Column : DBT can learn from its predecessors

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SummaryThe Electronic Benefit Transfer system had many coordination flaws. These operational gaps need addressing.

In all the brouhaha over the direct cash transfer plan, now renamed direct benefits transfer (DBT), there are two points that are not being emphasised enough. First, even though financial inclusion is not an explicit objective of the DBT, the link is so strong that the DBT can be leveraged to raise India’s banking habits. This is because DBT is being executed through the business correspondent agents network and micro-ATMs. Second, digital payments are yet to be established firmly in the way that Indians transact. While moving away from cash is not an easy task and has many associated issues, the ultimate aim of financial inclusion is to raise savings and credit through the formal financial system. Increasing transactions in bank accounts has been one of the main problems plaguing efforts at financial inclusion so far. The spotlight on DBT is, therefore, good as it helps spread awareness and focuses attention on the issues that need to be resolved to increase digital transactions amongst the newly banked.

This two-part series looks first at the recent game-changers that have enabled an accelerated DBT plan and puts together the issues that need to be resolved within the existing business correspondent (BC) model to optimise the DBT-financial inclusion link.

To begin with, financial inclusion was made an explicit objective for the government and RBI in 2005. Since then, the actual roadmap has seen many twists and turns, and the model continues to evolve. For a country as complex as ours, learning on the go is to be expected, and as long as the general direction is positive, some setbacks in planning and implementation have to be accepted.

So the DBT, which has claimed so much media space over the last month, is not really a brand new idea. In effect, it is an accelerated roll-out of its previous avatar, the electronic benefit transfer (EBT), but now linked to an Aadhaar-enabled bank account and micro-ATMs. The EBT began in 2008, the idea being that payments made in cash through so many government schemes should be made electronically. Smart cards to open no-frills accounts were the first choice for making the payments and this ran into trouble over cost sharing with RBI, banks and state governments. Over the years, there were also coordination problems with mapping the coverage under lead banks, ensuring the reach of the banking system through the spread of BCs, etc, and all these held

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