Imagine you are a labourer in a village in Odisha and have painstakingly completed your Aadhaar formalities (for which you gave a proof of permanent address and your fingerprints). You moved to Chennai for some short-term opportunities on a construction site. While in Chennai, you are staying in a tenement with a few people from your village and want to open a bank account so that it’s easier to remit money to your family back in Odisha. You would realize that despite having an Aadhaar number, you need to have some proof of address in Chennai to be eligible for a bank account; a document extremely hard to produce for someone newly arrived in the city. This single requirement of a local address proof was potentially a barrier for millions of migrant workers (not just low-income) from accessing a bank account.
The requirement for a proof of identity, along with a proof of permanent address and a proof of local address, although motivated by anti-money laundering (AML) and countering of financing of terrorism considerations, was unusual in its over-zealousness. US regulations (31 CFR 103.121), for example, do not require banks to verify current address and defines address broadly, even to include “a description of the customer’s physical location”. The Financial Action Task Force (FATF) guidance expresses a concern that controls that have been designed for standard risks and higher risks get applied to situations where the risks are lower, and therefore, this “over-compliance” approach by regulators and financial institutions could exacerbate financial exclusion risk, which, in turn, increases the overall money laundering/terrorism financing risk. In India, this rule had inadvertently kept large swathes of population out of the reach of basic banking services. Such population is typically migrant labourers and other workers who move to different locations for seasonal work as well as for permanent relocation, and women who move to new locations after marriage.
