India Post: A story of missed opportunities [Part I: Microfinance]

India Post is a unique institution in many ways. The most important aspect of it is however its extensive network that has capability to deliver tangible as well as intangible goods to almost anybody residing anywhere in the country. Various social groups, particularly those difficult to be reached, can be included in the process of development while leveraging this infrastructure. Few low-income countries can boast of possessing such rich physical network capital.

An organization as old and as deeply entrenched in traditions as India Post needs to keep reinventing itself if it aspires to remain relevant in a rapidly changing political-social-economic landscape. India Post has however been exhibiting massive inertia to change at fundamental levels even in the face of some very potent opportunities during the recent years. India Post story may be one of the most remarkable post-Independence stories of missing almost all possible opportunities to become a far more effective partner in the growth and development process of India than it currently is.

First of such opportunities may be traced to the decade of seventies and afterwards, when the world was slowly waking up to the potential of financial services to reduce poverty. This gave rise to the microfinance movement but India Post steadfastly remained oblivious to it. In India Post, India had an institution that was tailor-made for designing and delivering financial services to the excluded section of Indian society. They were already offering all the financial services relevant to low-income households excepting the credit products. Permitted transactions within their small savings services are in fact smaller than those normally associated with micro-savings. In addition, they offer remittance and life insurance products. They also have had collaborations with the general insurance companies to deliver non-life insurance. They have been delivering various social security pensions on behalf central as well as several state governments. Despite this, India Post network has been consistently failing to meet the needs for financial services for a large population of financially excluded who are otherwise well within its reach.

Post offices were and are still waiting for customers to walk in, and those, who need its financial services the most, never walked in, could not have walked in. India post management tends to believe that the entire population of India has an access to its services. In reality the bottom half of Indian population does not go to post office. They are intimidated by any formal institutions and avoid them unless they are themselves reached out to.

There is another important reason for the economically and socially disadvantaged people to avoid going to post offices particularly in rural areas even when the post office is located in their own village. I discovered this while doing my research in the rural areas of Uttar Pradesh, Gujarat and Andhra Pradesh states. In impoverished localities while discussing their needs for financial services I often encountered people’s need for saving a portion of whatever they earned on the days when they got gainfully employed. They could not do it as bank branches were located far away from their villages. Moreover, banks would in any case discourage them from saving such small amounts and would not allow them to withdraw even smaller amounts required by them frequently. Their almost desperate need to access suitable micro-savings services encourages unscrupulous elements to devise ways to cheat and defraud them of their savings, a phenomenon, which I have described elsewhere. Whenever I asked the people why they were not using small savings services offered by the post office located in their own village they invariably admitted to being totally unaware of such services. Very few of them, if any, had ever visited the post office even when it was very conveniently located in the same village.

When post office network was being expanded in the rural areas the colonial rulers devised an ingenious method to reduce establishment costs of rural post offices to create an extra-departmental cadre of employees to be paid according to the number of hours they were required to work. More importantly, the postmasters were required to provide a suitable office space on nominal rentals, and were required to own immovable properties in their own names in addition to possessing minimum educational qualifications. This resulted in the rural elite monopolizing the postmasters’ institution as they only fulfilled such recruitment criteria. Moreover, all of them located the post offices in a portion of their residences. This effectively ended any possibility of the deprived sections of village population ever entering the post office as they could not dare enter the houses of the elite on their own. The situation has improved slightly over the past few years after the courts intervened to strike down the requirements of owning immovable properties in the village for the postmasters deeming it to be discriminatory. However, a vast majority of postmasters appointed in the old system continue to work as they are not retired. Even in the case of postmasters appointed in the new system the people belonging to the deprived sections keep avoiding post offices as they are traditionally unaware of availability of financial services relevant for meeting their needs in post offices.

In such a situation, India Post could have made any significant contribution to promotion of microfinance only if it had made deliberate efforts to reach out to the potential microfinance clients. This would have required structural changes, and most importantly, shedding out the government-bureaucratic culture where customers are still considered to be beneficiaries who have to approach and request for services, and need to feel obliged and indebted after receiving services, however deficient they may be.

When I was working with International Fund for Agricultural Development (IFAD- a UN agency) I prepared a paper advocating for India Post to enter the microfinance by actively engaging with the people excluded from the ambit of financial services. Such an engagement would not only meet financial needs of the deprived people and thus would go a long way in reducing their poverty in its various dimensions but would also generate additional revenues for India Post. On the basis of the arguments contained in the paper the then head of Tamilnadu postal department (Chief Post Master General- CPMG) requested the then Communications Minister of Government of India to allow Tamilnadu postal department to collaborate with the National Bank for Agriculture and Rural Development (NABARD) to work with the self help groups and provide them with the credit through NABARD funds. The pilot for the collaboration was launched in two districts of Tamilnadu. On request of the CPMG I traveled to both the districts to impart training on microfinance to all the participating postmasters. The program was successful and NABARD wanted to expand it, but true to traditions and character of India Post as an organization, they did not go ahead with the program.

India Post could still have engaged with microfinance even without any collaboration with NABARD. Such engagements could be in the form of supporting self help groups/joint liability groups. If nationalized banks could do this, India Post could have done it much better due to their being located in close proximity with the local communities particularly in rural areas. They could have collected their savings and facilitated their internal lendings. They could have customized their remittance product to meet the needs of huge migratory communities. They could have participated in delivery of various micro-insurance schemes launched by other government agencies, such as Rashtriya Swasthya Bima Yojana and Aam Aadami Bima Yojana.

They could have also tied up with other entities for external lendings and other financial services. Microfinance organizations, non-bank finance companies and banks would be very happy to collaborate with India Post to reach financially excluded through microfinancial products. Brazil and Netherlands Post have already developed such a template. Answers to why this did not happen or is not happening lie within the larger structural issues facing India Post as an organization as discussed in Part IV of this blog story.



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