Bank at your doorstep

Technology is helping public sector banks find customers in rural India. This is part of the Centre's efforts to include villages in the organised financial system; to ensure they are not cheated of their wages. Pilots show promise 

by DTE team

The current state of rural banking in the country is poor. A recent report, by the National Sample Survey Organization, revealed that 51.4 per cent of the 89.3 million total farmer households in the country had no access to credit; 27 per cent of the households were indebted to formal sources of which one-third also borrowed from informal sources.

With the financial inclusion drive, the Centre aims to overcome such exclusion. MNREGA was a ready tool for the inclusion drive. But with reports of corruption, MNREGA was in a mess.

In 2007, the Comptroller and Auditor General of India (CAG) conducted a performance audit of the national rural employment guarantee scheme. The audit report exposed lapses in the scheme’s implementation and delay in wage payments. Of the 21. 2 million households that demanded work under NREGA, 2.2 million received the 100 days of guaranteed employment, CAG found.

CAG recommended the government should explore a deal with the postal department for wage payments through postal accounts, except where state governments had ensured payments through banks. “The ministry of rural development’s assessments and the widespread corruption reported forced us to amend MNREGA in 2008,” said Nitin Chandra, director of MNREGA cell. Cash payments became illegal under the amendment. Until then more than half the wages were paid in cash. Post amendment, till December 2009, 22 per cent of the total wages were paid in cash, ministry data revealed.

In keeping with the Centre’s directive, states such as Punjab, Andhra Pradesh and Bihar have opened accounts in banks or post offices for all its beneficiaries; Meghalaya, Mizoram and Arunachal Pradesh lag behind with accounts opened for 33 per cent, 28 per cent and 21 per cent of its beneficiaries, ministry data showed. The data also revealed that 22 per cent of the wages in the country were paid in cash. Despite the amendment, said Chandra, exemptions are made for blocks because in some cases the nearest branch is more than 40 km away, he added.

But, rural banking is beyond savings accounts in banks or post offices. A 2009 study, Speeding Financial Inclusion, by Skoch Development Foundation, a not-for-profit company in Gurgaon, revealed that though more than 25 million accounts were opened between April 2007 and May 2009, less than 11 per cent of them were active.

Why? Lack of appropriate technology, said K C Chakrabarty, deputy governor of Reserve Bank of India (RBI). Without technology banks cannot reach the people and since existing banking technologies are recent, a business delivery model is yet to evolve, he said.

Experiments are on though.

In Sriganganagar district, Makkhan Lal, 29, cheerfully walks about Fatuhi and Khatlabana villages with a smart card reading device. He is the district’s first business correspondent. He transacts with 1,400 daily wagers whom the bank has issued biometric smart cards, and earns about Rs 3,000 per month. The smart cards, which resemble debit cards, contain information such as name, age, address, account details and fingerprint impressions of the beneficiary. There is also his or her digital photograph embossed on the card.

When Lal reaches a village he first activates the machine so that the smart card can be inserted. The device, imported from the US, requires a fingerprint to verify the beneficiary. “Since labour often alters fingerprint impressions, an option for all 10 fingerprints exists.
After verification, Lal hands over the cash. The machine prints two receipts; Lal keeps one, gives the other to the beneficiary. The information is relayed to the bank through the smart card reading device.

Transactions can range up to Rs 20,000 and as a rule smart card holders cannot conduct direct transactions with the bank, the Oriental Bank of Commerce in this case. In keeping with RBI guidelines, the bank has hired Financial Information Network and Operations (FINO), a not-for-profit company in Mumbai, to issue smart cards and hire business correspondents.

The incentive for business correspondents of course lies in the one time fee of Rs 4.50 for every smart card issued, which the bank bears. The bank also pays the correspondent a monthly stipend of Rs 1,000, plus half a rupee for every transaction. Since Lal’s recruitment in August 2009, FINO has hired 25 business correspondents who are serving 20,000 beneficiaries.

While the smart card device is available on a rent of Rs 9,000 each year, each smart card costs Rs 112. The bank bears these costs. RBI reimburses Rs 50 per smart card to the bank. Under the pilot, which started in August 2009, the bank has issued smart cards to MNREGA beneficiaries in 13 of the 20 branches they have in the district.

The advantages are obvious. The bank’s reach has expanded because of the business correspondents, and time is saved in carrying out the transactions.
In Cuddalore district, the women of Periyakanganankuppam village use the ATM. Fifteen months after the district started paying MNREGA wages through debit card linked zero balance accounts; the women have mastered the art of withdrawing their wages from the ATMs. These are different from the cash dispensers found in cities—in biometric ATMs the second level of authentication is one’s fingerprint, not personal identification number.

The authentication leaves no scope for fraud because no one except the beneficiary can withdraw money. The ATM operates in Tamil, but for the elderly and the unlettered, help is at hand. Sudha, a resident with a school-leaving certificate to her credit, manages the ATM and helps people withdraw their earnings. The panchayat has also employed a resident who collects weekly workers’ list and their due wages from the worksite, and deposits cash with the bank. The bank, SBI, sends its staff to the village to put in cash in the machines.

During the pilot the Cuddalore block administration paid Rs 12.25 lakh through 675 bank accounts in these two panchayats. Rs 6.05 lakh was paid as cash to non-account holders. The Rural Tele-Banking Initiative under IIT Madras provided the technology. And, Periyakanganankuppam, with 445 account holders, and Pathirikuppam, with 230 account holders, successfully completed the pilot in May last year. The plan is to upscale the project to all 145 villages in the Cuddalore block.

With a successful pilot in Tamil Nadu, the SBI is experimenting with a different technology in Orissa.

It’s a state-of-the-art mobile phone. It is blue tooth customized and GRPS enabled, which means one can use the Internet on the mobile phone. A fingerprint scanner-cum-printer is connected to the phone. It is used to enrol beneficiaries, as well as to make payments.

Zero Mass Foundation, a not-for-profit company in Mumbai, is the business correspondent for Orissa’s pilot project which started in November 2009. The foundation hires representatives in villages, whom they call customer service providers.

Each beneficiary also has an identity card called the SBI tiny card. This carries details of the beneficiary, along with the zero security number, a unique id, which acts as the first level of identity proof.

Usually, the junior engineer at the work site concerned sends weekly bills to the panchayats, along with the work schedule. The schedule lists the quantum of work and the due wages. The sarpanch and the customer service provider issue a cheque to the nearest SBI branch, along with a copy of the work schedule and the wages due. The branch credits the amount mentioned into the beneficiary’s account, which automatically gets transferred to the Zero Mass Foundation’s account. The foundation then transfers the money to the customer service provider who withdraws it and makes the payment.

Cost though is a deterrent and the reason the pilot project was restricted to 986 panchayats in Ganjam, Gajapati and Mayurbhanj districts, and one panchayat each in Bhadrak and Jajpur districts. The pilot was planned in 1,000 gram panchayats in 10 districts. Bank officials conceded that because of these problems, except in Ganjam, things had not moved beyond the enrolment stage.  SBI pays Rs 2,000 per customer service provider to the foundation. About 700 of them are active. The foundation keeps Rs 500 towards its cost and gives the rest to the service provider. Then there is the customized device, which costs Rs 25,000. The service provider makes a down payment of Rs 5,000 for the device to the foundation; the rest is deducted in 36 easy instalments from the service provider’s salary.

While pilot projects have been more or less successful in states, the problem arises when scaling up or implementing projects across states is talked about. It is not clear who will pay, the Centre, the state or the banks.

The RBI's move of no-frill savings accounts (that require a minimum or no balance) has failed to make the desired impact because the accounts, on an average, have only Rs 30 to Rs 50 as balance,” said Umesh Kumar Singh, deputy general manager of Central Bank of India in Mumbai. “This is not viable for any bank,” he added.

“Banks are trying different financial inclusion models. But, nothing will work unless it is viable for all stakeholders, including the business correspondents,” said Singh. “The money also needs to be routed in the right direction,” he added.

To take care of the technology cost, the Centre has constituted the Financial Inclusion Fund and Financial Inclusion Technology Fund. Each of these funds, with an initial corpus of Rs 500 crore, is under the National Bank for Agriculture and Rural Development (NABARD).

After two years of research into the existing financial inclusion models, the Central Bank of India proposed a new model. He also sees endless possibilities in mobile phones. Banking through mobile phones can offer a low cost channel, as the penetration of mobile phones is high, he said. “Against 450 million mobile phone connections in India, there are only 120 million bank accounts. It costs anywhere between Rs 90 and Rs 120 to issue one smart card; but mobile phone is an existing connection,” he added.

Financial experts are also calling for the launch of a ‘national rural financial inclusion plan’ under a mission mode. The plan should target to provide access to financial services, including credit, to at least 50 per cent of the financially excluded rural households by 2012. The remaining should be covered by 2015.
CSE/Down To Earth Feature Service
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