Financial freedom: A social security inclusion fairy tale

GAUTAM BHARDWAJ Posted online: Monday, Sep 30, 2013 at 0000 hrs
New Delhi : Once upon a time, a 25-year-old person named Shanta, lived in a little village far away with her husband and three children. Her husband was mostly unemployed and engaged in odd jobs. Shanta, on the other hand, worked overtime but her family struggled to make ends meet. So she decided to migrate to your city in search of work.

You employed Shanta as your maid. She now works long hours. She cooks your meals, looks after your children and keeps your home clean. She does this year after year. Every month, she spends as little as she can on herself, just to be able to send most of her income back home to feed her children and to pay for their education. She’s determined to give them a better life than her own.

After many years, when Shanta is old and unable to work, she returns to her little village far away. Her children have grown up. They are educated and married but have migrated to other cities for work. Shanta and her husband live alone. But with no savings of their own, they once again struggle to make ends meet. Their children want to help, but they have their own expenses to meet and their own children to educate and feed. For Shanta and her husband, each new day is more difficult than the last. They will live like this, without much dignity, day after day, month after month, for another 20 years.

This could be the story of your cook, your guard, your driver, the person who cleans your car or delivers your newspaper or tends to your plants. Not a happy tale. Nevertheless, a story that’s quietly unfolding all around us. Could Shanta’s story be different? Happier perhaps? Let’s try this again.

You employ Shanta as your maid. You encourage her to apply for an Aadhaar number. So she walks up to a neighborhood Aadhaar station and provides her fingerprints, demographic information and her mobile number. A few days later, Shanta receives a packet containing her Aadhaar (or social security) number. And a package of new benefits from the government — all linked to her Aadhaar number.

Shanta discovers that she, and everyone in her family, is now somehow automatically covered by a cashless medical insurance of Rs 30,000 per year. She also has a life insurance of Rs 30,000 as well as a disability and accident insurance of Rs 75,000.

A new pension account has also been opened in her name which she can use for saving small sums every month for her old age. If she manages to save Rs 1,000 a year in this pension account, the government would deposit Rs 1,000 into her pension account from its own budget.

The packet also contains a telephone number of a local language helpline that will answer any questions she has and also help her with insurance claims.

In the same package, Shanta also receives a prepaid card that is already linked to her Aadhaar number. To activate her card and her new social security account, she visits the Aadhaar enrollment station once more to “authenticate” herself by simply putting her thumb on a small biometric reader.

Every month thereafter, Shanta puts Rs 100 into her prepaid card or mobile wallet linked to Aadhaar. To do this, she would simply walk up to a nearby mobile prepaid recharge store or a bank correspondent (BC) outlet and “load” the cash into her prepaid account. This would work exactly like recharging her prepaid mobile phone. She would be able to do this even if she changes her job or location and use any of the nearly 20 lakh mobile recharge stores or BC (business correspondent) outlets across the country. (This, incidentally, is nearly 10 times the number of all bank and postal branches in India put together).

At the back-end, her monthly savings of Rs 100 would somehow magically flow from her prepaid account to the health insurance company, the pension fund and the life insurer on her behalf and in her name. Any excess money that she loads would remain in her prepaid card or mobile wallet.

If she needs to withdraw some cash for expenses or an emergency, Shanta would simply walk up to a bank ATM or a white-label Aadhaar-enabled ATM with her prepaid card. She would put her thumb onto a biometric reader on the ATM and withdraw the money she needs.

Back home, her husband, who has an Aadhaar number now, also gets a new, Aadhar-linked pension, insurance and prepaid account. He begins transferring Rs 100 per month from his MGNREGA benefits to his social security account every month. He also receives Rs 1,000 from the government into his pension account every year.

Many years later, when Shanta is old and no longer able to work, she returns to her little village far away. Shanta and her husband will still live alone. But their combined pension savings would have grown to nearly Rs 10 lakh over the years and they would now receive an inflation-indexed pension of nearly Rs 6,000 per month directly into their prepaid accounts. Naturally, they won’t struggle to make ends meet. For Shanta and her husband, each new day would now be as secure and happy as the last. And they will live together with dignity, month after month for the next 20 years.

Although this version may sound improbable, Shanta’s future has become brighter of late — thanks largely to the efforts of Nandan Nilekani and the promise of Raghuram Rajan. Each piece of the micro-savings ecosystem and the plumbing that Shanta needs to address her lifecycle needs and risks, already exists.

Nearly half of India has an Aadhaar number. Between NPS-Lite, Janshree Bima Yojana and the RSBY, the government is already committed to delivering social security co-contributions of roughly Rs 1,800 per year from the budget to people like Shanta. Hundreds of thousands of transaction points, capable of collecting micro-payments using Aadhaar-linked mobile wallets or prepaid cards, exist. Over 1,00,000 ATMs and many more BC outlets are spread across the country and offer a convenient and secure cash withdrawal facility.

All we now need is for the financial regulators to accept an Aadhaar-authenticated eKYC. We also need to bring the National Pension System (NPS), RSBY (Rashtriya Swasthya Bima Yojna) and the JBY (JanaShree Bima Yojana) together as a simple, over-the-counter, integrated social security solution for the countless Shantas in urban and remote rural locations. And of course, we need to apply uniform, Aadhaar-linked and authenticated eligibility criteria across these three schemes.

If we can do this quickly, and do it well, we may still be in time to ensure that Shanta and her husband live happily ever after.

Gautam Bhardwaj is managing director and co-founder of Invest India Micro Pension Services.

gautam.b@micropensions.com