Stories of Bribes, Duplicate Accounts Complicate Government Effort
India’s government calls its massive financial-inclusion program a big success, but the WSJ found a more complicated picture.
Video/Photo: Paolo Bosonin/The Wall Street Journal.
By GABRIELE PARUSSINI
Updated April 8, 2015 10:25 p.m. ET
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MUMBAI—Firozaben, a nurse at an upscale clinic here, opened an account at the state-owned Bank of Baroda Ltd. in December, attracted by the promise of an overdraft provision and accident- and life-insurance policies—all for no fee, courtesy of a government program to bring India’s masses into the banking system.
The same month, Mohammad Assalam Ansari, a tailor, traveled to an account-opening “boot camp” run by the bank. He says he had to pay 100 rupees before a clerk would give him an application form. Despite this, he says his application was rejected; he isn’t sure why.
Their stories reflect both the promise and the weakness of an ambitious program by Prime Minister Narendra Modi to widen access to financial services to the country’s poor. The goal is to make India less cash dependent, shrink the black economy, reduce corruption and boost growth.
The government labels the program—called the People Money Scheme, or Jan Dhan Yojana—a resounding success, saying 135 million new bank accounts have been opened, well above the target for 75 million at the program’s launch in August.
People line up to open bank accounts at a print-and-copy center acting as a bank agent in Mumbai’s Dharavi slum. PHOTO: PAOLO BOSONIN/THE WALL STREET JOURNAL
Crediting incentives and a system of local agents acting as bank branches, Mr. Modi claims that now virtually every household in India has a bank account. The program, known as PMJDY in India, even earned a Guinness World Record for opening the highest number of bank accounts in one week.
Economists have lauded the program. “What’s extraordinary about the scheme is its drive and speed,” said Kabir Kumar, a financial-inclusion expert at CGAP, a World Bank-backed think tank. “Nothing like this has ever been attempted before.”
But skeptics also say it isn’t clear to what extent Mr. Modi’s plan has reached the unbanked: Many of the new accounts were opened by people who already had accounts to take advantage of government freebies. And tales abound of bribe-seeking officials blocking access for some of the very people the program was designed to reach.
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I think its a step towards the right direction for India. There needs to be a better social inclusion between the poor and the rest of society, which I think can be made with better bank, hospital and education inclusion programs for the poor. But it will not solve the problem with micro economical thinking, because it also has huge administration costs. India needs a strong governance culture in order to create a better balance beam between the poor who struggles for survival on a day to day basis and the tremendously rich, because the problems are in such large scale proportions. It requires new taxation system thinking in order to make new jobs and educational programs, which will probably resolve in political election suicide. India has some of the best educated people with low salary which gives India a comprehensive advantage in the global job marked. With more well educated people they can use this advantage to their full potential. I think it will make new jobs in India, if employment continues to be outsourced on the International job market. My heart still goes to the people who beneficial of this political decision, even if it doesn't solve the problems, it still makes life a little bit better for those whom receive.
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Camilla Christensen
1d@Camilla Christensen
Rajesh Aggarwal, a director at the program, acknowledged both issues and said steps to address them had reduced the frequency of customers opening duplicate accounts and the number of people turned away from banks.
A Bank of Baroda spokesman said the bank doesn’t charge customers to open accounts, and that it reports instances of illegal charges to authorities.
Finance ministry officials say those asked to pay a bribe can call widely advertised helpline numbers. “We run a wide-ranging campaign to encourage people to report such accidents,” said Finance Secretary Hasmukh Adhia, who reports to the finance minister on the program.
A local bank agent gives a woman a receipt after she opens a bank account in Mumbai’s Dharavi slum on March 18. PHOTO: PAOLO BOSONIN/THE WALL STREET JOURNAL
Ms. Firozaben, the nurse, who goes by only one name, says she already had an account at a different bank when she visited Bank of Baroda in December. Banks require identification documents to open new accounts, but only one form of ID—India’s Aadhaar number, a unique 12-digit identifier linked to biometric data—is linked to a customer’s bank account in a way that allows for a cross-check to rule out the opening of a duplicate account. Ms. Firozaben says she couldn’t remember which documents she used to open the Bank of Baroda account.
The government plans to give every citizen an Aadhaar number by the end of the year, but India’s Supreme Court has ruled that having one can’t be made mandatory.
It isn’t known how many of the accounts opened under Mr. Modi’s program belong to people who didn’t have one already, said A.P. Hota, head of the interbank platform that supervises India’s retail payment systems. Experts and employees at large government banks estimate that between one-third and two-thirds of new accounts may have been opened by people with existing accounts.
The data from the program “simply reveal the number of accounts opened,” said Amy Jensen Mowl, a researcher who specializes in financial inclusion at the Institute for Financial Management and Research, a social-research group in Chennai. “We have yet to determine how many households remain excluded.”
KPMG said in a report on the program that the lure of insurance coverageand an overdraft facility may have prompted people to open multiple accounts in various banks using different identification documents. The consultancy pointed at account duplication as one of the main challenges to India’s financial-inclusion program as it obfuscates whether the plan is reaching the unbanked.
Mr. Aggarwal acknowledged that many accounts may have been opened by people who already had access to banking services, especially in the program’s first weeks. More than a third of new accounts were opened in the month that followed the launch.
In addition, misunderstandings over the overdraft provision in the early days of the program led many poor people to believe that accounts would come already loaded with cash. Disillusion may cause many to leave newly opened accounts dormant, financial-inclusion experts say. That was a problem after previous programs led to waves of people opening accounts.
Meanwhile, some of the people Mr. Modi’s program was intended for—India’s urban slum-dwellers or rural poor—say they still have no access to banking.
Mr. Ansari, 38 years old, lives in Mankhurd, a slum on the edge of Mumbai’s largest dumping ground, a one-hour bus ride away from the affluent southern districts of the nation’s biggest city. As a tailor, he earns 7,000 rupees a month, or about $113, supplying unstitched garments to other tailors, and has no savings.
Mr. Ansari’s application to open an account was turned down. He said he doesn’t know why identity documents he supplied weren’t seen as sufficient. Mr. Ansari says he had tried to obtain an Aadhaar number, but that employees running an enrollment camp asked him for a 1,000 rupee bribe—money he didn’t have.
Today, Mr. Ansari still doesn’t have a bank account. “I ended up with nothing,” he said. The Baroda spokesman said Mr. Ansari should have been able to open an account with the documentation he provided.
‘Scavengers’ collect garbage in Govandi slum, Mumbai. PHOTO: PAOLO BOSONIN/THE WALL STREET JOURNAL
Jahanoor Bibi Shaikh, a 47-year-old housewife, lives in the same settlement as Mr. Ansari. She shares a one-room hut with her eight family members, including her chronically ill husband, who has been unable to work for 12 years. The Shaikh family, originally from Bihar, lives off the wages of their 18-year-old son, Ramzan, who makes up to 10,000 rupees a month as a laborer.
Enticed by the promise of free life and accident insurance, Mrs. Shaikh had high hopes for opening a bank account.
For years, she had stored up money in a box at home to cover the bribes commonly associated with obtaining identity documents. She says she paid 500 rupees for a Permanent Account Number, an identifier issued to all Indian taxpayers, and 2,000 rupees for a birth certificate. Both these documents are accepted forms of identification for opening new accounts under Mr. Modi’s program. Mrs. Shaikh hasn’t applied for an Aadhaar number.
She says she applied for a bank account at a State Bank of India Ltd. boot camp in December, and that employees asked for 100 rupees to register her application.
“My account is still not open,” she said. “I’m waiting to hear back.”
Manju Agarwal, an SBI manager, said that paperwork for opening accounts is free. “It’s beyond my comprehension that a customer is asked to pay when he opens an account,” she said, commenting on Mrs. Shaikh’s account of her experience.
In the technology-poor countryside, an identifying program relying on biometric data is likely to encounter more roadblocks, said Jean Drèze, who teaches development economics at Ranchi University, in one of India’s poorest states. “In many parts of rural India, this is wishful thinking.”
One rationale behind Mr. Modi’s plan was that it would allow the government to dole out support directly to the people most in need, rather than through costly subsidies for staples such as fuel.
On April 1, the government stopped subsidizing the retail price of liquefied- petroleum-gas cylinders, which most Indians use for cooking. The price increased by 40%, with subsidies now being wired directly into LPG customers’ bank accounts. Billions of dollars’ worth of other subsidies—from scholarships to housing benefits—will be transferred as cash directly into bank accounts this year, a government official said.
But if the poor have trouble cutting through red tape to open accounts, they may miss out on the subsidies altogether.
Barkat Ullah Kahn, a day laborer who earns about 14,000 rupees a month, recently applied for an account with SBI after setting aside enough money to pay for a connection for gas cylinders at his home. Without an account, he will miss out on the government’s subsidies.
He carried with him his Aadhaar number, a Permanent Account Number card and a ration card as proof of identity, yet he says his application was still turned down.
Mr. Adhia, the finance secretary, said such occurrences aren’t common. “There will always be a small amount of this kind of complaints for such a huge program,” he said.
As for Mr. Kahn, he isn’t sure why he was unsuccessful. “They didn’t give me any reasons,” he said. Ms. Agarwal, at SBI, said she didn’t understand why someone like Mr. Khan would be turned away.
—Kenan Machado contributed to this article.
Write to Gabriele Parussini at gabriele.parussini@wsj.com
