"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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