Using electronic payments for social transfers - lessons from Andhra Pradesh

Posted on December 27, 2013 by Sumita Kale

When it comes to using electronic payments for government benefits, Andhra Pradesh has been leading India in effectively disbursing these transfers, now they have moved to integrating electronic disbursements with the Aadhaar AVV Prasad, Additional Comissioner Rural Development Department, Government of Andhra Pradesh has put down the potential here for the whole country, estimating a total saving of Rs140000 crores annually just to central and state governments from making the switchIn addition to this, is the added revenue to the banks for providing this service, and additional benefits of extended banking services, once the unbanked are familiar with the digital transactions networkUnfortunately, as he points out, with lack of clarity on roles and responsibilities of stakeholders, there is large scale uncertainty and no clear business case for anyone.

At the policy level, he lists the key issues as addressing the lack of clarity in compensation amongst various stakeholders, risk of wrong authentication by false acceptance, new law needed to cover issues of biometric enrolment, data storage and privacy etcThe sooner these issues are addressed, the faster we can get to optimising the potential that exists in inclusion through electronic payments.

Meanwhile on the ground in Andhra Pradhesh, CGAP conducted a study this year to understand how the current system of electronic payment of social benefits impacts the lives of poor beneficiaries, the agents who complete the transactions, and the banks who are disbursing fundsIn addition, researchers also looked at the potential impact that a full roll-out of the Aadhaar system could have in the already largely electronic payment system of Andhra Pradesh.

The main findings of the research were that :  while there are no banking regulations that prevent the electronic payments from being used to promote financial inclusion, there are design elements in the program that act as barriers and prevent electronic payments from linking beneficiaries with additional financial services.

In order to overcome these challenges, the CGAP team makes several recommendations:

  • Improve the business case for banks by increasing their commission from 2% to 3% (up to 3.5% in tribal areas).
  • Improve the business case for agents by giving them a 1% commission on transactions, allow them to carry out other kinds of transactions, and stagger payments throughout the month to make the agent’s role less stressful.
  • Improve the user experience by removing the full disbursement mandate so that recipients can leave small value deposits in their accounts and by allowing customers to access diverse financial services at agent transaction points.
  • Focus on clear and consistent communication with recipients so that they better understand what the account is and the functionality it offers.

More details of the study can be seen here


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"World Bank Reboot and Implications for Financial Inclusion": Post by Deepak Maheshwari

Posted on December 16, 2013 by Sumita Kale

The World Bank’s new mantra is to end extreme poverty and promote shared prosperityand use of technology and open development is an integral part of the strategy to realize this vision.

Considering that financial inclusion is vital to reducing poverty, it is encouraging to see that the World Bank President Jim Yong Kim gave a clarion call in October 2013 to realize the goal of universal financial inclusion by 2020.

So, what would it take to make it happen? What are the key ingredients? Who are the key stakeholders – what are they expected to do? What are the fault lines that we need to watch out for?

  • E-money accounts and low-cost accounts are required but their usage would happen only when the transaction friction is significantly reducedCash and e-money need to become fungible anytime, anywhere and at extremely low-costRegulation also needs to be simplified and become enabling and inclusive rather than disabling and exclusive.
  • Mobile and biometrics should be leveraged; mobile connection can be linked to e-money account and biometric can provide unique identification
  • Governments have to play triple role – policymaker & regulator; proprietor of public sector banks and last but not the least, as an anchor payer and payee
  • Private sector has to contribute with innovative technology and investments but perhaps more importantly, innovative business models but would need predictable and consistent regulation

    • Banks and other financial institutions to develop, offer and modify suitable products and services
    • Telecom operators and other technology providers to bring in low-cost but workable solutions
    • Intermediaries like business correspondents and business facilitators need to step in with
    • Merchants seeing value in accepting e-money transactions
    • Civil society, academia and think-tanks to provide to and fro linkages, insights, analysis and localized customization
    • Shared learning and targeted support by multilateral organizations like the World Bank
    • And last but not the least, the financially excluded people who repose their faith and trust to put  hard-earned money in and through the formal electronic channels and instruments

No doubt, the goal of universal financial inclusion by 2020 is a Big Hairy Audacious Goal (BHAG) but it is only when energies and efforts of all the stakeholders are aligned, extra-ordinary things do happen!

Let’s all join hands and march ahead.


Deepak Maheshwari, a public policy professional, is currently associated with the ICFI as Advisor

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TRAI’s recommendations for financial inclusion

Posted on December 02, 2013 by Sumita Kale

On 26th November the Indian telecom regulatory authority TRAI made some significant announcements via – "The Mobile Banking (Quality of Service) (Amendment) regulations, 2013 and the Telecommunication tariff (fifty sixth amendment) order, 2013, to further the coverage and effectiveness of mobile banking in India.

Given the fact that there exist around 35 crore mobile subscribers in rural India coupled with endemic financial exclusion of this section of population, banking services through mobile presents great opportunity to achieve universal financial inclusion goalKeeping in mind this huge pent up demand for financial services in India, in April 2010, a framework for delivery of basic financial services was proposed by Inter-Ministerial Group (IMG)In this framework it was envisaged that ‘no frills’ accounts to be operated using mobile phones; which would enable customers to perform five basic transactions- cash deposit, cash withdrawal, balance enquiry, transfer of money from one mobile linked account to another, and transfer of money from regular bank account to a mobile linked accountWhile mobile banking and payments have picked up to some extent, there has been considerable deadlock on certain issues between the banks and telcos, especially on the use of USSD channelIn order to bring out the potential of mobile banking, TRAI charted out its recommendations, after taking into account the comments and views of all the stakeholders of this ecosystemSome of the important recommendations and conclusions are:

1)      USSD is ubiquitous, inexpensive, secure and convenient channel, therefore an apt mode for promoting mobile banking services for financial inclusion.

2)      Telecom service providers should collect charges from their subscribers for providing the USSD channel for the delivery of basic banking services via mobile phones.

3)      The ceiling tariff for an outgoing USSD session for USSD-based mobile banking services should be Rs 1.50/USSD session.

4)      Every telecom service provider, who acts as a bearer should facilitate not only the banks but also the authorized agents of banks to use SMS, USSD and IVR for the provision of banking services to the bank’s customers.

5)      Access providers should ensure that in case of SMS being used for mobile banking transactions, a report confirming the delivery of sms is sent to the customer or the bank as the case may beAnd wherever possible, through mutual agreement with banks, service providers should put in place a system that triggers USSD communication confirming completion of a transaction when SMS sent by the bank to customer is not delivered.

6)      Access providers should ensure that for availing the banking services such as cash deposit, cash withdrawal, money transfer and balance enquiry, the customer is able to complete the transaction in not more than five stage transmission of message in the case of SMS or not more than five stage entry of options in the case of USSD and IVR.

7)      The access provider should meet the following time frame for delivery of the messages generated by the customer or the bank or its agent relating to banking services provided to the customers.


Means of Communication

Time frame



Response time <=10 seconds



Response time <=2 seconds



Response time <=10 seconds



Response time <=10 seconds



Response time <=10 seconds

8)      Security of m-banking communications: Access providers should protect the privacy and security of m-banking communication and ensure the confidentiality of end-to-end encryption, integrity, authentication and non repudiation of such communicationSuch protection should be in line with the standards certified by International Telecommunication Union (ITU) or European Telecommunications Standards Institute (ETSI) or Telecommunication Engineering Centre (TEC) or international standardization bodies such as Third Generation Partnership Project (3GPP) or Third Generation Partnership Project 2 (3GPP2) or Internet Engineering Task Force (IETF) or American National Standards Institute (ANSI) or Telecommunications Industry Association (TIA) or Interim Standard (IS) or any other international standard as may be approved by the central government.

The Mobile Banking (Quality of Service) (Amendment) Regulations, 2013 came into force with immediate effect and the Telecommunication Tariff (Fifth Sixth Amendment) Order will come into force on 1st January 2014The Indian telecom authority expects that the recommendations laid out in the aforementioned regulations and order will not only speed up but also deepen the process of financial inclusion in India.

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