Delivering Financial Services Innovatively

By Anand Mishra
In Financial Inclusion
January 13, 2015
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Earlier this year, PM Narendra Modi launched the Jan Dhan Yojna, which is the largest financial inclusion initiative that India has undertaken. The program has been reasonably successful in bringing huge number of unbanked people under banking umbrella. Delivering financial services and products to people residing in remotest parts of the country is a daunting task and is a crucial aspect of governance. According to a World Bank Findex Survey, conducted a couple of years ago, almost 65 per cent of the adult Indian population did not have access to a formal bank account. Traditionally, banks and other financial institutions have been unsuccessful in reaching out to remote areas. Basic reason behind this failure is the financial unviability of remote, rural branches

financial-servicesBecause of the failure of formal banking system, it becomes important that the government takes upon itself the primary role of delivering financial products and services to unbanked population, which means not just bank accounts, but also other  financial services such as credit, insurance and pensions. Basically, all forms of financial activities and requirements of largest section of population needs to be made available at the least possible distance from the final customer.

This is where the role of new age computing, networking  and communication technology comes in. With proper planning and application of these technologies, government can bypass the traditional model of putting a large number of people and infrastructure on ground to deliver multiple products and services. This makes financial product delivery a classic test case for e-governance.

Bringing basic services under CSC
The government of India’s National E-Governance Plan has developed the Common Service Centres (CSC) network as nodal points for delivering basic financial services at a location nearest to the customer. The CSCs have been designed as web enabled centres, located in remote and rural areas which can offer basic banking, insurance and credit functions at one point, thus obviating the need for having traditional brick and mortar centres for each of these functions. There are more than 200,000 CSCs operating in the country of which over 6,000 are operating as Banking  Correspondent for public sector banks. Government is supporting CSC/BC network as preferred route for delivering financial  services compared to traditional brick and mortar banking network because of CSC/BC network’s flexibility and ability to roll out multiple services under one roof.

A CSC offers delivery of financial products and services including banking, insurance and pension. In banking, a CSC generally undertakes elementary services such as customer enrolment, issuance of ID Cards, Debit Card and PIN numbers etc. Further, a CSC is a point where transaction facilities are also available. So, customers can deposits money into and withdrawal money from a bank account, transfer money and get information about their account in form ofstatement of accounts. Furthermore, CSCs  are designated to do loan related info rmation and document  collection as well as information dissemination on behalf of banks. SBI Kiosk banking is an example of this facility in which CSCs are appointed as Business Correspondents to the SBI and carry out banking transactions on behalf of the bank. This allows them to let customers use their facilities to do banking transactions for which they get pre mandated fee.

financial-qaAs for customer identification, SBI uses biometric based online user authentication in real time via SBI’s portal. This model is being used by other agencies too, such as AISECT and NICT in Madhya Pradesh. This is where the role of UIDAI system comes into play as fast and reliable expansion of the program would allow creation of an ID databank which various types of service providers can tap into.

Besides acting as banking correspondents, CSCs are also allowed to act as brokers for selling of insurance product and services of both life and non-life types, thus allowing easier access of insurance for farmers who cannot go to far off towns and cities for buying insurance. CSCs are also mandated to act as nodal point for delivery for various other services and products such as pension products and money remittances.

Rolling out DBT on Aadhaar platform
In order to prevent the pilferage in the subsidy system which benefited black marketers instead of poor and severely distorted the market structure, the Indian government has moved to a more scientific direct money transfer paradigm in which the financial benefits are to be directly sent to the targeted persons. Under this direct transfer of benefit (DBT) scheme, the money is credited to the bank accounts of the beneficiary.

From service delivery point of view, what is natural is that the DBT scheme would have  to rely upon Aadhaar platform for adequate targeting the beneficiary. So, as a starting point, the Aadhaar numbers of beneficiaries would have to be accurately mapped with the respective social benefits entitlements and to beneficiaries’ respective bank accounts. Only then can benefits be accurately transferred to the deserving person. In this regard, the experiments such as Project Dilasa can be replicated at multiple locations. This project, undertaken in Aurangabad district of Maharashtra, was an experiment to disburse payments under social benefit programs by using Aadhaar number to ensure effective and accurate targeting of beneficiaries. In this experiment, national informatics centre (NIC) deployed an application