Remittances - an unmet need of the poor

Posted on April 29, 2014 by Sumita Kale

With many migrants moving across the country in search of a livelihood, one of their unmet needs is access to cheap, secure and efficient remittance servicesThis is a challenge that all countries are facing and within India the issue is of concern too, given that the government and the RBI have taken up financial inclusion on mission mode over the past few yearsHowever, even though it is well known that remittances make up a large segment, data based studies are few and far, focusing mostly on specific corridors.  NCAER has recently released a report on its national survey looking at remote payments. The study brings out new insights into the remittances market in India.

"The study based on one of the largest surveys conducted in the country, covering approximately 100,000 households is one of few of its kind that provides an exhaustive account of various facets of the remittances market in the countryThe domestic remittances market is literally largeAbout 1.15 crore households (11.5 million) received remittances totalling Rupees 49501 crore (495 billion) during the financial year 2010–11The data does lend credence to the widely held perception that the bulk of migrants belong to the low income states of Bihar and Uttar PradeshAnd these two states together account for a lion’s share of the total remittance market in the country.

While it is well known that the market is large, what is not usually spoken about is that remittances are not just for poor households, higher income households also receive money transfers on a regular basisInterestingly, many of those who had access to the formal financial sector chose to use informal channels to send money home, primarily because of the ease of receiving the funds as in delivery of the cash at homeThe post office which is a formal channel that also gives door delivery is not one of the favoured options due to comparatively higher charges. Even though the mobile phone has deeper penetration than banking, customers are less likely to use this as a channel, given the lack of familiarity with new modesA lot has to be done to raise awareness and of course, more needs to be done to create appropriate products that suit the customers in this marketWhat comes out of the study is that the use of formal channels is correlated with the socio-economic profile of the chief wage earner of the households - the more educated, the more the financial literacy and use of formal channels.

The study also reinforces the point that for approximately two-thirds of households, income from remittances is a major source of household income - the importance of remittances in maintaining household consumption and in preventing families from sliding down into poverty cannot be overstated.

When it comes to estimating costs, the study notes that, The average fees paid as a percentage of the amount transacted was estimated to be 0.7 per cent for households sending remittances at the national level, while similar estimate for those receiving remittances was observed to be 0.6 per centThe latter estimate reflects the costs incurred by the households in accessing the remittances The study also documents wide variations across states, with Punjab, Bihar, Orissa, and Jharkhand reporting the highest costs incurred while sending and while receiving remittances.

While remittance providers tend to focus on the states of UP and Bihar as dominant markets, it appears that in the other states as well, more competition that drives down costs will go a long way in improving the lives of the poor across the country.


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Fixing the Aadhaar-DBT link

Posted on April 09, 2014 by Sumita Kale

While Aadhaar-enabled DBT has been suspended by the UPA government, the problems that need to be addressed lie in the implementation of the programme (See earlier post)It must be kept in mind that even as the government was quick to impose Aadhaar on its DBT, numerous gaps plagued the process, for instance establishing statutory legitimacy of the UIDAI; articulating the roles of banks and non-banks and the limits of jurisdiction by banking and other regulators; affixing the onus of responsibilities in a bank-led model of financial inclusion; and lastly, defining the commercial model for implementation.

The Congress manifesto accepts Aadhaar, but does not push for Aadhar-enabled DBTCurrently, the Aadhaar end of financial inclusion is set: infrastructure and payment bridges and protocols are ready, and have been tested.  However, the other critical pieces have not been put in place, especially the cleaning, de-duplication and mapping of numerous beneficiary databases with Aadhaar, a task that must be done by the government departmentsThe challenges listed below need attention, so that Aadhaar-enabled DBT can resume effectively and efficiently.

The first step needs to be to recognise the UID as a primary identity document, and accord one institution - whether the UIDAI or any new entity that combines the NPR and UIDAI -  status as an independent statutory institution and allocate resources under the Consolidated Fund of India.

The UIDAI should have complete and exclusive accountability over the personal and biometric data capture and processing, which must not be outsourced to private parties, drawing lessons from the Passport OfficeOver time, the Passport Office and Aadhaar number can even be issued by one authority.

The core function of the UIDAI is to collect and archive personal information in safe and encrypted form and issue the UID to any applicantThe UID number is one among several documents to identify a natural person.

Aadhaar online authentication for commercial/ financial transactions is different from the core function of issuance and verification of an Aadhaar numberAadhaar verification must not be made compulsory or the sole/ exclusive source of identity to access services or benefits provided by government institutions.

For real time, online authentication of the Aadhaar number, the role and scope of UIDAI service should be limited to answering session-based queries real time returning a binary True/False result, without any obligation or power to share any personal data.

Authentication service charges should be session-based, with tariffs based on a normative cost-recovery and reasonable profit principles to ensure sustainability and adequate information security standards.

UIDAI should be liable for any financial losses or damages arising from false positive identification on the UIDAI database against an authentication queryThe liabilities should be covered by appropriate insurance and reinsurance on the lines of other banking and financial institutions.

The cleaning and de-duplication of the beneficiary databases under all schemes need to be accelerated and seeded with the identity numbers, irrespective of whether Aadhaar is used for verification.

There is a lot to be done, and a government committed to reducing corruption and leakages in the subsidy process can use the Aadhaar infrastructure, provided the gaps mentioned above are addressedThe key lies in bringing all stakeholders on board before the programme rolls out again, the question is whether the next government can pull this off.


This post draws on insights given by S V Divvaakar and Laveesh Bhandari.

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