As the Technical Secretariat to RBI’s Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, IFMR Finance Foundation is inviting submissions from individuals/institutions across the country. In the coming weeks, we will be posting (with prior permission) select edited interesting submissions that we have received beginning with a guest post by Dr. Aruna Sharma on a unique model from Madhya Pradesh.
By Dr. Aruna Sharma, ACS, RD, Panchayat, Social Justice, Government of Madhya Pradesh
Madhya Pradesh, with an area of 3.08 lakh square kilometres is the second largest State in India after Rajasthan1. It has a total of 50 districts2, 52,117 inhabited villages3 governed by 23,006 panchayats, and as per the 2011 Census, has a population of 7.27 crore4 with more than 75% of it residing in villages.
The state has deployed a unique financial inclusion model based on a three-pronged approach:
1) Common Database
As a first step towards building this model, the state built a common database of its inhabitants through its Samagra Samajik Suraksha Mission (SSSM). Under this mapping mission each family and every individual received a unique identification number. The unique identification number is called the Samagra Number and contains within it all the information relating to the location of the individual and the household as well. If the last digit is a “zero” then the number refers to the household, i.e., it is the family’s Samagra number, while numbers from 1 to 9 refer to individual members of the household. Birth and Death registration has also been linked to this database so that at all times it offers up a complete demographic record. This database contains a number of pieces of data5:
- The number of each scheme that is associated with the individual and the family – MGNREGS, Scholarships, Pensions, etc.
- The number of the bank account to which funds have to be transferred.
- Aadhaar number wherever available.
- Photograph of the dwelling/toilet (if already benefited under any Government scheme)
- Caste details
- BPL number/Labour department number if construction labour
- Linked to MIS of other departments like Health, MGNRE.GA, NBA (Nirmal Bharat Abhiyan), NSAP (Pension schemes), etc.
2) Funds Transfer
Subsequent to setting up a common database with a single bank account number, it was ensured, through careful coordination, that all the funds from all the schemes of the State government and the Central government go to the SAME bank account unlike the situation previously prevalent where each scheme had its own distinct disbursement structure.
3) Financial Viability
At the State Level Bankers’ Committee (SLBC) the bankers provided feedback that they needed an annual cash transfer flow of Rs.45 lakh to ensure viability of even their Ultra-Small Branch. In order to ensure such financial viability but also to balance that with good access, the State set for itself the goal that a cash-in-cash-out (CICO) point would be available to every resident within the entire State at a maximum distance of 5 kilometres and that one of the following would be present within that radius:
- A regular branch or an Ultra-Small Branch of a Scheduled Commercial Bank.
- An RRB Branch.
- A Cooperative Bank Branch.
- A Post-Office or a Sub-Post Office6.
It ensured that once the specific location was identified:
- All disbursements to the beneficiaries would go to that very same point and the same bank (Financial Institution) account.
- The account of the Panchayat was also shifted there (this alone brought in about Rs.25 lakh of cash transfer business annually).
- A 100 sq.ft. area was given inside the Panchayat Bhavan to the access point, free of cost.
Through this effort it found that:
- The average annual cash transfer through each of these access points now exceeds Rs.1 crore thus addressing the issue of financial viability.
- Customers have moved from maintaining an average savings account balance of Rs.58 to Rs.1000.
- As comfort with the local population builds the banks have started to gradually build out their lending businesses as well along with financial literacy on having recurring saving accounts.
- The branch staff could be relied upon to operate a fraud free mechanism using their internal processes.
- If the radius is reduced below 5 kilometres financial viability could be a challenge.
To ensure that this happened, at the DLBC (District Level Bankers Committee) level the position of the Lead District Coordinator had to be revived and upgraded. A request had to be made at the SLBC level for this to happen. The bankers are now in a win-win situation having realized the financial viability of this approach.
During this mapping exercise it was discovered that 14,000 out of its 53,012 villages did not have any of the 4 choices identified above. These 14,000 villages were identified as “Shadow Villages”. In order to completely cover these 14,000 villages there was a need for 2998 access points. After strenuous efforts at the SLBC level now 1,861 access points have been opened and have done a business of more than Rs.1200 crore. As on date 18 full-fledged branches have also been opened in these shadow areas. The need is to have 100 such branches so that each can take care of 30 Ultra-Small Branches. The experience of the 18 branches shows that these can be financially viable proposition. Direct Benefit Transfer to all MGNREGA beneficiaries, all pension beneficiaries to the tune of Rs.800 crores have been disbursed through this conduit.
- Refer: http://www.mpdistricts.nic.in/. Also see: http://www.census2011.co.in/census/state/districtlist/madhya+pradesh.html for more details of each District.
- The Government has appointed a Graam Rojgaar Sahayak under MGNREGA who, along with a Phablet (Phone+Tablet), is expected to keep the database updated by regular home visits and instantaneous updation of the central database.
- Through its IT platform Sanchay Post (http://www.indiapost.gov.in/DOP/Pdf/Circulars/SBOrder9.pdf) the post office / sub-post office is able to open a “Basic Savings Account” and guarantee transfer of funds between T+14 and T+20 days. Villagers reported a higher level of satisfaction with the family post office franchisee in comparison to a regular post office because of the flexibility in the hours of operation that it offered.