eGov-July-2011-[12-17]-Cover Story-Reaching the Bottom of Pyramid-Dhirendra Pratap Singh

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Reaching the Bottom of Pyramid

Technology driven financial services are enabling those at the bottom of the pyramid to participate in the mainstream economic and social process

By Dhirendra Pratap Singh, eGov Bureau

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n a slum of Dharavi, Mumbai, leather belt maker Mohan Churi is excited about Indian Bank’s entry in the area.

This slum stands right next to the Bandra Kurla complex, Mumbai’s new financial district, a celebration of money in glass and chrome. “A letter of guarantee from Indian Bank, a public sector bank would go a long way in establishing credibility in my business,” he says. Dharavi’s residents cannot open accounts in banks in adjacent boroughs for a variety of reasons: the inability to provide proof of identity or address or both, or provide a letter of guarantee from existing account holders at the branch. The people of Dharavi are cut off from the mainstream.

Likewise in a remote village of Andhra Pradesh, a daily-wage worker no longer needs to travel to the distant bank branch. A business correspondent (BC), a bank-appointed agent who comes to the village with an electronic handheld device connected to the bank, facilitates withdrawal of his money, deposits and other transactions.

Indeed, financial inclusion has become a major policy plank. Government of India has decided to provide essential financial services like savings, credit, micro-insurance and remittance, for all villages with population over 2,000 by March 2012.

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Dial Up, Pay Up : Mobile banking providers offer low-cost banking on mobile

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“Financial Inclusion is an opportunity for the Government to ensure equal prospects to the citizens to partake the fruits of economic development. It is one way of empowering vast masses of poor, illiterate, meek, suppressed, weak, vulnerable citizens with financial lifelines for savings, loans, investment, insurance and social security.

It is a safety valve to diffuse potential social tensions arising out of vast disparity in distribution of wealth,” says R.K. Dubey, Executive Director, Central Bank of India.

Sensing an opportunity, banks, technology providers and microfinance agencies are rushing into partnerships to roll out no-frills accounts, expand the network of Business Correspondents, and launch biometric smart cards, micro ATMs and mobile banking services to drive this mission. It’s not just a social or political objective; financial inclusion will also augment the topline growth of the banks.

RBI studies show that only 54 percent adults in India have a bank account and of the 431

R K Dubey

Alok Agarwal Executive Director, ICICI Lombard General Insurance Company Ltd.

“With robust growth transforming India into one of the leading economies of the world there is an urgent need to include more and more people into the ambit of insurance” districts targeted for achieving 100 percent financial inclusion in 2006, only 204 have been successful.

Concerns on the front of income distribution and poverty alleviation cannot be met without full-scale expansion of banking and other financial services. Indian growth story as impressive, there were concerns on issues like income distribution and poverty alleviation, where lot remained to be done.

Executive Director, Central Bank of India

Social and economic inequalities

“Financial Inclusion is an opportunity for the Government to ensure equal prospects to the citizens to partake the fruits of economic development. It is a safety valve to diffuse potential social tensions arising out of vast disparity in distribution of wealth”

India ranks 119th among 169 countries on the 2010 Human Development Index published by the United Nations Development Programme.

India has issues of water, sanitation, power, infrastructure and environmental degradation.

More importantly, there are issues of social and economic inequalities and multiple deprivations. Inclusive growth is impossible without financial inclusion and successful implementation of government schemes in the Eleventh Five Year Plan would be impossible to achieve, without access to the banking sector. The rationale behind this is that access to finance, along with fair and transparent products and services, is a source of empowerment and allows people to participate more effectively in the economic and social process.

“Currently, more than half of India’s population remains outside the economic mainstream with limited access to risk management solutions namely health and impact of weather in their lives. With robust growth transforming India into one of the leading economies of the world there is an urgent need to include more and more people into the ambit of insurance.

ICICI Lombard is building financial inclusion on the bedrock of insurance by ensuring cost

effective access to relevant risk solutions across rural India”, says Alok Agarwal, Executive Director, ICICI Lombard General Insurance Company Ltd. A number of schemes seek to address issues of livelihood and seek to act as social security nets.

To make these schemes and policy interventions effective, it is important that the common person in general and beneficiaries in particular have access to the banking sector to receive and make payments on their own account.

Technology and Mahatma Gandhi National Rural Employment Gurantee Act (MGNREGA) have combined to boost financial inclusion in rural areas. According to the Ministry of Rural Development, 69 per cent of over `75,000 crore released to the state governments under MGNREGA has been paid to workers through banks.

ICT Based Financial Services Conventional banking models of brick, mortar and men cannot reach out to more than six lakh villages owing to the humongous cost. Adoption of end to end Information, Communication and Technology (ICT) solution alone can make any such a model feasible and viable. Had it not been for the development of cost effective ICT, financial inclusion would have remained a distant dream for us.

The MGNREGA scheme has resulted in the financial inclusion of more than 8.6 crore workers who have opened bank or post office accounts. This success has led banks like Central Bank of India to offer ‘Cent bachat khata’ which can be opened with zero amount. The number of villages covered through this bank’s ICT-based plan has jumped from 127 in 2009 to 598 in 2010. The number of BCs climbed July 2011 / www.egovonline.net / egov

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Inclusive growth is impossible without financial inclusion and successful implementation of government schemes in the Eleventh Five Year Plan would be impossible to achieve, without access to the banking sector from 31 to 180 and smart cards from 4,160 to 77,648.

Central Bank of India is the Nodal Bank for implementing e-Shakti, the flagship project of Government of Bihar, in which ICT based Financial Inclusion solution is adopted to record attendance, calculate wages and make payments to the MGNREGA beneficiaries.

The Bihar Rural Livelihoods Project (BRLP), also known as JEEVIKA, in which the bank’s initiatives have been recognised, strives to build vibrant and bankable women’s community institutions through self help groups (SHGs).

Debit card usage in India has grown rapidly. According to the Reserve Bank of India, the outstanding number of debit cards rose 25 percent, while the volumes transacted jumped 46 percent in 2010-11 compared to the previous year.

UID & Financial Inclusion The government’s Unique Identification (UID) number can provide the identity infrastructure for ensuring financial inclusion across the country – banks can link the unique number to a bank account for every resident, and use

the online identity authentication to allow residents to access the account from anywhere in the country. Thus the project is a fundamental link for widespread financial inclusion in the country.

“The Aadhaar number can be employed in multiple applications, including the PDS and MGNREGS and in banking for the poor. While Aadhaar cannot be a panacea for all the challenges which programmes such as the PDS or MGNREGS currently face. Aadhaar can be leveraged at various points in these programmes to improve the delivery system by making them more transparent, convenient and cost effective,” says R S Sharma, Director General and Mission Director, Unique Identification Authority of India.

The National Payments Corporation of India (NPCI) has kicked-off field trials of its UID based financial inclusion transaction model in Jharkhand.

Till date in the state, about 1.5 lakh bank accounts have been opened through UID and 9.5 lakh people have been included in the Aadhaar project, dedicated to issue UID numbers.

This model allows customers in rural areas

Facts that count •

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In India, 204 of 431 districts targeted have achieved 100 percent financial inclusion Only 54 percent adults in India have a bank account and less than 10 percent of villages benefit from a bank branch 45.9 million or 51.4 percent of farmer households in India do not have access to

Sources: RBI, Ministry of Rural Development

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•

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any kind of credit 69 percent of the ` 75,000 crore MGNREGA grant has reached workers via no-frills bank accounts Only 11 percent of the 25 million no-frills accounts opened between April 2007 and May 2009 are operational Out of the total 74 million no frill accounts opened

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in the country last year, only 3 percent of them are operational Out of the 5,000 new branches that were opened in 2011, only 21 percent are in rural areas, and the number of urban households covered under the no frill accounts are double than that of rural households

to conduct banking transactions with business correspondents of any bank using UID authentication.

Direct Cash Transfer The Unique Identification Authority of India (UIDAI) has suggested direct cash transfer through banks and ATMs to the targeted groups to ‘plug leakages’ in the implementation of direct cash subsidy — a move that is expected to revolutionise the subsidy payment mechanism for LPG cylinder and kerosene oil to the beneficiaries, especially poor sections, and change the fertiliser subsidy payment mechanism to the farmers.

If all goes according to the plan, the government proposes to launch pilot projects for transfer of direct cash subsidy to the targeted groups in seven states – Tamil Nadu, Assam, Maharashtra, Delhi, Rajasthan and Orissa within the next six months.

This is a commendable step towards spelling out the mechanics of the transition from today’s leaky subsidy regime to a system of direct cash subsidies. However, the success of direct cash transfers depends on proper identification of the beneficiaries; an issue that is beyond the jurisdiction of the task force and falls squarely in the government’s domain.

The UIDAI report has suggested creation of an IT-drive ‘Core Subsidy Management System (CSMS)’, which will be able to detect fraud and diversions. Beneficiaries can report malpractices to the government directly, making it possible for the government to react in a timely manner.

RuPay National Payments Corporation of India (NPCI) has also started unique India CardRupay which would be domestic alternative to the global real-time payment processing firms like Visa and MasterCard.

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interview

“ICT has a great role

to play in Implementing financial inclusion”

T.M. Bhasin, Chairman and Managing Director, India Bank

(BC) and so the process needs to be aligned as

information about money and benefits of having

per the requirement and operations need to be

a relationship with a formal banking institu-

carried out by Field BCs. Some of the improve-

tion. The aim should be to build the required

ments that need to be re –engineered in the

long-term trust and ultimately to enlarge the

ICT model are Improving efficiency of internal

‘bancarisation’ of the population.

operations - Improving productivity, quality, speed

used to spearhead the Financial Literacy efforts

precision. Also, by providing value added services

of the bank in rural areas. I strongly opine that,

and enhancements – apart from providing

financial literacy and awareness should be created

basic banking services, facility for making all

in the minds of the children and young population

Reasons contributing financial exclusion should

utility payments like electricity bill, telephone

who are the future potential customers of the

be first analysed and steps should be initiated to

rentals, mobile recharges, shall be offered to the

bank and financial education should be introduced

overcome the obstacles. The nature of exclusion

customers under the ICT model; and getting into

as a part of the school curriculum.

and the factors responsible for it are varied and

new competencies – new innovative projects shall

thus, no single factor could explain the phenom-

be designed based on the requirement of the

enon. Some of the factors are non-availability of

customer type with use of technology.

What are the prerequisites for greater and wider Financial Inclusion?

psychological and cultural barriers, bank charges,

Share your views about the future of e-Banking and mobile banking in India.

terms and conditions, level of income, type of

There are 600,000 unbanked villages in India and only 38 percent of the country’s bank branches are in rural areas.

How can we mitigate the challenges?

In the fast moving environment, spending time

occupation and attractiveness of the product.

Certainly the task is challenging but not impossible.

to visit the bank branches for effecting banking

With the advancement of technology in banking

transactions has considerably come down. Alter-

banking stream is to reach them at their place of

and initiatives provided by RBI and Govt. of India,

natively, channels such as ATM, Internet, mobile

residence or work by providing doorstep banking

banks have started providing banking services in

banking services are picking up steadily apart

through cost effective technology driven model

the unbanked villages through various models. The

from the existing bank branches services. Further,

with suitable and innovative financial products

process has been taken up for more than 73,000

unmanned e-banking lounges are going to occupy

and by imparting financial literacy which will have

villages with population above 2,000 by all banks

a predominant place in future banking scenario.

and the same will be extended to villages having

bank branches nearby, gender issues, age factor, legal identity, limited literacy, lack of awareness among the public & banking habit, place of living,

The only way to include the left over segment to

desired result and can pave the way for greater

Mobile Banking is going to play a vital role in

and wider Financial Inclusion. Unbanked people in

financial development of all sectors in general

urban areas should also be brought under bank-

and poor rural masses in India in particular in the

ingambit for greater and wider Financial Inclusion

days to come without involving any middlemen or incurring transportation cost and man-power

According to you, what kind of re-engineering is needed for effective implementation of ICT in Financial Inclusion?

Information Technology has played a key role in enabling and supporting banking sector’s business

wastage. Mobile Money transfer will certainly improve income level of agriculturists, labourers, small merchants and rural masses like Kenyan Mobile Money Service M-PESA which resulted in 5 to 30 per cent increase in their income level.

population 2,000 and below in a phased manner.

Indian Bank has been allocated with 1512 villages with population more than 2,000 and we have planned to provide banking services in all those villages by March-2012. Besides this it is also planned to cover 40 villages with population 2000 and below by March-2013. Thus banking services will be provided in all the unbanked villages allotted to Indian Bank.

Majority of the villages will be covered through the ICT based smartcard enabled Busi-

Inclusion and to achieve breakthrough results.

Financial illiteracy remains a major stumbling block for the Government’s efforts for inclusion of people. According to you which model should be adopted to avoid such stumbling blocks?

In ICT based Financial Inclusion, the activity

The primary focus of the Financial Inclusion

health insurance will make the Financial Inclusion

centre point is the field Business Correspondent

programme should be on provision of basic

Model further viable and bankable.

initiatives and service delivery and brought about a sea-change in its approach and attitude to challenges.

Business process re-engineering is required for effective implementation of ICT based Financial

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Programmes such as “Swabhimaan” should be

and customer service as well as better business

egov / www.egovonline.net / July 2011

ness Correspondent model which will able to provide online banking facilities like withdrawals, deposits, remittances, credit linkage. Introduction of suitable credit and deposit products depending on the requirement of the rural clientele and providing social security coverage like life and

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R S Sharma Director General & Mission Director, Unique Identification Authority of India (UIDAI)

“The Aadhaar number can be employed in banking for the poor. It can be leveraged to improve the delivery system by making them more transparent and cost effective” RuPay card will have two identification features. The cardholder will have to provide the UID number for biometric identification for using micro-ATMs, while the PIN will be required for transactions via ATMs. The card, which will be given to ‘no frills’ account holders, can be used to withdraw cash from ATMs as well as from micro-ATMs, the hand-held devices with the bank’s business correspondents.

Bank of India will give the first batch of automated teller machines (ATM)-cum-debit cards to Unique Identification (UID) number holders in Pagdha village of Maharashtra’s Thane district. The bank plans to roll out these cards through each of its five sponsored regional rural banks by next month. Corporation Bank and Union Bank of India are next in line to issue the ATM-cum-debit RuPay cards.

field for access,” says Abhishek Sinha, CEO, Eko Financial Services.

The Eko model works on the fundamental premise of giving everyone a bank account. Eko is building a low cost financial services infrastructure to increase the reach of financial institutions to the un-banked and to democratise financial services for the un-banked in urban as well as rural areas: powered by innovation and technology.

Before 1990, the country’s financial industry was mainly one of ‘distributed banking’. Later,

Abhishek Sinha CEO, Eko Financial Services.

Mobile Banking According to a McKinsey report, in a country where more than 65 percent of the population has limited or no access to a bank, one out of two persons owns a mobile phone or a TV. Here, 10,000 people share one bank branch and ATM, but collectively own 5,100 mobile phones. The report says that the one billion number that today represents mobile phone owners in emerging markets without a bank account will grow to 1.7 billion by 2012.

“The communication infrastructure can be utilised by Business Correspondent and Technology Service Providers to allow low cost last-mile access. MNOs have a responsibility to ensure that they extend their infrastructure (SMS/GPRS/ Voice/USSD) to other providers in a fair manner while also competing with them. Owing to a conflict of interest at the MNO, the members of this forum must work to ensure a level playing

“The communication infrastructure can be utilised by Business Correspondent and Technology Service Providers to allow low cost lastmile access”

during 1995-97, technology transformed that structure into a networked one under which branches located in a region were interconnected. The centralised environment appeared in 2000 that, from a single location, consolidated and rationalised everything from sales to products and processes.

“Mobile banking in India has the unstinted support of RBI and its sister organisations. The “bank-led” model proposed has ample flexibility for vendors, merchants and stakeholders to meaningfully participate. With Interbank Mobile Payment System, users have the option to register for a 7-digit Mobile Money Identifier. Senders can remit money in real-time to any receiver with an MMID and a mobile number”, suggests Chandrashekar Rao Kuthyar, Sr Product Line Manager – Finacle Mobile Banking- universal banking solution from Infosys Technologies.

Future Standardisation of Person to Merchant payments will be the next growth phase with services such as Mobile Pre-Paid Top-up, DTH top-up, Cinema Ticketing, Airline/Train/Bus Ticketing and Toll Payment included within Mobile Banking. Virtual Wallets will be new instruments facilitating payments. Cardless ATM transactions would be another service. With smart phones, native phone capabilities can be leveraged to improve customer experience. For example, utility Bill Companies may introduce QR codes to facilitate reduced data entry on mobile phones. The industry is moving towards Relationship based, Personalised and Context-Aware banking.

“Financial Inclusion ought to provide an opportunity to participate in the growth of economy and getting benefited from the growing money and capital markets and not merely having an access to banking services. The supply driven Business Correspondent model and the no frill bank accounts for the working poor fail to apprise its utility and potential to the target audience and hence the demand and ownership remains latent”, says Dr Kavim V Bhatnagar, Invest India Economic Foundation.

As a nation India will have to decide its priorities and accordingly plan where the government should focus its energies. It should be on ensuring greater access to rudimentary financial products like a bank account, life insurance and pension to larger numbers of Indians. If inclusive growth is the leitmotif for sustainable development there is no doubt which must take precedence. It is financial inclusion.

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