Universal financial inclusion

Tuesday, 25 September 2012 00:00 -     - {{hitsCtrl.values.hits}}

Leaving nobody out in the cold

In India, the Rangarajan Committee on Financial Inclusion defined the concept as: “The process of ensuring access to financial services, timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups, at an affordable cost.”

At the recent FutureGov SAARC Summit in Colombo, the international keynote speaker was the Assistant Director General of the Unique Identification Authority of India, Sudhir Narayana.

He presented the case of the Aadhaar scheme, which will provide every Indian resident with a unique number that will make it possible for Indian citizens to easily establish their identity to public and private agencies across India. Narayana stated that although India had a number of different identity cards issued by various agencies, these had failed to cover the entire population of the country.



Aadhaar is a random 12 digit number. It by itself has no intelligence. It is based on the information a person provides. After a uniqueness check, the number is generated. It ensures that there is only one number of each person. There can be no ghost Aadhaar numbers. Only real people who present themselves in person get the Aadhaar number, and most importantly, it does not replace the other pre-existing identity cards in India.

Narayana said that the Unique Identity Number (UIN) Aadhaar ensures that only rightful claimants, whose identity can be verified, will be entitled to draw benefits provided by the Government of India or the State Governments; those not entitled to the benefits will not be able to falsely draw the benefit by claiming to impersonate some other beneficiary.

Aadhaar will ensure efficient welfare delivery and most importantly it is crucial in delivering services remotely, to isolate communicated unable to find their way to the required government office due to infrastructure, time, or financial constraints.

The Aadhaar process begins with enrolment. The Government of India entered into partnerships with various State Governments; the enrolment is done through the State Government, the Unique Identification Authority, and the Ministry of Home Affairs of the Government of India.

Narayana explained that the State Governments employed enrolment agencies that gathered the required data from citizens using multi-modal biometrics – fingerprints, eye scan, and face recognition technology – which ensures that every person in the country is included and there can be no duplication.

Aadhaar has delivered a process whereby we can identify the authenticity of an Aadhaar UIN holder through a number of modes: demographics, biometrics and one-time passwords and this can be dome using several devices.



Enter Nandan Nilekani

It was in June 2009; Nandan Nilekani, a businessman and entrepreneur, co-founder of the famed computer services and software giant Infosys, was given Cabinet status and appointed to run the Aadhaar scheme.

Nilekani, a thoughtful man and author of the bestselling book ‘Imagining India,’ in which he makes out a case for such a biometric identity card for all Indians, must now deliver, with a budget of Rs. 1 billion.

Nilekani, using his software jargon, sees his Unique Identity Authority of India (UIDAI) as a vast server, loaded with biometric and other details of every Indian, which will be accessed using the new identity card. Biometrics of this scale have not been tried before, the data will be stored online and accessible for instant on line verification of the identity of every Indian.

Biometric passports are already the norm in most countries. Their chips hold easily checkable data such as retina scans, which are both unique and cannot be faked. It is envisaged that the system will be used by Central, State and Local Government bodies and enterprises in India, to swiftly confirm the cardholder’s identity for a variety of purposes, such as collecting revenue, customs and tariff, dispensing welfare, issuing passports, updating land records, registration of births and marriages, etc., the existing data bases of 800 million income tax payers, 200 million account holders in public and private banks, 500 million mobile phone users, 600 million Indians who have election voting cards, Indian passport holders and public distribution systems card holders (equivalent to our Samurdhi).

The unique number will not be an identity card; instead the number will be included in all other documents where identity is critical for instant certification and checking. Such a system, by boosting technology and cooperation across the bureaucracy, would improve performance and it would also provide a standard form of identification for collecting benefits, opening a bank account, paying taxes, or obtaining insurance cover. Looking further ahead, it could inspire computer service providers to develop new technologies to give consumers a wider range of financial services.

As Nilekani says, “The technology we have available to us at our stage of current development was not available to America and Europe, at the same stage of their development, and we have to take advantage of that.” The Government of India expects to give a unique identity number to every Indian within five years.


UID number

Munchun Devi, 28 years old, is standing in a queue in front of the local Panchayat Building to get her UID number, the 12 digits which will identify her for the rest of her life. Other than identity, the UID records will capture a whole set of information on Devi, the head of family, address, the assets such as cattle, annual income, religion, educational qualifications, etc.

Financial institutions are looking forward to use the status that the UID number gives Devi to bring them into their lending and deposit taking systems to unlock the financial power of the famed ‘Bottom of the Pyramid’ articulated by the late Management Guru Dr. C.K. Prahalad of the University of Michigan, in his book, the ‘Fortune at the Bottom of the Pyramid,’ the poor and marginalised who cannot be reached by providers of financial services now due to the lack of documents certifying identity.

Devi is asked to press both her palms on a device which captures the prints, she is then asked to gaze into an eye iris recognition device, which captures a graphic image and digitises it. Lastly a photo is taken. All this will be placed on an online, real time accessible data base, which can be accessed with Devi’s UID number. Her identity will be instantly verifiable.


100% inclusion

Such a national ID system, with instant certification, would make the present porous and leaky welfare distribution systems found in Sri Lanka and India, which is dependent on the discretion and the moral scruples of the bureaucracy, redundant.

The State could transfer benefits such as Samurdhi or Internally Displaced People’s allowances directly, in the form of cash, to bank accounts of eligible citizens, based on their income returns or assets. Benefits could be specifically targeted to the women of the household to maximise the proper and effective utilisation.

This would, in one stroke, not only bring all citizens within the financial system, and achieve 100% inclusion. No one will be left out in the cold. This would in effect redefine our welfare system as we know it. The gains in efficiency and transparency would be unprecedented.

It would help to eliminate corruption a great deal, as there would be no human interface at the point of disbursement, as the biometric smart ID card could be used to withdraw funds at a bank ATM, in amounts and denominations the beneficiary actually requires, at the relevant time, and thereby avoid monthly lump sum disbursements by a Government functionary at which point there are often corrupt rent seekers leakages.

A networked national ID infrastructure , as being envisaged by Nilekani for India, would mainstream many localised, pro-poor reforms in our financial and revenue system, pensions, healthcare, agricultural extension, etc. The national ID, when integrated with savings and credit groups and micro finance institutions, would provide financing options for the poor and marginalised more closely with bank accounts, creating large organised systems, which would provide gains on the basis of economies of scale and at the same time tailored to local specific requirements.


Not a new phenomenon

Using smart cards to channel benefits is not a new phenomenon; Visa is doing so for many governments, including Philippines, Mexico, Brazil, Costa Rica and the Dominican Republic. Master Card is active in Poland and Peru. 38 states in the USA also distribute benefits on biometric smart debit cards or plan to do so.

It would be a great boon if smart bio metric debit cards were introduced for distribution of Samurdhi, IDP benefits and other numerous social welfare handouts in Sri Lanka. Data from Inland Revenue, Customs, Registration of Motor Vehicles, Land Title, and Immigration and Emigration, could all be incorporated onto one data base, which could be easily accessed through the biometric smart card.

In a further more recent development, facing a peculiar situation of exhausting 10 digit mobile phone numbers in India, due to the phenomenal growth in mobile telephony with over 10 million subscribers being added every month, the Department of Telecommunication, Government of India , is planning to come up with a 11-12 digit number, but since there is no guarantee that will not be exhausted in time, another option being actively considered is using the Unique Identification Number issued by Nilekani’s UIDAI as the subscriber’s mobile telephone number in India.


Sri Lanka

Due to the security situation which has prevailed in this country for the last few decades, the National Identity Card had become an essential document for all Sri Lankans. Every adult Sri Lankan is assigned a unique number by his NIC, a number based on a formula called modulus eleven, based on the digits of the holder’s birthday. An individual’s number, having only nine digits, worked out on this formula, would not reoccur for a century.

The first two digits in the number represent the year of birth. The next three digits represent the date and the month of birth. In the NIC of a male these three digits consist of a number ranging from 001 to 366, in the case of an NIC of a woman, the numbers range from 501 to 866. The balance four digits are allocated by the department based on their database requirements. The other details on the NIC are photograph, date of issue, full name and address, sex, date of birth and employment. The Registration of Persons Act No. 32 of 1968 is the law under which NICs are issued in Sri Lanka.

The Registration of Persons Department is required by this law to maintain a register of persons who are registered and to whom NICs have been issued. In the first few years the registration process was not streamlined and the data could not be easily accessed, but later and subsequent registrations were available in a more structured manner for reference.

However, even in 2007 a commentator mentioned that, the register, maintained as required by the legislation, cannot be referred to in an easy and convenient manner. Although the register is rarely used as a reference document, alternative documents such as the ‘Number Register ‘and ‘Index Cards’ are used as sources of information.

The commentator was of the opinion that the procedures being followed could not ensure the complete accuracy and integrity of the information recorded. While in 2007, all information on the system was maintained in a manual format, the Number Register maintains all registered numbers that are assigned to individuals together with their full names, scheduled according to the date of birth.

Index Cards are used to record most of the information submitted in the individual’s application with the photograph and any subsequent amendments. There was in 2007 an ongoing process of capturing the information on the Index Cards into an electronic format.


Simpler task ahead

The task for Sri Lanka is less much complex than the one which faces Nilekani and his UIDAI. Every Sri Lankan already has his or her unique number – we only have to issue a smart card with the biometric data and get it all on a server which would be universally accessible; a much simpler task than trying to give 1.2 billion Indians their own unique number.

Then include that unique number on all other relevant databases, passports, tax files, Customs documents, vehicle registration, voters’ registers, Samurdhi and other welfare registers, bank databases, even as a mobile phone number, etc. then create a quick access system to the computer servers to verify the information on the smart card. It will truly create a revolution in identity management and communication for development. The greatest advantage will be the ability to verify identity for purposes of providing financial services that will really unleash the financial capacity at the bottom of the pyramid, which currently lays dormant and marginalised from the mainstream.

Nilekani’s UIDAI has short listed three biometric solution provider companies, Accenture, Satyam-Morpho and L1 Identity Solutions to implement the core biometric identification system for the Aadhaar program. Aadhaar will confirm the identity of 1.2 billion Indians online, in real time, simply with a swipe of a smart card, when up and running. It will be the largest identity management program in the world.

The scope of work for the companies selected includes the design, supply, installation, commissioning, maintenance and support of multi-modal Automatic Biometric Identification Subsystems (ABIS) and a multi-modal Software Development Kit (SDK) for client enrolment stations, verification servers, manual adjudication and monitoring the functioning of the system.

The selection of the service providers is a major and commendable milestone in India’s aspiration to manage, verify the identity of, and financial empower every Indian, 24/7 in real time, online and thereby mainstream and empower the marginalised and poor as has never done in the entire history of the world.

As is usual, when anything novel is introduced, the Aadhaar scheme ran into some flak. The Ministry of Home Affairs of India had its own scheme of issuing identity cards for citizens which had been crawling along for many years at the traditional snail’s pace of the bureaucracy. The Ministry objected to the Aadhaar scheme giving a different unique number to theirs. However better sense prevailed and the issue has been amicably resolved.

Aadhaar will soon enable the poor and the marginalised in India, who were out in the cold, isolated from the mainstream of development, to get fully integrated into the process of development. Sri Lanka too will gain something positive if our National Identity Card number can be placed on a data base with biometric data which can be instantly verified.


Welcome development

The 2011 Annual Report of the National Savings Bank of Sri Lanka refers to a debit card containing embedded biometric information about the holder, a joint project involving the Sri Lanka Bureau of Foreign Employment and all State banks, which is issued to Sri Lanka migrant workers. This is a welcome development. If the unique number in National Identity Card is also included in the embedded data, when the supporting electronic and telecommunication infrastructure is in place, this could be a pioneering venture in Sri Lanka’s shift to universal inclusion.

An announcement is anticipated by the Prime Minister of India that an UID Aadhaar-linked bank account scheme will be launched to channel subsidies to affected farmers in India’s drought-affected states, due to the failure of the South West monsoon. Beneficiaries will be available to access the funds by making known their unique Aadhaar number, enabling the bank to check their biometric identity details in real time on line and disburse the funds.

(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)

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