Posted: Fri, Oct 1 2010. 1:00 AM IST
Key means of financial inclusion need to be put in place before the benefits of the scheme become evident
Sanjiv Shankaran, sanjiv.s@livemint.com
New Delhi
New Delhi
The unique identification (UID) programme is likely to underpin the government’s efforts to bring the bulk of India’s population into the organized sector, but its impact will take a few years to show as other important means of financial inclusion need to be put in place, experts said.
The UID programme aims to provide every Indian resident with a 12-digit identification number based on their biometric data. The first UID was issued in Maharashtra on Wednesday; the government intends to issue UID numbers to 600 million people by 2014.
“If enthusiasm (for the programme) remains at the current levels, it will take three years to get 90% of coverage level and other things will trail by two more years,” said Vijay Mahajan, founder-chairman of Basix Group, which provides microfinance.
Poor people in both rural and urban India are often unable to open bank accounts as they have no identification. This excludes them from the benefits of financial services such as microfinance.
Mahajan, who was on a government panel that submitted a report on financial inclusion in 2008, said there are three key requirements to bring more people under the banking net.
“UID is the first step. It needs to be backed by banks opening accounts for people with UIDs. Finally, there have to be a large number of banking outlets to facilitate transactions,” he said.
Nandan Nilekani, chairman of the Unique Identification Authority of India (UIDAI), is scheduled to meet Reserve Bank of India (RBI) officials on Friday to explore ways in which banks can link with the project, said a UID official who did not want to be named.
RBI is upbeat about UID’s potential to dovetail into its efforts to nudge banks toward spreading their coverage.
“The UID will be a powerful instrumentality for helping poor people establish their identity to meet the banks’ KYC (know your customer) norms,” RBI governor D. Subbarao said in December during a speech on financial inclusion.
“I believe, this (UID) is going to reduce cash and non-cash transaction costs—both to the banks and to the potential customers,” Subbarao said.
Over the past five years, banks have been reaching out to poor people through so-called “no frills” accounts, designed to meet basic banking needs at low or zero cost.
RBI’s latest annual report said 50.6 million “no frills” accounts were opened between November 2005, when they were launched, and March 2010—with an outstanding balance of Rs.5,386 crore.
Mahajan said Indian banks need to open about 500 million accounts, a fivefold increase from the current level. UID can be critical as it “will potentially make all 500 million have access to authentication”, he said.
Currently, banks typically use business correspondents to provide last-mile connectivity with the unbanked. According to RBI, barely 5% of India’s habitations are covered by bank branches.
Anirban Roy, managing director of Seed Infrastructure and Solutions (P) Ltd, a business correspondent, said banks have already started designing the “no-frills” build-up to accommodate customers with UID numbers.
Seed has opened about 1.5 million accounts in 17 states. According to Roy, the “no-frills” customers roped in by Seed are given a biometric smart card.The smart cards come with different “pockets” to meet varying needs such as withdrawals and deposits. The cards distributed by Seed have an extra pocket to store a customer’s unique identity number whenever it is generated, Roy said.
“UID is giving a national identity,” Roy said. “It could be useful going forward.”
The UID programme aims to provide every Indian resident with a 12-digit identification number based on their biometric data. The first UID was issued in Maharashtra on Wednesday; the government intends to issue UID numbers to 600 million people by 2014.
“If enthusiasm (for the programme) remains at the current levels, it will take three years to get 90% of coverage level and other things will trail by two more years,” said Vijay Mahajan, founder-chairman of Basix Group, which provides microfinance.
Poor people in both rural and urban India are often unable to open bank accounts as they have no identification. This excludes them from the benefits of financial services such as microfinance.
Mahajan, who was on a government panel that submitted a report on financial inclusion in 2008, said there are three key requirements to bring more people under the banking net.
“UID is the first step. It needs to be backed by banks opening accounts for people with UIDs. Finally, there have to be a large number of banking outlets to facilitate transactions,” he said.
Nandan Nilekani, chairman of the Unique Identification Authority of India (UIDAI), is scheduled to meet Reserve Bank of India (RBI) officials on Friday to explore ways in which banks can link with the project, said a UID official who did not want to be named.
RBI is upbeat about UID’s potential to dovetail into its efforts to nudge banks toward spreading their coverage.
“The UID will be a powerful instrumentality for helping poor people establish their identity to meet the banks’ KYC (know your customer) norms,” RBI governor D. Subbarao said in December during a speech on financial inclusion.
“I believe, this (UID) is going to reduce cash and non-cash transaction costs—both to the banks and to the potential customers,” Subbarao said.
Over the past five years, banks have been reaching out to poor people through so-called “no frills” accounts, designed to meet basic banking needs at low or zero cost.
RBI’s latest annual report said 50.6 million “no frills” accounts were opened between November 2005, when they were launched, and March 2010—with an outstanding balance of Rs.5,386 crore.
Mahajan said Indian banks need to open about 500 million accounts, a fivefold increase from the current level. UID can be critical as it “will potentially make all 500 million have access to authentication”, he said.
Currently, banks typically use business correspondents to provide last-mile connectivity with the unbanked. According to RBI, barely 5% of India’s habitations are covered by bank branches.
Anirban Roy, managing director of Seed Infrastructure and Solutions (P) Ltd, a business correspondent, said banks have already started designing the “no-frills” build-up to accommodate customers with UID numbers.
Seed has opened about 1.5 million accounts in 17 states. According to Roy, the “no-frills” customers roped in by Seed are given a biometric smart card.The smart cards come with different “pockets” to meet varying needs such as withdrawals and deposits. The cards distributed by Seed have an extra pocket to store a customer’s unique identity number whenever it is generated, Roy said.
“UID is giving a national identity,” Roy said. “It could be useful going forward.”
