In India, the financial inclusion strategy is currently facing obstacles triggered by a variety of issues highlighted by Bankers and Business Correspondents (BCs). Integral concerns revolve around Aadhaar enabled payment system (AePS) device subsidies, identification issues with Jan Dhan and rural accounts, and the non-payment of government-proposed fees to BC agents. A comprehensive scrutiny of these matters is crucial in overcoming barriers to financial inclusion.
What are Business Correspondents?
Business Correspondents (BCs), as authorized by the Reserve Bank of India, are retail agents hired by banks to provide banking services in locations beyond the standard bank branches or ATMs. These locations are often remote areas that lack the presence of conventional banking services. The establishment of BCs allows a bank to deliver a limited range of banking services at a relatively low cost, fostering financial inclusion throughout the country.
AePS and DBT: A Brief Overview
Aadhaar enabled Payment System (AePS) is a banking model that permits online interoperable financial inclusion transactions at Points of Sale (MicroATM) through a bank’s Business Correspondent using Aadhaar authentication. For a customer to conduct a transaction under AePS, an Identification Number (Identifying the bank to which the customer belongs), the customer’s Aadhaar number, and the fingerprint captured during their enrollment are required.
Direct Benefits Transfer (DBT), on the other hand, involves the direct transfer of subsidy amounts and other benefits to the beneficiaries’ bank accounts rather than providing them via government offices. AePS supports targeted beneficiaries under DBT in receiving the subsidy amount. The Supreme Court, however, in September 2018, rescinded mandatory linking of Aadhaar with bank accounts but permitted the use of Aadhaar for DBT-related activities.
Main Concerns Encountered in Promoting Financial Inclusion
The primary issues that are hampering the financial inclusion strategy in India include AePS device subsidy not availed by banks and BCs due to the latter’s inability to afford it, thereby limiting Direct Benefit Transfer (DBT) money access to citizens. This issue is further exacerbated by the problem of Jan Dhan accounts and accounts in rural areas not being identified due to the common IFSC code of the centralized Core Banking System.
Additionally, the government’s proposed fee for BC agents is not disbursed as expected, making their job financially unproductive. All these factors combined are violating the government’s intent and inviting GST charges, hence obstructing the path of financial inclusion.
| Issue | Explanation |
|---|---|
| AePS Device Subsidy | Not availed by banks and unaffordable for BCs, limiting DBT access to citizens |
| Identification of Rural Accounts | Rural and Jan Dhan accounts aren’t identified due to a common IFSC code, resulting in service violations and GST charges |
| Non-payment to BC Agents | Governments proposed fee for BC agents isn’t disbursed, leading to financial hardships for them |
Moving Forward: The Needed Steps
For effective financial inclusion, it is crucial to incentivize and monitor BCs properly. Banks should ensure they are equipped with necessary facilities and devices. Also, the government must make small savings affordable for banks. An additional essential step is the education of the people, especially the targeted section, regarding the benefits available, such as the advantages associated with RuPay cards.