By AVV Prasad, Additional Commissioner of Rural Development, Government of Andhra Pradesh
Andhra Pradesh Smartcard Project
In 2006 Department of Rural Development, Government of Andhra Pradesh started initiative to make payments of Government benefits to the beneficiaries through Smartcards which are backed by bank accounts.
A. All Gram Panchayats in the State are allotted to Banks or post office. Banks engaged services of business correspondents.
B. Payments in progress in 95% of Villages. Beneficiaries are paid at GP office, post office or at doorstep.
C. Benefits are directly credited to beneficiary accounts in bank/post office and paid to beneficiaries.
D. Local SHG Woman or local post office as last mile service delivery point with a handheld PoS machine/microATM.
E. Biometric authenticated payments of the pre-Aadhaar era.
F. MGNREGA Wages paid once a week and Social Security Pensions paid once a month.
G. 15 million accounts, Rs.11000 crores since 2007; Rs.4091 crores during FY 2012-13.
H. AP leads in enrollments and payments on the Aadhaar platform too. AEPS was launched in East Godavari district on 6.1.2013.
I. AP is gearing to be the first Universal Aadhaar State.
J. Government of Andhra Pradesh pays 2% of the amount disbursed as commission to smart card banks. This model inspired the APBS-AEPS also, but there is no clarity for stakeholders. Clear definition of stakes and their delivery system are required to inspire stakeholder participation.
K. Many banks and post office participated in AP Smart Card Project and gained knowledge and skills which can be gainfully adopted expeditious roll out of DBT on aadhaar platform.
Path-breaking work: Support required for success of DBT:
First-mover Banks (as also States) have to test the system and initialize it. They do path-breaking work, encountering resistance to change from primary and secondary stakeholders. They take responsibility in the front-end for failures of the back-end and for all system bottlenecks. Delays in roll out of the entire system and its stabilization result in time and cost over-runs.
To facilitate transition: neutralize inhibitors, resolve bottlenecks.
1. Banks to appoint Business Correspondents
2. BC to appoint Customer Service Providers
3. Bank/BC to position Micro ATMs & start services.
4. Banks to enable inter-operability with other banks.
5. Bank/BC to set up Cash management system.
6. User Departments to seed their databases.
7. Banks to seed their customers with UID and link accounts on APB mapper.
8. User departments to send APBS payorders.
9. Exception Handling Procedures:
2 to 5% of residents may not have the fingerprint quality required for online authentication. Common Exception handling procedures need to be incorporated in the rules by the regulator and adopted by all banks. Adequate safeguards should be provided against misuse of the facility. Messenger payment as provided in post office savings account rules may be adopted by banks also. One Time Password sent by SMS to linked mobile is another alternative.
Reward System: Identify Stakeholders and reward the value chain activities:
There should be a business case for every participant activity and stakeholder. It should be clearly defined and delivered. It should be fixed by regulator and be left to contracting by individual banks. It should meet the costs and also give room for profit. DBT will lead to mainstreaming financial inclusion as a separate line of business, calling for special expertise with its own volumes and design of products and services.
1.Sponsored Bank: (easy work: any bank can do it with office at State/district headquarters): Maintains User department accounts and initiates APB transactions to credit benefits and shares feedback file. This is work is relatively simple and is generally compensated by the float enjoyed by the bank in User department accounts. If sponsored bank is unduly paid more, banks with greater clout will rather prefer to lobby for User Department account, than toil in the heat of the last mile to extend services to the end customer.
Recommended Remuneration: 0.15% only to cover costs of APBS & risk fund for wrong seeding losses.
2. Beneficiary Bank: one-time effort to acquire customer is critical to the system: To access the beneficiary and open accounts, collect and seed the aadhaar numbers in their database and link them on the APB mapper; maintenance of the accounts on the CBS server with obligation to extend service as paying bank also.
Recommended Remuneration: 0.25%.
3. Paying Bank- CRITICAL LAST MILE SERVICE: To appoint BC, CSP, to position & maintain micro ATM in the village and make cash available and render all front-end services at the cutting edge. It is the hardest part of the work to make timely payments ONE TIME & EVERY TIME. It is the Proof of the Pudding! Without this service, benefits will sit on bank server, beneficiary cannot access them.
Recommended Remuneration: Gross: 2.15% (inclusive of BC/CSP/TSP/ AEPS/Risk Fund 0.4%+0.4%+1%+0.1+0.05%) Net: 0.2%.
4.Business Correspondent to appoint and manage CSPs and cash movement from bank to CSP and back together with attendant risks.
Recommended Remuneration: 0.4%.
5. Technology Service Provider: hardware and software services.
Recommended Remuneration: 0.4%.
6. Customer Service Provider: Locally resident to extend service at village level: To hold cash balance and make payments.
Recommended Remuneration: 1%.
7. APBS: Aadhaar Payment Bridge System for credit of benefits to beneficiary accounts: Public Utility on no-profit basis.
Recommended Remuneration: 0.05% for ON US Transaction & 0.10% for OFF US Transaction plus 0.5% for Risk Fund for loss due to wrong credit/wrong seeding.
8. AEPS: Aadhaar Enabled Payment System: Biometric Authentication for transactions: Public utility on no-profit basis. Recommended remuneration: 0.15% (0.10 for authentication of payment and 0.05% towards Risk Fund to cover loss due to wrong payment in false acceptance).
9. Fund to cover Risks of Loss due to Wrong credit because of wrong seeding & Loss due to wrong payment due to false acceptance: 0.05% on APBS & 0.05% AEPS.
Total Cost of DBT for User Agency: 2.55%.
(A good bargain for Scheme savings of 10% to 30% by removal of ghosts & duplicates, gains of time & effort with delivery of benefits at door-step, financial inclusion and better governance)
10. All functionaries (TSP/BC/CSP) should be provided with special FI Accounts which can be credited with their share of remuneration instantly or on day-end settlement basis.
11. Cash Management: Supply of cash in inter-operable scenario: BC-CSP should be allowed to draw cash from any bank branch or ATM to make DBT Payments upto Rs. One lakh per day.
Create Demand Pull:
1. No need to wait for the last resident to be enrolled and given aadhaar. Start service-delivery at village point to persons having aadhaar. Even at 25% or 50% coverage of the population, operations are quite profitable.
2. Service availability will cut across resistance from vested interests opposing aadhaar.
3. It will also motivate all remaining residents to enroll for aadhaar, to share their aadhaar with user departments and banks.
4. AP experience shows universal acceptance & satisfaction in terms of savings in time and money to travel and stand in long queues for service at the bank branch in a different village, greater visibility and accountability in electronic payments; delays in payment tracked, penalized and tackled.
(The author can be reached at email@example.com)
To Be Continued…
(This is Part 2 of the White Paper. We will publish the Last Part in our next post in Financial Inclusion section.)