Suyash Rai of IFMR Finance Foundation, Raghav Narayana of IFMR Rural Finance in an informal conversation with Mr. Praveen Chakravarty, who is a volunteer in the Financial Inclusion team of UIDAI. Mr. Chakravarty was involved in the Jharkhand pilot project on the ground in Ranchi and Hazaribagh which was an important milestone for demonstrating a model for financial inclusion as a viable opportunity.
SR: Praveen, what are the different efforts for financial inclusion by the UIDAI?
Broadly, I would say 3 aspects on how UID can impact financial inclusion. First is a change that can be facilitated at the public policy level. Second, a change at the technology level. Third, a change at the business model level.
If there is a notification by the RBI that the UID suffices as a KYC proof for opening a bank account, then that is a change at the public policy level. Second, UIDAI has said that it will provide authentication information and identity services to help enable payment infrastructure in this country. This will be provided as a government good which will be free or minimally priced. Third, on the business model side, the combination of Business Correspondents [BC], along with the public policy and technology changes, can now fundamentally alter banking and financial inclusion. Now, through a combination of these three, is financial inclusion still an obligation that is mandated by the RBI on the banks or can this now be truly an economic opportunity?
UIDAI is expected to do 600 million enrolments across the country by 2014. As per the Request For Empanelment of banks with the UIDAI process, UIDAI will offer the residents a choice of whether they need a bank account, and if they say they do, UIDAI will give them multiple choices of banks that have expressed interest in being a partner bank. Once they choose a bank, UIDAI will then transfer the demographic data electronically to that bank, which will use it to open the accounts for these customers. This means banks can now open accounts in a batch process. The cost of customer acquisition becomes almost zero. In the last 60 years or so, we have opened around 120 million bank accounts. So out of the 600 million enrolments, even if 60 million bank accounts are opened, this can be a big fillip.
SR: How many banks have you already got this coordination done with?
This is open to all Scheduled banks in the country.
SR: Sp how is the interoperability? Banks are creating different platforms, to develop their BC channels. So the interoperability of BC touch points itself for multiple banks to transact is still a question isn’t it?
BCs have been deploying their own authentication and transaction technology. Now, UIDAI has developed a set of standards called the Micro-ATM standards. Any device manufacturer can build to these specifications. There is no need to collect, or verify identification information, or issue biometric cards at the BC level. So now, it can be made interoperable. From a technology perspective, all the elements are there to make it interoperable.
SR: What kind of authentication will be possible through UID?
The authentication policy is being worked out currently and will be released soon. Currently there are tests and pilots being conducted on biometric as well as demographic authentication using devices made to a standard set of specifications.
RN: Can you brief us about the Jharkhand pilot that the UID recently carried out?
We picked a few district blocks in Jharkhand like Hazaribagh. We wanted to do UID enrolments there, and see how we can demonstrate the potential for financial inclusion. These are villages with very little banking access. We identified 3 partner banks – ICICI Bank, Bank of India and Union Bank of India across 30-35 villages. These banks in turn appointed BCs. We went and told the people that they can enrol for Aadhar and while they do that, they can also get a bank account. Initially all the banks were of the mind-set that one family or household would require one bank account, but my field experience in Jharkhand now tells me that the woman in a household was very clear that she wanted a separate bank account. The result was that around 30,000 accounts were opened in Hazaribagh alone in a matter of 2-3 months.
Once these accounts were opened, we also worked with the Rural Development Department on the muster rolls. We tried to see if we could map every NREGA job card number to their Aadhar number, and the Aadhar linked bank account number. The NREGA wages can then be disbursed through these bank accounts.
Earlier, they would travel about 40km and lose a day’s wage just to withdraw their wages. Now banks can deploy BCs who have devices made to the micro-ATM specifications so that villagers can do cash-in, cash-out and transfers at their doorstep.
RN: How did the Jharkhand pilot do in terms of your own expectations?
The first question about the pilot was around connectivity, especially in places like Hazaribagh, because if we could do it there, we could do it any remote place. So it is now proved that connectivity was not an issue. Second, we proved that fingerprint based biometric authentication does work. Third, we worked through the NPCI, which acted as the inter-bank switch and the authentication agency through which all authentication requests were routed.
RN: Was there anything different in this pilot that the UID did from usual biometric data collection? Was any special device used?
We collect all ten fingerprints and we also collect iris scan, as opposed to only 2 or 3 fingerprints by some BCs. Over a population of 1.2 billion, a combination of ten sets of fingerprints and iris scan can make it unique and easily identifiable.
SR: What type of connectivity was available at these BC points?
We used GSM connections. Regular cell-phones were sufficient. If the cell-phones work, the micro-ATM also works.
SR: If a financial services provider, other than just asking for authentication, wants to access to client database, demographic information, to use it for client acquisition, will the information be provided?
Such information will not be provided. There will only be a yes or no answer for authentication.
RN: For your interface with the bank, once the Jharkhand pilot scales and goes across the country, is there a revenue model that the UIDAI is looking at, for the banks and BCs and for the UIDAI itself?
In my personal opinion, there could be various revenue models and incentive structures for this model of financial inclusion to work and scale. Currently, financial inclusion is more of a mandate that is being forced upon the banks by the RBI. The banks don’t see it necessarily as an economic opportunity and unless we make it one, we will not have a scalable model of financial inclusion. Let us consider the economics of this.
On the cost side, currently banks and their BCs incur a significant customer acquisition cost through a combination of KYC checks, identity validation through their own biometric cards as well as marketing costs. By piggy-backing on the UIDAI’s enrolment efforts, banks and BCs can bring down their customer acquisition costs to almost zero.
On the revenue side for the banks and their BCs, there is a possible combination of revenue streams such as a disbursement fee for government subsidies, a small float income from residents, opportunity for the BC to cross-sell multiple products such as micro-insurance, telecom SIM cards etc.