Trust, finance and urban low income households

At the heart of providing a loan is the ability of the lender to judge the borrower on his/her ability and willingness to repay. This seems fairly rhetorical, until one begins to apply the principle to the lives of small businesses and low income households. Or even regular transactions that take place in one’s everyday lives. One of the small luxuries of living in India, and one that I take for granted, is the ability to give my clothes to be ironed by a couple that has a small push cart at the end of the road. Almost every road and bylane has the local ironing guy, or the istri-wala, who regularly takes clothes, irons it for anything between Rs. 2-5 and returns it in an hour. I have a running account with the couple that iron our clothes because they never have change. And there is always an outstanding balance, which is adjusted against the next day’s potential lot of clothes to be ironed. The transaction amount may be small, but in allowing this adjustment, there is an implicit judgement that I make on the couple and their ability to appear the following day at our doorstep. Of course, one would argue that their livelihood depends on it and so on, but with their mobile cart, they could very easily choose to relocate to another part of the city and find similar clients. Yet, they never do so.

Several low income households have a similar account with the local kirana store where they purchase regular goods for consumption. There are similar mini loans that take place in everyone’s lives, every single moment. The extent to which we use our social network for financial transactions is immense, if we were to make a minute note of each and every rupee that exchanges hands. In rural India, where people are tied to their land, one is almost born into a social network, which has its downside, but can also act as a cushion in times of need. It is not unusual in rural Tamil Nadu to host a dinner or lunch, which is pretty much a fund raiser, for an event in someone’s life. The daughter attaining menarche, someone starting a new business. All of these are events when it is expected that people will contribute money, with the understanding that it will be reciprocated in their times of need.

In urban India, where movement is easier and the possibility of becoming anonymous in a large crowd is higher, one would expect that such relationships do not exist or exist to a lesser extent. However, low income households in urban India are not the homogeneous entity that they are often painted out to be. In more settled habitations or authorised slums, social networks tend to be far more established, often taking the form of active small businesses. The transient slums, on the other hand, are home to a population that is far more vulnerable and inevitably marginalised from all kinds of networks, including social networks that often act as a proxy to financial systems. Understanding the lives of urban low income households can yield a wealth of information that can be used for financial product design.

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