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In Brief

For people with low and irregular incomes, or who live far from any bank branch, having a bank account is a distant dream. They must often turn to local moneylenders for loans, often at extortionate rates. India’s government responded with a program to give financially marginalized people a no-frills bank account, and 177 million signed up in a year. 


Yet half of these beneficiaries left their accounts dormant, with almost no money in them. Why didn’t they take advantage of what seemed a great offer?

When we were asked to investigate, we found that people prized the assurance of a loan from a local lender over the bureaucracy and uncertainty of a bank. Chronic financial scarcity left them unable to expend mental and emotional energy on unfamiliar financial products, or to plan for the longer term.


These insights led us to propose products that would speak to the needs and emotions of the financially excluded, and prompt them to take fuller advantage of these products to reach their financial goals.


Bill & Melinda Gates Foundation






Economic Empowerment

If you build it, will they come? 

Expertise has its risks. One of them is the assumption that the things we know to be true will be readily accepted by others if explained to them. With the best of intentions, donors, policymakers, and implementers offer programs that they believe will benefit people, and which are carefully designed to improve on what is already available. Just explain the new service or product, and people will see that it’s superior and start using it. 

There is often disappointment and bafflement when the intended beneficiaries don’t take up the offer, or fail to make full use of the service. Why don’t they recognize the improvement and take advantage of it? The answer often lies in a gap between what programmers perceive as the beneficiaries’ needs and challenges, and what those actually are. Final Mile’s approach of understanding what drives behaviors, and identifying levers to change them, can help bridge this critical gap.


Understanding what drives behaviors, and identifying levers to change them, can bridge the gap between a program’s intention and its impact

A popular program – but a successful one?  

In 2015, Final Mile was approached by the Centre for Digital Financial Inclusion (CDFI), an organization in Delhi that was working with the Government of India to improve how beneficiaries of a new financial inclusion program used their recently opened bank accounts. Pradhan Mantri Jan Dhan Yojana (or PMJDY, the Prime Minister’s People’s Wealth Scheme), launched by the government a year earlier, had rapidly become the biggest financial inclusion effort in the world. More than 177 million no-frills bank accounts had been opened, mostly by previously unbanked and financially marginalized populations. 


Financial inclusion is an urgent issue in many countries. If people don’t have access to the formal banking system – because there are no bank branches where they live, they don’t meet the criteria for opening an account, or fees are too high – they are at an economic disadvantage. Without an account, it can be hard to save, or to take out loans to invest in a business, buy a home, pay for a wedding, or cope with unexpected medical expenses. People are forced instead to turn to local moneylenders, whose interest rates can be punishingly high.   


PMJDY was designed to make it easy for people to enter the formal banking system. The problem was that although uptake had been huge, around 50% of the new bank accounts remained dormant after the first year, with an average balance of just 1,277 Indian rupees (US$19). CDFI asked Final Mile to conduct behavioral research to understand the goals, motivations, and barriers of PMJDY account holders, and to look at how the program communicated with them.

More than 177 million new bank accounts were opened, but after a year, 50% of them lay dormant 

We started by reviewing the academic literature on the topic and talking to the designers of the PMJDY program. We found that research into savings among low-income groups has largely ignored the causes for their low engagement with formal financial sources. Engagement gaps tend to be brushed aside as a problem of access, or the result of financial illiteracy. The PMJDY scheme had solved the access issue by making it easy for people to sign up for a bank account, and to deposit and retrieve their funds. The program designers therefore assumed that a financial literacy campaign would drive engagement with the program – but it hadn’t worked. Many accounts sat unused, and with very little money in them.   

Building an initial picture

To better understand the context, motivations, and barriers of PMJDY beneficiaries in engaging with banks, we conducted a preliminary round of home visits and in-depth interviews with account holders in different regions of India, both urban and rural. This was the “Immersion” phase of our research, and its goal was not to come up with solutions, but to clarify the questions that needed to be asked about what beneficiaries were looking for, and to form hypotheses about the kind of messaging that might engage them more successfully. We would then test those hypotheses in a second, more extensive phase of research.


From our Immersion interviews with around 60 beneficiaries, we learned that contrary to what was implied by traditional research, most of them were quite financially aware. Perhaps this ought not to have been a surprise: those with very little money have no choice but to be hyperconscious of their financial circumstances and the consequences of every expenditure – whether it is planned, spontaneous, or unforeseen. 

People with little money to save nevertheless understand the principles of financial engagement


Most of the people we spoke to made use of local, informal financial channels, especially for borrowing. Such arrangements provided their only access to funds beyond the money they earned themselves. Yet interest rates on these informal loans were often excessive, and the same channels even charged fees for long-term savings deposits. On the face of it, this ought to have made a PMJDY bank account appealing. Our interviewees had indeed intended to deposit savings into their accounts, but they found it hard to generate any surplus for saving from their limited household budgets. 

These initial findings pointed to new questions to investigate. If beneficiaries had intended to save and could afford to pay the high costs of the informal schemes they used, why were they ultimately unable to save? And if they regularly needed loans, why did they not use their PMJDY account to borrow from the bank, which offered a considerably more favorable interest rate? 

Digging deeper

We investigated these topics in a second phase of qualitative research, using our proprietary decision simulation game, EthnoLab. Almost 750 PMJDY account-holders participated, again recruited from rural and urban areas in different regions of the country, from Madurai in the south to Guwahati in the north-east. The game tested different behavioral scenarios about savings, loans, and interactions with the formal banking system. We conducted group discussions with about 350 of the participants to probe their responses to the game in depth. From our research, a more nuanced picture arose of the motivations and barriers driving the participants’ behaviors regarding the new bank accounts.


We learned that most participants were in debt – owing on average around 32,000 rupees, or 2.7 times their average savings of 11,800 rupees. Servicing loans from informal lenders, whose interest rates could run as high as 10% a month for an unsecured loan, took up a large portion of participants’ income, leaving them with little or nothing left over to save. 

Why then did banks not appear as an attractive option for getting a loan? First, participants didn’t think that banks would offer small loans to people like them – in their minds, banks were only in the business of making large loans. By contrast, local informal lenders would give them exactly what they needed. Second, the banking system was still unfamiliar to them, and they worried they wouldn’t be able to cope with bureaucratic procedures or the complex paperwork required for loans. On the other hand, the informal system was familiar and they could be confident about rapidly securing a loan. 


Local informal financial channels offered reliability and familiarity; banks seemed distant and daunting

One of the reasons for this confidence is that people borrowing through the informal system have often done so multiple times before, and they tend to repay on time – because they know they are likely to need to rely on another loan in the future. This gives them the assurance to ask for loans, and the discipline to make regular repayments, even at high interest rates – which ought to make them ideal candidates for loans through the formal banking system.


So why did people open bank accounts but make so little use of them? Participants said that they took the accounts in the hope of receiving government benefits through the PMJDY, and also with the intention of saving money. Although most had not received benefits, they had reconciled themselves to the disappointment. Even so, the intention-action gap was wide.


The answer lay in what the EthnoLab and our group discussions revealed about the context of participants’ lives. Living in a state of chronic financial scarcity creates a focus on making ends meet in the present. This “tunnel vision” on past and present losses and unmet desires prevents people from making financial goals and plans for the future. The need to exercise continuous financial self-discipline and to compromise on basic needs and desires is psychologically exhausting. It gradually wears away people’s self-control. If a surplus does arise, they may spend impulsively – even on something as straightforward as a nicer brand of tea – rather than setting aside the extra money as savings. 

Chronic financial scarcity prevents people from looking beyond their immediate financial needs to future plans


This mindset has two important consequences. First, people see affordability purely in terms of their ability to borrow: the question they ask themselves is not, “Is the interest rate on this loan too high?” but rather, “Can I simply manage to make the repayments?” – even if those repayments will leave them without any money left over to save. Second, the intuitive awareness of the problem of impulse spending leads people to deposit their savings in long-term schemes offered by informal lenders – but these charge substantial fees for the “privilege” of doing so.

Even when the problem of physical access to a bank account was removed by a scheme such as the PMJDY, participants remained unfamiliar with banking procedures, and worried that they would not be eligible for loans. They perceived the emotional cost of interacting with the bank to be high. Sticking with their familiar local, informal channels to borrow and save money seemed like the best bet.

Reframing banking from the users’ perspective 

Based on these findings, we recommended that the financial products and services offered under the PMJDY be redesigned. The existing offerings largely replicated the products that wealthier people used, simply at lower cost or for free. They did not address the needs and challenges of people living in the context of chronic scarcity. Indeed, the new services were less convenient than the ones already available to users through informal financial channels.

We identified several behavioral levers to motivate PMJDY beneficiaries to engage more fully with the scheme. The first was to activate the user’s “future self” – a psychological orientation toward planning, delayed gratification, and self-control, rather than a focus on the present and an emotional impulsiveness to spend surplus funds. The second was to make financial goals vivid and emotionally powerful, in the same way that immediate financial needs were. The third was to reduce the psychological barriers that led account holders to disengage from banks and rationalize their use of more expensive informal channels.

We recommended several key features for new PMJDY offerings. First, savings products could be repackaged to be more relevant to customers’ specific short-term or long-term goals, such as children’s school fees, a wedding, or building a house, with a separate product for each. Second, government benefits and subsidies could be channeled automatically into savings and insurance plans, with an opt-out option, to help customers not to withdraw those funds to spend on immediate small pleasures. Third, customers’ credit lines could increase based on the successful repayment of loans, and borrowings and savings could be linked so that savings would act as collateral for loans and loan repayments would contribute to savings. Finally, instead of communicating about financial literacy – which was unnecessary since most customers already understood why they should manage their money – the program should focus on process literacy, so that account holders would understand how to engage with banks for deposits, withdrawals, loans, and insurance. 

Communications need to shift from financial literacy to process literacy

We developed design briefs for programmers to develop new product concepts and communication materials based on our recommendations. CDFI piloted these and submitted the results and final recommendations to the Government of India, which scaled these up to benefit millions of PMJDY account holders.

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