Champions of Financial Inclusion

Friday, October 1, 2010

India ripe for large scale Conditional Cash Transfers

Whether one likes it or not safety nets are at the core of emerging understandings and practices of inclusive growth worldwide and an important instrument of social safety across the world has been cash transfers. Conditional cash transfer (CCT) programs are increasingly being perceived worldwide as an effective tool for poverty alleviation and have been highly successful in Latin American countries. In CCT’s the idea is to transfer cash to the poor “on condition” that the poor will commit to use the money transferred to them to empower themselves. The advantage of such a program lies in the fact that CCT’s can be tailored to have a positive gender bias while also being targeted at achieving specific goals

Where it has been implemented in India the CCT schemes have come in for much criticism from critics who have challenged their effectiveness primarily on the grounds of inability to monitor whether or where utilization is happening and the threat of large scale leakages and delays in transfer. These concerns have consequently prevented the large scale uptake of CCT schemes in India; and in most cases the government continues to subsidize numerous sectors through other means. The result has been the inability to directly monitor the impact the subsidies are having and lack of transparency along the subsidy chain. Things are not the same today. Rapid developments over the past few years have seen significant transformations happening in India and made the environment more conducive to implement direct CCT schemes in the country. So what are these developments?

Not only has the MGNREGS significantly tested and fine tuned government’s ability to handle transfers of money to citizens across the country under challenging geographical and socio-economic as well as political conditions, it has, despite its many glitches,  proven that suitable methods of oversight and control can be exercised to identified and eliminate delays and discrepancies in cash transfers.

The financial landscape in the country too has undergone significant change. Many bank branches have been opened in semi urban and rural areas improving the population to bank branch ratio.  More post offices, micro finance institutions, self-help groups and other NBFI’s have also come up across India. This has significantly increased the number of institutional channels through which money can be transferred. Another significant development has been the opening of large numbers of No frill banks accounts under schemes like the Lead Bank Scheme etc that have brought previously unbanked and under banked segments of our population within the ambit of financial inclusion.

But most important of all has been the evolution of the Business Correspondent model and the technological innovations the many BC’s have brought to the financial inclusion space; examples being biometrics, Point of Transaction machines that work in offline mode, use of mobile phones to carry out enrollments and disbursements etc that have extended formal financial coverage to the doorsteps of people where even bank branches do not exist.

Though much elaboration can be made and should be made on each of the aspects mentioned above and how they have vastly improved the situation prevailing in India, making the environment more conducive for implementation of Conditional Cash Transfer schemes, the fact remains that today we are better poised; in terms of hard infrastructure and technological capability as well as experience to successfully implement CCT’s and ensure transparency and accountability. 

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