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 back a full comprehensive coverage of the EBT.
It was in September 2012 that a move was made to put in timelines through a National Ministerial Committee and coordinate across the various ministries and levels of government. This led to the announcement of the DBT in its current form.
What has changed since EBT was first put in place four years ago? For one, as the PM put it, enrolment through Aadhaar has been substantial, enabling easier identification of beneficiaries and RBI now accepts Aadhaar under its KYC norms. There are loopholes here still. For example, Aadhaar enrolment has been going on independent of all these schemes so far and, as a result, there are gaps in enrolment amongst beneficiaries and confusion at the ground level over whether payments should be withheld for a beneficiary who already has a bank account but no Aadhaar number. Such issues will get ironed out, yet clarity from the beginning for the functionary at the lowest level would have made for a much smoother roll out.
More importantly, over the past few years, there has been considerable progress in the digital payments infrastructure; coverage has been rapid in some areas like online tax payments and slower in some like EBT. The NPCI payments gateway stands out as a landmark in facilitating digital payments. In particular, the interbank mobile payment system (IMPS) launched in 2010 allows instant payments, with access from mobile phones. The Aadhaar-enabled payment system is another gateway that allows the use of Aadhaar as an authenticator and, along with the IMPS, forms a bridge for many of the operational issues that plague the digital system. While these two platforms have the potential to integrate various payments and schemes and also enable the mobile phone as the front-end technology instrument, there are many reasons why these two gateways have not become popular, when it comes to government payments. For example, resistance or delays by state governments, inadequate commissions to banks and Business Correspondent Network Managers, etc. It is a cause for concern that IMPS for non-government transactions has also not taken off as visualised, and the technical and financial problems on the use of the USSD channel need to be resolved by the gamut of stakeholders together?banks, telcos, Trai, NPCI and RBI.
It is important now for the government to play the role of the coordinator by settling pending operational issues so that the improvements in the payments infrastructure can be optimised for a successful DBT and financial inclusion.
To be concluded
The author is with the Indicus Centre for Financial Inclusion and can be contacted at email@example.com