Induct telcos as banks to make direct benefit transfer scheme work

Written by SP Ketkar | Updated: Mar 28 2013, 06:48am hrs
The government began the new year by rolling out a scheme for direct transfer of subsidies to poor families in 20 districts. The Direct Benefit Transfer (DBT) scheme, christened Aapka Paisa Aapke Hath, is to replace the current method of indirect subsidies and payment of scholarships/wages/pension under various welfare schemes. It plans to cover 100 million eligible families by April 2014.

UPA-II considers it as the game-changer scheme for 2014 elections but Opposition calls it a cash for vote scam. Irrespective of how it is perceived politically, ambitious DBT scores high on the fact that it aims to plug leakages and it is a fiscally neutral scheme. But, the scheme looks inherently weak because it relies solely on conventional banking channel, linked to Aadhaar cards, for transfer of cash to beneficiaries.

As per the progress reported on UIDAIs website, cumulative enrollment of Aadhaars at 222 million as of November 2012, accounts for merely 55 million families or 18.4% of our population. State-wise analysis reveals that Aadhaar enrollments in smaller states and UTs cover more than half of their populations, but several major states like Assam, Bihar, Chattisgarh, Gujrat, Haryana, Orissa, Tamil Nadu, Uttar Pradesh, Uttarakhand and West Bengal have enrollments at less than 10%. In terms of age-wise break-up, more than 25% of population in the age groups of 16-30 and 31-45 years is covered but less than 5% of those below six years and those above 66 years have Aadhaars!

Slow progress of Aadhaar in certain states and for certain age-groups raises doubts over the efficacy of Aadhaar in reaching the poor families, particularly in the rural and remote areas. In fact, there appears to be no clear data available on how many of the 100 million poor families, which are intended to be the DBT beneficiaries, have Aadhaar numbers as well as bank accounts. Financial inclusion figures may show that 61.2% of Indian population owns at least one bank account but it does not show that many of those accounts, including the majority of 139 million no-frill accounts as of Mar-2012, are inactive.

Further, given that more than 500,000 Indian villages do not have bank outlet of any type, accessibility of conventional banking network, planned to be used for cash transfers, remains a big concern.

At the end of March 2012, scheduled commercial banks had a combined network of 129,381 service points (81,240 branches and 48,141 off-site ATMs) and 141,136 BCs (Business Correspondents) to reach out to customers. As against this, telco network has more than a million contact points (retailers), for serving over 900 million mobiles users across the country.

Thus, in terms of reach, telcos are equipped much better to handle cash transfers to poor families. It is also apparent from the TRAI consultation paper on Delivery of financial services using Mobiles, which states that unlike the telcos, banks find it difficult to operate large number of tiny accounts and micro transactions profitably.

In this backdrop, given that we already have 26 nationalised banks, 20 private sector banks and 41 foreign banks currently offering conventional banking in the country; licensing additional banks of the same type or an exclusive bank for women will neither help in improving financial inclusion nor will it help in direct transfer of benefits to the poor. Even the Indian Postal Department, which has been offering Savings Bank services for decades, cannot be expected to suddenly become super-efficient for implementation of DBT through its network of 155,000 offices.

However, m-banking, with telco acting as bearer-cum-agents of banking services can dramatically improve the situation. As Victor Hugo once said, "no power on earth can stop an idea whose time has come". It is perhaps time for mobiles to play a larger role and redefine the way we do our banking and money transfers.

In our journey in that direction, Reserve Bank of India (RBI) issued Operative Guidelines for mobile banking in October 2008. A year later, it enhanced the limit for mobile money transfers to Rs. 50,000 per day and from December 2011; RBI completely dropped the daily cap on transactions using mobiles. However, even after liberalization of daily limits, m-banking in India continues to be bank-centric and available only to those who already have bank account(s). It does not contribute to improving financial inclusion.

In terms of m-banking implementation ladder, India currently operates a Level-I model. It is preferred by highly regulated regimes and allows a very limited role for telcos as bearers of instructions/alerts.

In a moderately regulated environment, telco retail outlets are permitted to accept/disburse cash and telcos operate at Level-II or as bearer cum agents.

At the next level, telco retail outlets are also allowed to store cash for third-party payments and telcos play the role of bearer cum agent cum payment service providers. Finally, few countries permit telcos to operate at Level-IV and function as full-fledged banks.

Now that we have tested the level-I m-banking model in India for four years, it is time to move up the m-banking ladder and allow a larger role for telcos in forthcoming round of bank licensing. At the least, BSNL and MTNL, state-controlled telcos, could be inducted as a banks with limited mandate for accepting/disbursing cash through their network of outlets. Given their coverage, BSNL and MTNL together, could significantly help in effective implementation of DBT and quick improvement of financial inclusion.

Author is chairman, CMAI Focus Group on Mobile

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