Source- The Financial Express

The new plan still follows the mandate-model of inclusion, and mandates can only take us as far as chalking up numbers on the board

There is a buzz that the Modi government will unveil a new financial inclusion plan on the Independence Day. While the exact details of the plan are yet to be revealed, reports suggest that the scheme, Sampoorn Vittiya Samaveshan, is targeted to cover 7.5 crore unbanked households within a year. The UPA financial inclusion push, Swabhimaan, started in 2011 and targeted unbanked villages in a phased manner; at first glance, the new plan appears similar to its predecessor, but there are points of departure.

This time the focus is on households, not villages, at least one account per household. While debit/ATM cards will be issued in the first phase, insurance services will be added in the second phase. Overdrafts can reportedly be given to the tune of R5,000 per account subject to certain conditions, there will be greater coordination with the state and district authorities, convergence with the UIDAI in enrolment, use of eKYC, use of alternate networks as cash-points including mobile cash wallets, common service centres, etc. The plan ticks every box—savings, credit, payments, insurance; yet, if sufficient attention is not paid to details in the actual implementation, this ambitious plan can boomerang on the government.

Remember that the bank-led model has repeatedly given mandates to the banks and then urged them to create viable business models. Yet it must be recognised that commercial viability will take its time, and in many cases, e.g. remote, poor areas, it may not even materialise. Such a comprehensive scheme, especially the overdraft, will place a considerable burden on the already strained balance sheets of banks. Field surveys—CGAP/CAB, MicroSave, InterMedia—all show more than half of the basic savings bank accounts opened for inclusion lie dormant, a large number of banking correspondent agents are ‘missing’, existing only in bank records but untraceable on the ground. Adding more accounts and agents will barely dent the reality of exclusion, unless the last-mile issues are fixed. The key to viability lies in increasing transactions, and there is no clarity on whether this metric will be tracked. Where are the current pain points at the last mile? To begin with, low commercial viability of the BC agents, leading to high dormancy. Apparently the government understands this point and proposes a monthly remuneration at R5,000, but it is not clear if banks will get any support to pay this out.

Government transfers form the fastest way to raise transactions and bring the unbanked into the network. However, the UPA’s Aadhaar-enabled direct benefit transfer (DBT) programme had many lapses, mainly because the previous regime was in a rush to show it was doing something. Apart from the most basic issue of legal sanction for mandating Aadhaar, the programme was rolled out in districts before full enrolment, the recommended 3.14% processing fee was reduced to 2% and rarely paid to banks on time, creating payment backlogs down the line etc. Finally, the programme that had been set out with much fanfare, fizzled out.

If the present government wants to avoid the same fate, it has to address the last-mile challenges—sort out the Aadhaar imbroglio, target increasing transactions per agent, provide budgetary support to process timely DBT payments with appropriate share to the agents and clearly communicate to all stakeholders, including the customer, about the exact payment processes and the usage of accounts, etc.

But all this still follows the mandate-model of inclusion and mandates can only take us so far as chalking up numbers on the board. The irony is that while the poor are being forced to tap into informal sources, banks are being forced to create a touch-point and are failing to go beyond that. If these touch-points are to become a real pathway to inclusion, the needs of both providers and customers must be matched. The programme must proceed with a clear roadmap: get DBT right, use existing payment platforms and rope in all bank and non-bank networks, allow the transaction history to be used to frame appropriate products etc. As we wait for more details on the programme, the question is: will the new programme get the same attention to detail as the Modi election campaign got or will it go the way of the earlier regime?