State of the Sector Report 2010 - Microfinance Gateway

Financial inclusion—reasons for hope 117UIDAI’s micro-payment solution 11A stable and secure channel for the delivery of micro-payments will be central to successful, widespreadfinancial access. A UID-enabled Bank Account (UEBA) linked to a UID number can provide this channel.A customer can access their UEBA through a BC operating a handheld microATM device. A UEBAprovides four basic banking features:1. Convenient store of cash for savings, with a facility for making electronic deposits and withdrawals inmicro-amounts.2. Convenient way to make payments.3. Fast channel for sending and receiving remittances.4. Balance queries, and provides a history of transactions.Transactions on the UEBA function essentially as a prepaid system, similar to that used by mobileoperators. This enables local BCs such as SHGs and kirana shops to offer basic banking services at lowrisk to the bank. The customers are already familiar with this model and comfortable with paying fortalk-time, an electronic good. The BC starts out by depositing a certain amount with the banking institution.This ‘prepaid balance’ paid up by the BC to the bank changes with every transaction the BC makes.It decreases when a customer makes a deposit transaction, when some part of it is transferred to thecustomer’s account and increases when a customer withdraws money.When the customer is making a deposit, she pays physical cash to the BC, who subsequently makesan electronic transfer from the BC account to the customer account. When making a withdrawal, theelectronic transfer is made from the customer account to the BC account, and the BC hands out physicalcash to the customer.This transfer from physical cash to its electronic equivalent has precedence across India—includingvillages—in the purchase of mobile prepaid cards. The bulk of mobile subscribers have prepaid subscriptions,and each time a customer purchases talk-time for his phone in the form of ` 10 or ` 50 prepaidcards, he is exchanging physical cash for electronic cash in the form of talk-time.The primary advantage of this approach is that even as it runs electronic transactions at the accountlevel, thus bringing down the costs of cash management for banks, it also supports physical cash transactionsat the local level—which is an important component of rural banking.and fixed IT costs that we now face in bringing bankaccounts to the poor.The UID’s authentication processes will allowbanks to verify poor residents both in person andremotely. Rural residents will be able to transactelectronically with each other as well as with individualsand firms outside the village. This will reducetheir dependence on cash, and lower costs fortransactions.Institutions in the fieldworking on inclusionIn the midst of debates on what will work andwhat will not as also their comparative costs andbenefits, some banks have gone ahead with theirplans for making intensive efforts. Since branchlessbanking with agents is uncharted territory formost Indian banks, experimentation and testingbecame a requirement. SBI, the largest public sectorbank and HDFC Bank, a leading private sectorbank, have taken significant measures in the inclusionsphere.State Bank and inclusionSBI has a deep commitment for financial inclusion.The variety of activities undertaken by the bankand the numbers reported are truly inspiring. Thebank brings in the excluded population to the bankthrough a variety of means and technologies. To increaseits direct outreach, the Bank has opened about374 rural and 321 semi-urban (total 695) branchesduring the financial year 2009–10. The Bank hasappointed about 26,800 CSP/outlets of BCs/BC toincrease the outreach of its network. Some of thenational level organisations such as India Post, ITC,National Bulk Handling Corporation and RelianceDairy are acting as BCs of SBI. The alliance withIndia Post has been scaled up nationwide and nowcovers more than 5,200 post-offices across all States.The Bank is the market leader (market sharearound 31 per cent) in SHG-Bank Credit LinkageProgramme (SBLP) having credit linked so far17.13 lakh SHGs (3.40 lakh SHGs credit linked duringfinancial year 2009–10). The Bank has rolledout several unique products like SHG Credit Card,