The new bank for rural poor: The post office

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Financial Inclusion

The new bank for rural poor: The post office

There are more than twice as many post offices as banks in rural India, making post offices the more accessible network for the unbanked. Photo: irish (flickr)

Post offices in Nigeria are becoming surrogate bank branches for the unbanked rural poor, under a government project launched last month.

Opening new bank branches in remote areas to reach the financially excluded is often prohibitively expensive, because the rural poor wouldn't use a branch enough to cover its costs.

That's why India and Nigeria have banks that are collaborating with post offices to turn them into banking outlets. This transformation will not be too far of a stretch considering just how many financial services many public post offices already provide in these regions: small savings accounts, life insurance, mutual funds, e-money orders and foreign exchange. Collaborating directly with banks would let post offices add small credit, remittances and various insurance policies, too. Very small-scale lending, for instance, does not require extensive knowledge and could be learned by the existing post office staff. Small savings deposits that already exist can be a useful start-up resource for lending. And India Post, for example, already has more than a century of experience operating Postal Life Insurance, which could be extended to include an array of valuable insurance policies for the rural poor.

The post office-to-bank transformation is one variation of "agent banking," the supply of financial services to customers by a third party in support of a bank or other licensed provider. Already, supermarkets, convenience stores, pharmaceutical retailers and lottery outlets have been turned into banking outlets.

90 percent of India's post offices are located in rural areas, compared to just 37 percent of its commercial banks. Because of this, discussions about an India Post Bank have been carrying on for a long time now, though plans have yet to materialize.

For Borno State in Nigeria, utilizing post offices to bring financing to the 87 percent of the population that lives in rural areas seems to banking industry leaders like a no-brainer. “In 2010, the average distance for a Nigerian to a bank was more than 10 kilometers," the Center for Financial Inclusion's Jeffrey Riecke wrote last month. "In addition to extending financial services to those without access, agent banking would help financial institutions regain customers that they might have lost over the year through the closings of unprofitable bank branches.”

It is clear that post offices in remote locations provide a physical advantage over commercial banks, but will the money it takes to train postal workers, secure necessary licenses, implement technology, and raise salaries to match those of bank staff make this option any more sustainable than extending traditional banks into rural areas?

Those working on the Borno project seem to think so.

“If we succeed with the project in Borno, it will be extended to other states of the federation," Enterprise Bank CEO Ahmed Kuru said last month. "And we are convinced that we will succeed.”


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