August, 2021

This piece emphasizes on the importance of investing your money and what it means for women informal workers in rural India

6 minutes read

Apply the power of compounding to a time investment in understanding investing, and we have a brilliant weapon that can change the face of our rural and gender landscape for generations to come. Frightening facts and figures, heavy jargon, a roster of stats – it would be more than fitting for an article such as this to start off by conjuring up the classic image of our idea of ‘rural’; a financially backward cluster of houses dotted along dirt roads, stark differentiation of gender roles and the assumption that they’ll be stuck in that limbo until as far as one can see. Truth be told, this description is somewhere between reality and conjecture.

The typical rural woman participates in the economy in the capacity of an agricultural worker, a wage earner, or even a micro entrepreneur. Along with this, the responsibility (or burden) of unpaid domestic labour – comprising childcare, collection of wood, fetching water, food provision and the like – inadvertently falls upon these very women. However, a closer look into the standard rural household shows increased participation of women in financial decision-making, justified by their immaculate budgeting skills, notwithstanding wasteful expenditure on temptation goods. This also drives home the point that financial literacy is a sure-shot way for rural women to experience true inclusion and growth in multiple spheres of life. They’re naturally trained to work amidst scarcity, and this coupled with the right knowledge of productive employment of these scarce resources – investment – can actually work wonders. 

When we come to talking about money, sound financial infrastructure is as much of an assumption as it is a prerequisite. However, while urban India witnessed progress on these fronts, our rural landscape is still tight in the clutches of the traditional informal ways. Falling under this informal tangent are resorts like –

Keeping hard cash locked up in a safe at their homes and asking family or friends to hold a portion of their cash for a certain period of time; this deters them from spending out of their savings simply because it is the convenient way to do so.

Not only is this unproductive since cash is lying idle, but is also really a loss-making activity because the purchasing power of their Rs. 20 worth of savings will reduce with time.

Women often open credit lines at their local shopkeeper’s which enables them to purchase now and pay later.

On the one hand, this induces rash spending because she is not parting with her money immediately after the purchase, much like how an urban spendthrift gets caught in the credit card trap. On the other hand, this can be used as a stepping stone for investment – investing the Rs. 40 earmarked for groceries at the beginning of a month and financing a part of their credit line using the returns.

Another tool is to hold their money with the local money lender for a nominal rate of interest.

Though a widely-used option in the rural setup, moneylenders often offer rates worse than a basic fixed-deposit, without inflation adjustment. Strict and exploitative rules also makes their savings illiquid and inaccessible. It’s practically a trap.

Rural households have also opened up to the system of self-help groups where women arrange themselves into SHGs, pooling in money for the purpose of lending to a fellow member at a nominal rate in times of distress, and even to accumulate a sum sizeable enough to be invested in a bank tool, bypassing heavy collateral requirements among other deterrent factors.

SHGs are emerging as one of the most efficient ways of financial inclusion and empowerment of rural women, increasing their exposure to formal money instruments. This also helps the case of rural financial literacy. Moreover, SHG support is popularly being recognized as an avenue for corporate CSR activities and social welfare programs by banks.

A person watering a "money" plant

A report by a prominent national daily outlined how rural women were also uncomfortable with bank agents who violated their privacy in a typical bank visit, creating a barrier that can be overcome by increased self-esteem on one side and arrangements like door-to-door agent services on the other side. Such an arrangement can help tap into detailed investment literacy programmes as well, tailored as per the amount of investable money a household has.

It is significant to note here that each financial product the rural woman puts a portion of her money box in must solve a problem she has – a prominent one being stability and empowerment. When women come together via SHGs, they can increase their risk appetite and exposure into the formal market with greater support. Today, we have a whole buffet of equity and debt based mutual funds with SIP provisions that cater to a multitude of purposes like holding idle money in a productive tool and generating regular returns in terms of debt interest. Since mutual funds are usually hedged instruments, there is a desirable level of risk and return. Options like index-linked funds can help generate returns that are in line with the general market trajectory and are a step above simpler instruments like Fixed deposits in terms of inflation adjustment.

When women come together via SHGs, they can increase their risk appetite and exposure into the formal market with greater support. Today, we have a whole buffet of equity and debt based mutual funds with SIP provisions that cater to a multitude of purposes like holding idle money in a productive tool and generating regular returns in terms of debt interest.

Now, the problem that remains is that our rural subjects under study often need access to credit over subsidies and the absence of formal employment and stable income makes them ‘non-bankable’. Solving this can break another major barrier that prevents women from approaching banks as opposed to moneylenders and relatives. Success in the domain of microenterprise loans in rural areas gave rise to the system of microfinance institutions that help these women leverage their initiative to further their economic interests. These institutions provide both savings and loan facilities, and help mobilize transactions with the formal banking sector by establishing linkages and playing the role of an informed intermediary. Eventually it would be ideal to enhance the creditworthiness of the poor and to make them more ‘bankable’ to financial institutions, enabling them to qualify for long-term credit from the formal sector. Microfinance institutions have a lot to contribute to this by building financial discipline and educating borrowers about investment and repayment regulations. 

For these steps to be practically effective, we need to ultimately ensure that rural women lap up these opportunities and invest instead of finding reasons not to. An effective tool here might be to have a system of checks in place. Only for illustration purposes, let us suppose that the monthly income of a household is Rs. 100. There is a plethora of demands on this income – food security, childcare expenses, utility bills, emergencies, existing debt burden. More often than not, these very demands are cited as reasons to avoid investment. However, allocating all of the income towards spending activity is not a sustainable resort to financial survival.

One can bypass this by mentally segregating their Rs. 100 into three main accounts – Income account, Spend-it account and Invest-it account. This segregation will bear results over the long run. The essence is to prioritize spending items and pay off the high priority calls, but this should not exhaust the income account. Keeping in mind the hand-to-mouth nature of a rural household, let’s consider Rs. 80 has made it to the Spend-it account. Now, a portion of the spare Rs. 20, say Rs. 10, can be retained in the income account for emergency purposes like illness or accidents, while the balance Rs. 10 must make it to the invest-it account. We can trust the power of compounding to inflate our initial Rs. 10 into an amount that might even help the subject finance a portion of his spending through her investments. As a side note, naming these accounts gives them an identity that we would not like to violate – the farm labourer may purchase and consume goat meat but will she eat ‘Ramu the goat’ sitting in her backyard providing her milk each day?

All that is left for us to do now is wait for the power of compounding to work its magic and kick start a virtuous cycle of investment and return. To put this into perspective, compounding helps the investor generate earnings from previous earnings. While it will be characteristic of a rural household to pull out a portion of their periodic return for consumption, reinvesting the spare amount can help create sustainable investment value over the long term. One can find a personal equilibrium between spending and reinvesting so as to maintain the desirable level of liquidity – ideally just enough to get by the month’s demarcated spending commitments and emergencies. The bottom line of all investment is to gain from injecting money into the financial economy. The commission driven world of finance has been deliberately obfuscated for even the urban layperson, let alone disadvantaged rural women. While navigating through the jargon can feel like wading through a marshland, it is high time we de-jargon this market and act with a welfare motive. Managing one’s finances is not a luxury for the rich, it is hygiene for everyone – and if in the process we can bring to the fore a whole gender that deserves the benefits and inclusion, the only question that remains is ‘why not?’

Team

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