MONTHLY ARCHIVES: MAY, 2015
The Indian government's commitment to using electronic transfers of subsidies or DBT (Direct Benefit Transfers) has received a huge boost over the past yearWhile the previous government's Swabhimaan mission, started in 2011 for expanding financial services to unbanked areas, had been moving along slowly, the DBT payouts had hit a hitch in 2013 with the Supreme Court restricting the use of Aadhaar for receiving benefitsWhen the NDA government took charge in May 2014, there were doubts that it would continue what was essentially seen as the game changer from the UPA governmentHowever, to the credit of the NDA government, it has continued the DBT policy, pushed on with Aadhaar and worked hard at fixing the many operational glitches in the existing DBT payout process and expanding DBT coverage.
To begin with the Pradhan Mantri Jan Dhan Yojana aimed at 100% coverage of households with banking services - the country was divided into 1, 25,000 SubService Areas, with a fixed point Business Correspondent Agent - the idea being that a villager should walk maximum 5km to avail banking servicesThe programme achieved its target well before the 26th January 2015 deadlineNow the focus within the Department of Financial Services is on keeping a regular track of trends in crucial indicators such as zero balance accounts, active business correspondent agents and the number getting the minimum remuneration prescribed under the PMJDY scheme.
To overcome the restriction on mandating Aadhar number for any government benefit, under the modified DBTL or PAHAL scheme, consumers were allowed to provide a bank account for receiving LPG subsidy.
In December 2014, the initial 27 schemes under DBT were extended beyond their allotted 121 districts to the entire country 7 more scholarship schemes were added.
MGNREGS was added to the DBT platform in 300 districts. Next to the DBT-LPG or PAHAL, this is the biggest direct transfer being planned.
All Central Sector and Centrally Sponsored Schemes under DBT have a deadline set of ensuring payments directly into the beneficiary account only by electronic transfers starting this month; the targets set are to complete digitization of their beneficiary lists by March-end and populate the list with the Aadhaar number by June 30
But one critical issue as flagged in the March Indicus Policy Brief remains unaddressed, and that is the commercial viability of the agent network at the last mile.
Surveys by CGAP-CAB and MicroSave have shown a high levels of dormancy and attrition in agents, a problem that has been recognised by the RBI as well as the Finance MinistryRBI's response has been to urge banks to see the business case in financial inclusion and invest in their agents for long term benefitsThe Finance Ministry has a powerful tool in its hand to bring commercial viability for the agents, and that lies in the commissions it gives on DBT payments.
An excellent improvement in the current scheme over the previous dispensation is that the commission charges are being paid to the bank on credit of the amount to the beneficiary account - earlier the commission was to be paid only on withdrawal of the benefit by the beneficiaryThis was a huge pain point for the banks, who had been insisting that their part of delivery of service needed to be rewarded and should not be dependent on whether the beneficiary withdraws the money or notIn fact, insisting on withdrawal defeated the purpose of encouraging savings in banks and pushed a cash economy insteadWhile this may seem a small change operationally, it is a big plus point for the banks - who can now use the commission as soon as it reaches them, to invest in their BC network at the last mile.
Unfortunately, while keeping the agent network viable should be the topmost priority – the Report of the Task Force on an Aadhaar-Enabled Unified Payment Infrastructure had recommended 3.14% – the ground reality is that the government pays an inadequate commission to banks for successful delivery of DBT payments in rural areasThe 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.
What is most surprising is that the government has clearly understood the need for higher payouts to banks and BCs, the split of the Rs330 annual premium is also mentioned in the Jan-Suraksha plans - Rs30 to the BC/Micro/Corporate agent, Rs11 to the participating bank and the remainder RsRs.289 to LIC/insurance companyThis works out to approximately 10% commission to the agents.
It is for the Finance Ministry now to a) recognise this principle of greater commissions in DBT as well, and increase the commission in rural areas to at least 2.5%; b) work out with the Indian Banks Association and Business Correspondents Federation of India specific guidelines of revenue sharing between banks and BC agentsThe ultimate aim is to ensure that the last mile remains commercially viable.
Making these 'small' changes will lead to the big impact that PMJDY and Jan Suraksha are aiming atOf course, universal financial inclusion is a long way ahead for IndiaNot only does the government have to ensure that the banking system reaches the last mile, there has to be substantial work at the grassroots level to make villagers aware of the utility of bankingHere the banks and the government must adopt a more customer centric approach to creating the right products and services (See this post by Graham Wright, MicroSave), the civil society has a responsibility in raising financial literacy and awareness of basic banking.
For now, the good part is that the present government is listening to the feedback from the banks and moving in the right direction.
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Women form a large segment of the unbanked, as in many cases society norms keep them from having control over money, and accessing bank accountsThe position in India is no different, especially in northern states, where women are least likely to be educated, free to move around outside their limited networksThe latest Global Findex Report for 2014 shows this disparity - account penetration for males has gone up from 43.73% in 2011 to 62.47% in 2014 while for women, the percentage has risen from 26.49% in 2011 to 42.64% in 2014The disparity shows in each and every parameter of inclusion e.gwhile 17% of males had used a debit card in the past year, just 3.25% of women had done so.
The fact that access to accounts leads to empowerment is clear to all governments, yet the special needs of this segment remain un-addressedExperiences narrated by Leora Klapper (lead economist at the World Bank and an author of the Findex Report) from Bangladesh and Ghana would resonate with all Indian women (See New Yorker, April 15, 2015)One of the biggest challenges is taking the financial service to the doorstep of these women and here, mobile money operators have had some good results.
Take Telesom in Somaliland that has almost doubled its penetration amongst women over the past four yearsTrue, India is not Somaliland and we follow the bank-led modelYet there are some basic lessons that India can take from Telesom's experiences.
As explained in this blog post by Elisa Minischetti and Claire Scharwatt one of the first things that Telesom did was to recruit more female agentsThis not only increased the comfort level for women customers, but also raised the sense of reliability amongst male customersIn India, banking agents are predominantly male - as the CGAP-CAB survey showed, just 13% of agents were women in 2013.
Further, Telesom's marketing campaign focused on women - advertisements that showed the convenience of the service for womenIn India, advertisements are still few and far between.
Telesom is using the transactions data through a gender lens to finetune the services offered to womenIn India, data is still not available through a gender lens on so many parameters.
In India of course, the struggle is still on to find the business case and making service delivery viableUnless the picture changes and banks focus on customer-centred products and services, women will continue to lag behind in the county.
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