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. 

Financial Literacy required to stimulate demand for financial inclusion

Being in the social sector, one becomes aware of the disadvantages poor face for accessing financial services. Many a times they are not even aware of the various benefit schemes introduced by Govt. A major reason for this existing scenario is information gap. In these terms, financial literacy assumes paramount importance.

Financial literacy is a prerequisite for effective financial inclusion, which will ensure that financial services reach the un(der) banked sections of the society, leading to consumer protection through self-regulation. By making people aware of the exsiting products and services and the ways and means to utilise them to their advantage, financial literacy helps in stimulating the demand side of financial markets.

In recent years, as the financial markets have become increasingly complex with the risk shifting from governments/corporations to individuals, managing risks require individuals to be able to access information that enabled comparison of the various available choices. Both developed and developing countries, therefore, are focusing on programmes for financial literacy/education. In India, the need for financial literacy is even greater considering the low levels of literacy and financial capabilities, and the large section of the financially excluded population.

For this purpose, Govts and financial institutions across the world are involved in developing and implementing programs on these lines. Recently, the Reserve Bank of Fiji launched the Green Ribbon Campaign as a partnership between the public and private sectors and non- government agencies to promote financial literacy. OECD has been quite active in this direction having implemented its Project on Financial Education, and established the International Network on Financial Education and the International Gateway for Financial Education (the first international clearinghouse on financial education).

In India, Reserve Bank of India (RBI), with the assistance of Organization of Economic Development (OECD) has issued a concept paper, promoted a financial literacy website, and set up credit counseling centers to provide advice on personal finance. RBI’s ‘Project Financial Literacy’ aims at disseminating information about the central bank and basic banking concepts through various media like films, games, cartoons and comic books, and essay writing competitions, specifically target school and college-going students. Various corporate banking organizations have also promoted financial literacy drive, mostly as part of their Corporate Social Responsibility.

However, there is still a lot to be done. India is a diverse country with different regional profiles in terms of language and culture, accessibility and reach. There is a wide divergence in literacy levels across and within the States. Penetration levels of the formal financial sector, especially between rural and urban areas are quite wide. This diversity makes a standard pan-India program redundant.

The need of the hour is to design and implement programs specific to the target audience and involving use of suitable media; bring out publications in vernacular and simple language and ensure distribution of the material to the people in both urban and rural areas. Also appoint instuctors/counsellors from local areas who have the requiste qualifications as well as the trust of the people. One possible solution is the training of Business Correspondents to pass on the financial information to the customers. At the same time, monitoring and evaluation systems need to be build up so that the programs effectively reach the intended.

Technology ensuring accountability in social programme implementation in india

Today the buzzword that is doing the rounds of circles of legislation, policy and regulation in our country is Accountability. This sudden focus on accountability can best be described as the outcome of two factors (1) the evolution of a relatively active civil society in India and its calls for action against the corruption that has always characterized policies and programs in our country (a program that has been supported significantly by the resurgent Indian media despite its many faults) and (2) international pressure (a) to incorporate good governance into administration in India as a precondition for funding or joint engagements and (b) manifested in the form of the need to present India as a place that is easy to do business in; to attract foreign players, clients and investors who are absolutely critical for our country in today’s Globalized market led economy. Thus in their implementation of massive schemes involving many hundred crores of rupees, covering wide swathes of territory and encompassing millions of people whose lives they are supposed to impact (examples being Social Security Plan, MGNREGS, RSBY, JNNURM etc) governments have been forced to incorporate structures and frameworks to ensure accountability. This does not mean that corruption has come to an end in these schemes. Massive amounts of corruption still continue and huge leakages continue to happen but at least to an extent the civil society critics have been quietened and international organizations and foreign governments are satisfied that the Indian state is serious about tackling corruption and ensuring accountability in governance.

This brings us to the question. If corruption is still going on what has been achieved? If the purpose of these frameworks is only appeasement and to act as pressure valves why focus so much on these frameworks as role models? The answer to this question lies in the fact that though these frameworks; in the ways they were evolved have numerous loopholes that facilitate corruption to go on unhindered, they have acted, in numerous cases, as pedestals for further developments that have significantly gone ahead to ensure transparency and accountability in these programs. Take for example MGNREGA  (Mahatma Gandhi National Rural Employment Guarantee Act) and how it has been implemented in Andhra Pradesh. Despite having a significantly better system of ensuring audits and accountability than other states Andhra Pradesh, often hailed as one of the states where MGNREGA has been implemented best was still hit by a scam involving grassroots level workers for MGNREGA who stole crores of rupees.

The solution the state implemented subsequently was an innovative mix of policy prioritizing accompanied by private involvement. They introduced a smart card based system for MGNREGA wage payments.It is understood that at the heart of any system of accountability lies the process of specifying a set of responsibilities, clearly recording activities of participants, cross verifying information and records and holding concerned individuals accountable if there are breaches in performance. What the smart card technology that has been implemented in Andhra Pradesh has ensured is the facilitation of these very tasks. First of all, the use of smart cards has ensured that every transaction is recorded accurately including the time, place and amount. To begin with, in the earlier system of MGNREGA cross verification and auditing it was extremely time consuming to process the long trail of paper data. It involved meeting a beneficiary and finding out how many days they worked in a particular project and how much money they received.

With the smart card system and the electronic records that are generated during its usage the process of cross verification of data has become much less cumbersome. Not only has the smart card based system of NREGA payments made accurate record keeping possible at multiple points (thereby facilitating cross verification) It has also helped address the problems associated with fake signatures and helped clarify on entitlements of people (as money cannot be transferred without accessing an individual’s card and confirming ownership by matching against biometrics data stored on that card)

Another equally important feature that this system has facilitated is that it has helped remove the control of information from the hands of those who indulge in corruption. It was a trend with the earlier system of payments that to access paper records auditors would have to approach precisely those who fudged them, and naturally they would resist making it difficult to monitor their activities. Officials were more willing to part with their lives than part with their papers. By taking information out of their control, it has been made more difficult for them to resist providing information or doing damage control with records when they sense trouble as records of payments are also available in the hands of the Business Correspondents and banks.

Technology has thus reduced the costs of cross-verification dramatically and significantly altered the terrain of the politics of accountability. In partnership with RTI (Right to Information) which ensures that information is easily, quickly and cheaply accessible to those who wish to ensure accountability; effective inroads are being made to combat corruption and leakage. The ready availability of information; facilitated by technological innovation and partnered implementation; has thus given a ready fillip to civil society’s quest to ensure transparency and accountability in financial aspects of programs and policies in India.

Technology as a transformative force in financial inclusion

 “what according to you has been the benefit of today’s modern technology”. “What do you use it for”. these are questions that we constantly encounter nowadays in surveys after surveys that seek to identify the perceptions of different age groups on technology and its uses. Think about it and the first thought the hits one is that technology has made faster communication and information exchange possible and hence brought people closer; reducing time and cost of communication and information exchange. When we say so our thoughts are motivated by that which we regularly use; mobile phones and the internet and email ; that have facilitated our communication to be faster and allowed us to exchange data across vast distance at a fraction of the time it used to take earlier. our answers are touched by a  tinge of bias that lies rooted in an understanding of technology as a possession of the privileged and those able to afford it and capable (in terms of possessing education and the technical know how) of using it. even our understandings of the associations between technology and banking and finance is colored  to a large extent by how it has allowed for international trade and commerce; cross country economic information exchange and planning, global stock trading and electronic money transfers of massive amounts between countries etc.

But today when we look around us what we see is something far more expansive; the ability of technology to be not only a plaything of the privileged but also its ability to transform; in combination with innovative ideas and genuine social concern; the lives of millions of people across the world who constitute the very bottom of the development pyramid and who in no way can be called privileged. It is not charity but business with a social conscience that seeks to earn even while transforming the lives of millions of people for the good. Be it the biometric smart card based branchless banking system that is employed by FINO in bringing financial inclusion to the rural poor across the geography of India (which has opened bank accounts for 17 million + bottom of the pyramid customers and linked them to formal financial system) or the mobile banking technology that today has revolutionized the way people do banking in countries like  Kenya, Brazil and South Africa; technology has today made it possible to overcome geographical, social and economic barriers to take banking to people previously unbanked and under-banked and integrate them into formal financial systems. Added to this is the fact that as far as the customer is concerned these technologies are not complicated or difficult to use; despite the immense sophistication and complexity that characterizes the networks and back end processing systems into which the front end customer interfaces and data input devices in these systems are integrated.

Take for example the system being employed by FINO in India which is the Business correspondent model (BC). Important characteristics of this system currently in place include (1) access to the most remotest regions of the country through agents (bandhus) drawn from these communities and regions who go to customers villages with equipment to facilitate branchless banking processes (2) ability to Capture Customer details including biometric  and non biometric details easily (using fingerprint reader, webcam, mobile software interface, computer interface) and facilitate Unique Identification using the equipment in the hands of the Agent that satisfies banking KYC norms(2) ability to provide non-repudiable and user-friendly authentication mechanism that ensure individuals identity during transactions (3) ability to ensure reliable connectivity up to the last mile supported by the ability of the system to operate in online and offline mode (4) ability to offer Financial products tailored for the specific target group and system ability to be adapted to add on other financial and non financial products (5) ability to support the use of innovative User Interfaces and work in harsh rural environmental conditions and (6) Low Capital and Maintenance costs as compared to costs that would be incurred was a bank to set up branches in rural areas.  By virtue of its inherent features this model being employed in India possesses distinct advantages not merely over the brick and mortar model but also over other models being practiced in other countries

Technology provides numerous solutions to bring financial inclusion to the millions of  teaming masses who are outside the formal financial system. But the fact also remains that technology is never and can never be a standalone solution. It needs to be supported by favorable regulatory frameworks that allow flexibility, growth and innovation while also spearheaded by comprehensive understandings of the geographical, social and economic characteristics of the environment in which it is going to be implemented. If these enabling conditions are ensured then financial inclusion for all is not far away.

Philanthrocapitalism: the new way to go for development finance?

One often hears that a major constraint involved in the expansion of development activities is the lack of adequate finance. Some others also contend that it is the lack of business acumen and financial efficiency which restrict the spread of the good work done by the non-governmental organisations. A new phenomenon called Philanthrocapitalism addresses these concerns.

Recently, a lot of furore was generated in media when Bill Gates and Warren Buffet managed to convince 38 other billionaires to sign The Giving Pledge to give away at least half of their wealth during their lifetime or after their death for humanitarian causes. The article also stated that if the 400 richest Americans were to give away ½ of their assets, the charity would amount to nearly $ 600 billion. And it is this figure and the accompanying people’s voices which makes it an interesting piece of news.

The debate about Philanthrocapitalism as any debate runs along the similar lines of whether it is needed or not, whether it is good or bad.

Michael Edwards, who wrote ‘Small Change: Why Business won’t save the world’ entirely rejects the notion that applying business principles to solve global problems is more effective than the traditional approaches, stating that philanthrocapitalism will make the organisations ‘ignore the costs and tradeoffs involved’ in applying business approach to civil society actions and will ultimately undermine social transformation process, which doesn’t adher to deadlines and returns.

On the other hand, Mathew Bishop and Michael Green in their book, ‘How the Rich Can Save the World’ examine this notion from a more positive viewpoint. They cite the examples of various ‘social investors’ who are involved in how their money is utilized, who want accountability and efficiency as outcomes in the process of social change.

People on the other hand voiced entirely different kind of viewpoints; many even labelled it as a gimmick to garner publicity, to evade taxes, to increase social station. Nevertheless there were some interesting ideas which came out of these reactions.

Philanthrocapitalists like Bill Gates are concentrating their energies on the issues in third-world countries; however there are no. of problems in their respective countries as well. For example, the general concern in USA, which recently recovered from recession, seems to be the current lack of employment opportunities, a situation which many felt could be rectified if the corporates invested in business expansion rather than on donations.

Another idea was that though it is highly noble that capitalists are involved and promoting the notion of ‘effective charities’, they should work towards sustainable solutions arising out of their businesses. Increasing the productivity of poor through skill development and capacity building would help in reducing their dependencies on donations. The classic case of helping how to fish…

At the end of it, Philanthrocapitalism is still an evolving concept and judging its effectiveness is too early. However it can be said that this need not be a case of either/or, but can be seen as an opportunity to generate innovative solutions to reach out to the poor – integrate the efficiency of business with the social commitment of non-profits.