Introduction
There are three ways to increase financial
inclusion (of less well of citizens): (1) Open a bank account with or without an
associated debit card. (2) A cell phone based payment system with
deposit facility (mobile wallet + banking) and (3) A credit card with no
charges to holder and very low charges to payee (Social Credit Card). These
three ways are not mutually exclusive. They can be used alone or in any
combination. If combined with a UID
number for authentication & elimination of duplicates,[i]
all are capable of use by government to make cash transfer directly to
recipients(DCT/DBT), minimizing leakage and ensuring that every needy person
gets his/her entitlement. The key issues
are (a) how quickly they can be made universal, and (b) how easy they are for
the poorest to use.
Bank Act, Rupay Debit card
Surveys suggest that 47 to 57% of the people have a bank account.
Surveys of potential account holders show that poor and lower middle class people
find it too intimidating to open a bank account. One of the major justifications for Bank
nationalization in 1969 was to bring such people into the formal financial
system and reduce or eliminate their dependence on informal sources and money
lenders. Forty five years later at least
40% of the public still doesn’t have a
bank account. This reflects very poorly on “Nationalization” and the
Nationalized banking system. Universalization of banking therefore remains a
very difficult task.
The “Jan Dhan” Yojna aims to
provide a Debit card, RuPay, along with a bank account. This is a novel idea in
the context of financial inclusion. The
debit card will also have Rs 1 lakh of insurance bundled into it. The debit
card will make the use of any money deposited in the bank account, and the
overdraft facility associated with it easier, therefore providing an incentive
to those who hesitate to use banks, even if they have a bank account. Deposits
& repayment would still require a trip to the bank or interface with a
banking correspondent, who has also been provided some incentives to enroll
members. Once the bank account is seeded with UID/Aadhar and government starts transferring funds directly
into it as cash transfers or direct benefits, the account holder can use the
RuPay without ever going to the Bank branch.
Mobile Wallet, Mobile Banking
Mobile company records suggest that 80% of
the public already has a pre or post paid mobile phone. Projections suggest
that over the next 5 years this will rise to 90% and in 10 years become close
to universal. Even the poorest person
knows how to operate a pre-paid mobile phone that has a pre-paid deposit of
money in the mobile account with the phone Company. The phone companies can
easily convert these mobile accounts into a mobile wallet that can be used to
pay for the purchase of any good or service by transferring funds to the
sellers mobile account. The phone account could also be used to provide some
simple banking services.[ii]
This would the least cost method of achieving universal inclusiveness.
Unfortunately RBI regulations do
not permit Mobile companies to use it as a universal wallet or to use to
provide deposit-credit facilities. RBI’s
argue that this would put the stability of the payments and credit system at
risk. In my view a carefully constructed and limited system can achieve complete inclusiveness, in a shorter time
frame than either of the two alternatives, with only a marginal impact on
the stability of the overall system.
Social Credit Card
The third method of attaining
universalization is to create and issue “RuCredit Card” analogous to the RuPay card. Each person’s card would have a credit limit
appropriate to him/her. There is no need to open a bank account, as the credit
card acts as an account. If government benefit
transfers can be synchronized with the due dates of credit repayments, the
credit card becomes a Social credit card
with a credit limit linked to the benefits transferred. The recipient can then
use the Social credit card like any other credit card to buy goods and services.
Insurance can also be bundled into the
card.
Conclusion
Any of three methods can be used to
achieve universal financial inclusiveness, alone or in combination. However, the genuine mobile payment &
banking solution, if permitted by RBI regulations, is likely to be more
effective and less costly to the provider, and achieve greater satisfaction
levels for the low income user. The “Jan Dhan” Yojna has tried to build in
incentives for all participants (bank employees, correspondents, unbanked public).
Its public launch involved the PM and his ministers, demonstrating his personal
commitment and the importance attached to it by the government. There is also a hint of regulatory easing
with respect to use of mobiles for payments.
If the “Jan Dhan” Yojna achieves its enrolment & usage targets, it
would be a feather in the government’s cap.
[i] See note at https://sites.google.com/site/chintan1997reg/institutional-reform/uid
for a summary.
[ii]
See http://dravirmani.blogspot.in/2014/04/mobile-banking-vs-mobile-access-to-bank.html
for more details
