"Over-borrowing: Common to US, Bosnia- Herzegovina, India and the US?": Deepak Maheshwari

Posted on November 27, 2013 by Sumita Kale

According to the World Bank’s Global Financial Development Report (released in November 2013 with ‘Financial Inclusion’ as its theme) these were examples of oversupply of credit coupled with lax due diligence to establish creditworthiness.

The US story is well-chronicled and the micro-finance institutions were in the eye of the storm in Bosnia- Herzegovina just like India though there were nuanced differences.

In case of easy credit availability, it is but natural for many borrowers to take out an additional loan to pay up an earlier one as long as there is someone else willingly extending the creditUsually, there is little concern as long as the going is good.

However, when the tide does recede, as it must, bailouts and over-zealous regulations are the usual prescriptions in the name of ‘public policy’ notwithstanding that either way the costs to the economy are humungous.

However, the biggest casualty is the trust and at times, a pervert incentive imbues weakening the repayment discipline and rhythm even furtherWhat can be done by the regulators to mitigate such problems?

Orderly growth and development is often an avowed objective of the regulation but often they also need to both encourage and engender development and deployment of disruptive innovations.

Obviously, a regulator’s job is not an easy one!

Still, if the regulation is based on the first principles and there is continuous and close monitoring in real-time, the regulator can indeed pick up early warning signals and if acted upon timely, can save the crisis.

More importantly, such prudent regulation helps sustain the ecosystem by balancing the interests of borrowers and lendersThese loans are no longer examples of political patronage.

Credit under such conditions actually boosts ‘swabhimaan’ (self-confidence) of the borrower and the propensity of the lender to extend credit to deserving cases is also enhanced due to better and timely repayment.


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

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"Financial Inclusion – A Pre-Requisite As Well As An Enabler for Direct Benefit Transfer": Deepak Maheshwari

Posted on November 20, 2013 by Sumita Kale

If the majority of the population is entitled to receive at least one Direct Benefit Transfer (DBT) payment, isn’t it a dichotomy that the financially included population in India is actually in minority?

While this contrast is not surprising to most Indians, it does need urgent resolutionWhat does it take to make DBT happen? Well, the recipient needs to have an account with a formal financial institution, the beneficiary needs a unique identity to mitigate the problem of the ghost identities who may partake of the benefit and lastly, the government agency needs to have funds to disburse and have some objective criteria to enable implementation of the scheme.

Now, UIDAI has perfected the model of enrolling a million people a day, notwithstanding cases of chairs and trees being issued the Aadhaar numberGovernment agencies do have a way of spending the money for welfare schemes in most cases through there are instances of undisbursed money making its way back to the exchequer and in several cases, the actual spending going way beyond and above the budgeted amount.

However, most beneficiaries still do not have a (bank) account and the Aadhaar number may not be seeded with the bank account even for those who actually have one.

Seen from this perspective, financial inclusion in the form of having some sort of account with a formal financial institute is a pre-requisiteOtherwise, where would the DBT payment go? So, while financial inclusion is definitely a pre-requisite for DBT, can it also enable DBT to actually succeed in the long run?

It is well-documented that having brick and mortar branch in every village and every locality (even in urban and semi-urban areas) is just not viable – not even its miniaturised version called the USB (Ultra-Small Branch)The capital as well as operating expenditure does not justify the business prospects in most such situationsThis is where ICT enabled business correspondents come in but they also have huge costs for servicing the remote clients and given the small ticket size and cash disbursal (cash-out) being the main activity when it comes to DBT, it is estimated that they need compensation of around 3% just to break even.

Since the account related charges are mostly not passed on the account-holders, initiatives like no-frills account and basic savings bank deposit account (BSBDA) have had limited success, most of them lying dormant and almost bereft of any balanceDue to the limited float through such accounts the banks often find it difficult to even recover account residency costs and hence, remain either sceptical or reluctant or both.

This is where cash-in cash-out (CICO) can play an important roleIf the beneficiary has easy and anywhere-anytime access to the balance in the account, he or she may not be averse to leaving at least some money therePeople can and do pay for CICO services provided these are easy to use and trustworthyOn the other hand, the service provider has reduced cost of cash handling and can build a viable business by converting physical cash into electronic money and vice-versaThis additional revenue stream may complement the service fee paid to the BC by the sponsoring bank and/or the government agency making DBT payments.

Thus, financial inclusion using appropriate usage of technology cannot only facilitate DBT but also go a long way in sustaining it.


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

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"Why is DBTL a roaring success while the other DBT schemes are still struggling?": Deepak Maheshwari

Posted on November 12, 2013 by Sumita Kale

Ever since the launch of Direct Benefit Transfer (DBT) on January 1, 2013 most of the 13 crore plus household customers of cooking gas cylinders – including those in the middle and upper income class, have been preparing themselves to eventually deal with the scenario of paying the market price for gas cylinders, hitherto supplied at heavily subsidised administered pricesThe impact, however, be somehow cushioned by the payment of the subsidy amount directly to the bona fide consumers, albeit capped to just 9 cylinders per annum per householdEvery time a consumer pays market price for the LPG to the distributor, he or she gets the subsidy thereafter directly into the bank account.

What is interesting is that though DBTL (this is how DBT for LPG is referred to, in the government-speak) debuted on June 1 only across 20 districts and subsequently extended to another 34 districts, on an on-going basis DBTL alone is accounting for more than 80% of all DBT transactions in terms of volume and more than 80%!

This surprising situation begets the obvious question "Why is DBTL a roaring success while most of the other 25 odd schemes under DBT are still struggling?  To get to the bottom of this conundrum, let us see what lies beneath and beyond the surface.

Scope and Scale of DBTL Three product categories, namely the Food, Fertilizer and Fossil Fuel (3F) account for almost half of India’s total subsidy, with fuel alone accounting for close to Rupees 1.40 Lakh crores (USD 27 billion), according to Fossil-Fuel Subsidy Reform in India: Cash transfers for PDS kerosene and domestic LPG -  a joint study by the Institute for Sustainable Development (IISD) and The Energy Research Institute (TERI)Within the category of fuel we have diesel, kerosene and Liquefied Petroleum Gas (LPG)Diesel prices are being increased slowly month-on-monthKerosene continues to be distributed largely through the PDS route notwithstanding that it was one of the first successful pilot for DBTAfter a lot of deliberations, the government decided that LPG would be supplied at market price and the subsidy amount would be paid to all domestic consumers of LPG for a certain number of bottled cylinders.

Let us look at the volume of transactions for DBTL as compared to all the other schemes under DBT as tabulated below based on the YTD (Year-to-Date) reports up to September 30 and October 14.


Noof Transactions

% by volume

Amount transferred (Rs.)

% by value

1 Jan 2013 to 30 Sep 2013

DBT (excluding LPG)










DBT - Total





1 Jan 2013 to 14  Oct 2013

DBT (excluding LPG)










DBT - Total





1 Oct 2013 to 14  Oct 2013

DBT (excluding LPG)










DBT - Total





As of September 30, DBTL accounted for 78% of all DBT transactions by volume and 64% by valueBy October 14, DBTL accounted for 80% of all DBT transactions by volume and 68% by valueConsidering that different schemes debuted under DBT at different points of time, let us look at the incremental progress between these two dates to get a better comparisonWithin the first two weeks of October, DBTL accounted for 87% of all transactions by volume and 85% by value!

While even DBTL is far from the perfect state and there are several people even within the districts covered who may not be getting subsidy payment for LPG even after paying the market price, it is obvious that some things must be many things going well for it where other schemes continue to struggleThese may include the following:

  • Digitised database - Firstly, there are just three suppliers of LPG cylinders - namely Indian Oil, Bharat Petroleum and Hindustan PetroleumOver the years, their customer databases were already digitised.
  • Little dependence on state governments - DBTL implementation is being fully funded by the central government and each of the three LPG supplier is a public sector oil marketing company (OMC) under the Ministry of Petrochemicals and Natural Gas, Government of IndiaBeyond some administrative support, state governments do not have much role in case of DBTL thereby making the implementation relatively smoother.
  • Prevailing financial inclusion for a significant number of beneficiaries – Most LPG consumers are in the relatively higher socio-economic categories, higher urban concentration, higher propensity to have a bank account, thereby making it easier and faster to seed the Aadhaar number.

No wonder, as of January 1, 2014 DBTL is slated for covering 289 districts or 45% of all the districts in the countryIn the long run, DBTL could actually turn out to be the first scheme to achieve national scale, with almost universal coverage.

Obviously, there is DBTL (DBT schemes at large) and there is DBTL (DBT for LPG)!


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


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Moving towards interoperability for mobile money

Posted on November 05, 2013 by Sumita Kale

India is moving cautiously into opening up the payments space to non-banks and the RBI has recently announced a pilot by the end of March 2014, to understand the technical and operational issues in cash-out by non-bank issued PPIsOne of the crucial issues that has to be addressed is interoperability amongst the various services and a look at what Indonesia has achieved gives us some insights into making a headstart here into these key concernsWhat has Indonesia done? A GSMA paper by Gunnar Camner describes the initiative taken up by the three major mobile operators to send and receive money across each other's networksWhy did they do this?

By 2012, each of the three operators - Telkomsel, Indosat and XL- had set up payments systems on their own, but in a geographically dispersed country like Indonesia, isolated payments schemes found it difficult to achieve scaleThey got together in December 2012 and in six months were able to launch an interoperable solution by March 2013.What worked for them?

To begin with, the discussions were held by the CEOs, with the first priority agreed upon to make sure money could be sent directly to accounts of the different schemes instead of a redeemable voucher within the originating schemeThis cleared the way for defining areas for cooperation and competition at the highest level, making it easier for the lower levels of the firms to work on the detailsA single tripartite agreement was signed to ensure that they all followed the same principles for implementationFor each area of operation - legal, customer care and IT, they set up teams with members from each firmWhat were the key concerns?

There were four main issues : 1) How to route transactions between the schemes,2) How to enable communication across platforms, 3) How to manage AML/CFT checks and procedures and 4) the Financial Processes.

While the paper explains the details of how each of these issues were tackled, it is still too early to measure the impact of this scheme, the message for India is clear, interoperability can be achieved by the operators themselves, it is the first step, a necessary and not sufficient condition for each operator to build scale:

Interoperability was achieved in Indonesia thanks to CEO commitment, strong technical teams collaborating across operators, and mobile money managers designing robust SOPs to address customer service and risk management

On the other hand, in Kenya, interoperability is now coming through via regulation and while the latest entrants are obviously in favour of this, all eyes are now on the dominant operator Safaricom to see how it will adapt to the change.

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