification codes: G21, L87.

DOI: 10.1002/jsc.2332

Strategic Change. 2020;29:331–340. wileyonlinelibrary.com/journal/jsc © 2020 John Wiley & Sons, Ltd. 331