Ujjivan Small Finance Bank
Micro Deposits for Financial Inclusion

Ujjivan Small Finance Bank launched the “Enabling Micro Deposit” initiative to solve a core microfinance problem: despite opening many savings accounts, most stayed inactive because customers lacked structured savings methods and regular saving habits. The Bank found that microfinance customers frequently paid EMIs in non-round figures. This caused operational inefficiencies as loose cash needed to be managed. At the same time, customers had few chances or motivations to save small amounts formally in the banking system.

Inspired by the traditional “Gullak” savings culture in Indian households, the Bank launched a new system. EMI repayments were rounded to the nearest hundred. The remaining balance was instantly deposited into the customer’s savings account. The project integrated the Bank’s microfinance systems with the Finacle Core Banking infrastructure. This integration enabled real-time deposits, instant SMS confirmations and seamless operational workflows for field staff.

The initiative generated significant outcomes. Over 25 lakh savings accounts became operative. Average balances among micro deposit customers increased by 29.4 percent versus non-micro deposit customers. Monthly transaction activity doubled. The Bank mobilised over ₹100 crore in deposits while also reducing costs associated with dormant account communication.

India’s financial inclusion journey has successfully expanded access to formal banking systems, particularly among underserved and low-income communities. However, access alone has not ensured active participation in banking. A significant number of savings accounts opened under financial inclusion initiatives gradually became inactive due to limited savings behaviour and a lack of meaningful customer engagement.

Ujjivan Small Finance Bank identified this issue acutely within its microfinance customer segment. Although the Bank opened savings accounts for customers alongside microfinance loans, nearly 80 percent of these accounts became inoperative because customers lacked consistent mechanisms or motivation to save.

The challenge was deeply behavioural as well as operational. Most microfinance customers relied heavily on credit products for financial support but did not perceive themselves as capable of saving, particularly within formal banking systems. Savings were often associated with larger disposable incomes, whereas small denominations and residual cash amounts were considered insignificant.

Operational inefficiencies added to the issue. Loan EMIs were usually not rounded to the nearest whole number. Customers and loan staff had to handle loose change during EMI collections. Loan officers needed to carry a lot of small denominations while managing group collections. This raised complexity and lengthened transaction times.

The Bank also had broader business and operational concerns from inactive accounts. Dormant accounts reduced customer engagement and limited cross-selling. They increased communication costs and weakened customer relationships in the long term.

The “Enabling Micro Deposit” initiative used a simple but highly scalable operational and technological model integrating behavioural finance, digital banking and real-time transaction processing. The key solution was to round EMI payments to the nearest hundred during collections. The rounded-off amount was instantly deposited as a micro-deposit into the customer’s savings account.

For example, if a customer’s EMI amount was ₹1,942, the customer could pay ₹2,000, with ₹58 automatically credited to the savings account. This eliminated the inconvenience of loose cash transactions while simultaneously encouraging savings behaviour.

The Bank combined its microfinance collection system, BR.Net, with the Finacle Core Banking System for real-time deposit processing. Loan officers entered both EMI repayments and savings deposits simultaneously through a unified digital interface.

Real-time SMS notifications were another core feature. Customers received instant messages for both EMI payments and savings deposits. This improved trust, transparency and confidence in the system.

The project was initiated in April 2023 and implemented within a three-month period ending in June 2023. The first phase covered brainstorming and idea development. Leaders saw both operational and behavioural opportunities from non-round EMI transactions. The project team realised that loose change in EMI collections could be turned into systematic savings rather than a hassle.

The second phase focused on technological integration. Ujjivan integrated its loan collection platform with Finacle CBS to enable real-time savings deposits during EMI repayments. UX modifications, collection workflows and customer messaging systems were developed in parallel.

The third phase involved operational redesign and compliance validation. Since the initiative linked loan collections with savings deposits, the Bank had to ensure complete regulatory and statutory compliance while maintaining customer transparency and operational integrity.

The pilot implementation highlighted practical operational issues, including staff workload, customer hesitation and application timeout issues. These were addressed through process refinement, customer education and system optimisation.

The Bank also placed significant emphasis on customer communication. Real-time SMS confirmations became critical for building trust among customers who were initially hesitant to contribute amounts beyond their EMI obligations.

The implementation process encountered several behavioural, technological and operational challenges. The first major challenge involved customer apprehension. Many customers were initially reluctant to pay amounts exceeding their exact EMI obligations, even when the additional amount was a small denomination. Customers initially struggled to perceive the long-term value of incremental micro-savings.

The second challenge involved technological limitations. After the application launch, the system experienced timeout issues due to longer collection processes during group transactions, negatively affecting field efficiency and user experience.

Operationally, staff had to manually record both EMI and savings entries for every customer within group collection centers, increasing interaction time and workload for loan officers. Another important challenge involved ensuring full regulatory compliance while integrating savings collection with loan repayment workflows. The Bank had to design processes that were transparent, customer-consented and operationally auditable.

The project team addressed these challenges through process redesign, staff training, real-time customer communication and continuous application optimisation.

The “Enabling Micro Deposit” initiative generated significant business, operational and social outcomes. The most notable achievement involved activating more than 25 lakh previously inactive savings accounts. This substantially improved customer engagement within the formal banking ecosystem.

Micro deposit customers demonstrated stronger financial behaviour compared to non-micro deposit customers. Average balances among micro deposit customers were 29.4 percent higher, while monthly transaction activity was nearly double.

Digital banking adoption also improved. UPI transaction usage among micro deposit customers increased by 2 percent relative to non-micro deposit customers, indicating stronger integration into digital financial ecosystems.

From a business perspective, the Bank mobilised over ₹100 crore in deposits through the initiative. Additionally, annual maintenance charge collections through Trucell generated over ₹2.5 crore.

Operational efficiency improved substantially. Loan officers no longer needed to carry significant amounts of loose cash and coins during EMI collection, reducing handling complexity and transaction friction. The initiative also reduced dormant account communication costs, generating savings of more than ₹50 lakh.

Perhaps the most meaningful outcome was behavioural transformation among customers. Testimonials collected during implementation reflected growing customer confidence in formal savings practices. One customer explained that small savings accumulated over time helped prepare for medical emergencies, while another acknowledged overcoming the belief that saving was only possible for larger amounts.

The initiative demonstrates how small behavioural interventions can generate large-scale financial inclusion outcomes when supported by appropriate digital infrastructure and customer-centric design. This product has successfully transformed a routine operational inconvenience, handling loose cash during EMI collection, into a scalable savings ecosystem that promotes financial literacy, strengthens banking participation and activates dormant accounts.

This initiative also highlights the importance of behavioural finance within inclusive banking strategies. Rather than relying solely on large financial products or incentives, the Bank leveraged habitual customer behaviour and embedded savings within existing financial routines. By integrating micro-deposits into everyday transactions, Ujjivan has created a low-friction pathway for underserved customers to participate more actively in formal financial systems.