For universal financial inclusion, the first step is to ensure that the unbanked have easy access to formal financial services. In India, the basic network has been largely achieved through the Pradhan Mantri Jan Dhan Yojana (PMJDY). The programme has now moved into the crucial second phase of pushing account usage; this is being done through the rollout of the Jan Suraksha plans of insurance and pension, as well as expansion and consolidation of the Direct Benefits Transfers (DBT) programme. The process of inclusion is a long one and while India has moved ahead on many fronts, there are areas of concern still - a roundup of the past year on financial inclusion initiatives in India can be seen in Sumita Kale's article, Achieving financial inclusion a key matrix (Financial Express, 29th May 2015). The government is acutely aware of the need to raise account usage and keeping the agent network viable and is working on cleaning up many vital operational details. Yet one critical issue that needs to be addressed is the inadequate commission being paid to banks for successful delivery of DBT payments in rural areas. The 1% commission notified by the Finance Ministry in Jan 2015 barely covers the bank's costs, making it difficult to pay Business Correspondents and their agents.
A recent study by MicroSave, How a 1% DBT Commission Could Undermine India's Financial Inclusion Efforts makes the following points:
The success of the PMJDY and DBT hinge on one factor above all: the quality of the last-mile banking agent (Bank Mitr) networks that will disburse DBT payments and enable customers to access their bank accounts.
Bank Mitr networks in India have been weak, with a recent study showing an annual attrition rate of 25-35%. Many have stopped offering services because commission rates for processing government benefit and subsidy payments are too low.
The detailed costing analysis reveals that, at a minimum, it costs banks INR 2.63 to transact INR 100 using the agent network—2.63% of each transaction- the cost was about 0.96% for BCNMs, 0.85% for BCAs, and about 0.82% for banks.
With increased volumes due to the introduction of new schemes, the cost as a percentage of transaction value would decline substantially.
Therefore, the authors of the study, Pawan Bakhshi, Manoj Sharma and Graham A. N. Wright recommend that the government set an adequate rural DBT commission rate, a minimum of 3% for the first few years of PMJDY; this will make the Bank Mitr network more sustainable and will help ensure quality services. Over time, as payment volumes increase and the cost of processing DBT payments decreases, market forces and the bargaining capacity of banks will lead to lower commissions. They also recommend that the government undertake a more detailed costing exercise, making the geographic coverage more representative. Ensuring that the agents at the last mile remain engaged in their business of service delivery efficiently is key to ensuring universal financial inclusion for the country.
Section I: Policy – the latest from India's policymakers
Indian Payments System Kaleidoscope
Shri S. S. Mundra, Deputy Governor, Reserve Bank of India, May 22, 2015
Indian Banking Sector: Emerging Challenges and Way Forward
Shri. G Padmanabhan, Executive Director, RBI, April 3, 2015
Accounts Opened & Rupay Cards Issued Under PMJDY as on 29th April 2015
Rankings & Summary for Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana & Atal Pension Yojana as on 01-06-2015
Card Payments – Relaxation in requirement of Additional Factor of Authentication for small value card present transactions
MGNREGS- Direct Benefit Transfer: Payment of Business Correspondent Charges to the Banks
Section II: News and Views Digest – the latest from India and abroad
Financial inclusion will take time: industry experts
Inclusion and opportunity
Indian banks ignore rural market in spite of financial inclusion buzz
Financial inclusion, financial literacy & role of technology
Financial Inclusion: Infra issues dog Odisha banking drive
The Lifeline to Financial Inclusion
Inclusion begins at home
Rs 411 Cr Mobilised from 5.36 Million PMJDY Accounts
Interactive talk on financial inclusion and development
Post Bank of India: All You Need To Know
India's List of Financial Inclusion Efforts Grows
Can "Behavioural Science" Bell Scheme Design Cat? Insights from Exploratory Research on the Public Distribution System in India
Mobile insurance: How are commercial and distribution models shaping services?
Mobile savings and credit: Riding the rails of mobile money
New infographic on mobile money in Latin America & the Caribbean
Smartphones and Mobile Money: Is the Conventional Wisdom Wrong?
Cocoa Producers in Côte d'Ivoire: Cash vs. Digital
Savings Groups Fuel Digital Design for Smallholders in Rwanda
Four Ways Energy Access Can Propel Financial Inclusion
New Accounts in China Drive Global Financial Inclusion Figures
Five Things Any Youth Savings Program Needs
Mind the Gap: Women and Access to Finance
Which Markets are Ready for Digital Finance Plus?
Can Technology Push Microinsurance Further? 4 Reasons to Say Yes
10 Insights on Financial Inclusion from the 2014 Global Findex
The 'Ripple' Effect: Why an Open Payments Infrastructure Matters
Section III: Research – surveys and studies on expanding access to financial services
Lessons from the Costing Study on BC Networks
Jitendra Balani, Prabir Barooah, Sakshi Chadha, Raj Kumar, MicroSave, May 18, 2015
Mobile financial services in Latin America & the Caribbean: State of play, commercial models, and regulatory approaches
Mireya Almazán and Jennifer Frydrych, GSMA, May 2015
Digital Financial Inclusion: Agenda for India
Policy Brief March 2015
Global Lessons on Partnerships for Financial Inclusion
Policy Brief January 2015
Implementing the Pradhan Mantri Jan-Dhan Yojna
Policy Brief November, 2014
In the media
The last mile in direct benefits transfer
Mint, 01 June 2015
Achieving financial inclusion a key matrix
Financial Express, 29 May 2015
S V Divvaakar: Pay for financial inclusion
Business Standard , 29 April 2015
Direct Benefits Transfers - A short update
Including women- Lessons from Somaliland
Payments Banks and Partnerships