Bank at your doorstep

Technology is helping public sector banks find customers in rural India. This is part of the Centre’s efforts to include villages in the organized financial system; to ensure they are not cheated of their wages. Pilots show promise

Published: Monday 15 March 2010

Bank at your doorstep

The current state of rural banking in the country is poor. A recent report, by the National Sample Survey Organization, revealed that 51.4 per cent of the 89.3 million total farmer households in the country had no access to credit; 27 per cent of the households were indebted to formal sources of which one-third also borrowed from informal sources.

With the financial inclusion drive, the Centre aims to overcome such exclusion.

MNREGA fact file
image MNREGA guarantees unskilled manual labour for 100 days a year to every rural household. It came into effect in 2006

image 80 million accounts opened since. Of these, 39 million accounts are with post offices.

image 108.9 million job cards issued

image 78 per cent wages disbursed through post office or bank accounts in 2009-10

image Of the budgetary allocation of Rs 39,100 crore this financial year, Rs 26,078 crore spent. Of this, Rs 18,061 crore (69 per cent) the wage component
mnrega was a ready tool for the inclusion drive (see: mnrega fact file). But with reports of corruption, mnrega was in a mess.

In 2007, the Comptroller and Auditor General of India (cag) conducted a performance audit of the national rural employment guarantee scheme. The audit report exposed lapses in the scheme’s implementation and delay in wage payments. Of the 21. 2 million households that demanded work under nrega, 2.2 million received the 100 days of guaranteed employment, cag found. “Systems for financial management and tracking were deficient, with numerous instances of diversion/misutilization, and delay in transfer of state share,” the report noted.

Other irregularities were also reported. Villagers in six district of Uttar Pradesh protested in June last year because they did not get their wages (see ‘Rs 1 crore due to nregs workers in UP’, Down To Earth, July 15, 2009). Machines and not labour were used in Bhilwara in Rajasthan. In Orissa, government officials siphoned about 75 per cent of the mnrega funds in mid-2007 (see ‘Report card of nrega in Orissa’, Down To Earth, September 30, 2007).

imageIn the light of such reports and its own findings, cag recommended the government should explore a deal with the postal department for wage payments through postal accounts, except where state governments had ensured payments through banks. “The ministry of rural development’s assessments and the widespread corruption reported forced us to amend mnrega in 2008,” said Nitin Chandra, director of mnrega cell. Cash payments became illegal under the amendment. Until then more than half the wages were paid in cash. Post amendment, till December 2009, 22 per cent of the total wages were paid in cash, ministry data revealed.

In keeping with the Centre’s directive, states such as Punjab, Andhra Pradesh and Bihar have opened accou-nts in banks or post offices for all its beneficiaries; Meghalaya, Mizoram and Arunachal Pradesh lag behind with accounts opened for 33 per cent, 28 per cent and 21 per cent of its beneficiaries, ministry data showed. The data also revealed that 22 per cent of the wages in the country were paid in cash. Despite the amendment, said Chandra, exemptions are made for blocks because in some cases the nearest branch is more than 40 km away, he added.

But, rural banking is beyond savings accounts in banks or post offices. A 2009 study, Speeding Financial Inclusion, by Skoch Development Foundation, a not-for-profit company in Gurgaon, revealed that though more than 25 million accounts were opened between April 2007 and May 2009, less than 11 per cent of them were active.

Why? Lack of appropriate technology, said K C Chakrabarty, deputy governor of Reserve Bank of India (rbi). Without technology banks cannot reach the people and since existing banking technologies are recent, a business delivery model is yet to evolve, he said.

Experiments are on though.

imageShankar Sahu, 37, a labourer in Makarjhol village of Ganjam district in Orissa, would walk five km to Saru village to collect his NREGA wages. When he felt tired, he took an auto ride: and spent Rs 10.

Saru has a State Bank of India bra-nch, in which the government deposited his wages under NREGA renamed Mahatma Gandhi National Rural Employment Guarantee Act MNREGA on October 2, 2009. Collection day for Sahu meant a day wasted, long queue at the bank plus expenditure on transport. But, that was over a month ago.

Now, the bank reaches Sahu in his village via its new branchless banking pilot scheme in the district. The scheme involves a trained bank representative, state-of-the-art mobile phone, a smart card and a fingerprint device-all of these connected to the central server of the bank in Mumbai. The representative, the face of the bank in the district, carries the paraphernalia and makes weekly payments to daily wagers.

Sahu is thrilled. So are thousands of villagers covered under the government's recent financial inclusion drive. The aim of the drive is to include the weaker and vulnerable sections of society in the ambit of organized financial system. And, with the Centre directing states to pay MNREGA wages through post offices and banks, the institutions are busy experimenting payment options with several IT -enabled services.

The inclusion drive, though, is only teething now.


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