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.

Engagement of For Profit Companies as Business Correspondents: Winners and Losers?

By Jatinder Handoo
Published in Microfinance Focus on August 6, 2010

The Reserve Bank of India (RBI) has recently put up a discussion paper in public space for engagement of “for profit” companies as business correspondents (BC) in India. This was on cards after a series of developments like August 2009 Working Group’s review of the BC guidelines which paved path for relaxing entry barriers for new entities and individuals as BCs. It also entailed provision of allowing banks to charge a “reasonable” user fee followed by Government’s acceptance of Inter Ministerial Group’s recommendations for use of mobile phones to further financial inclusion and now the latest one – Prime minister’s high power committee on financial inclusion which includes Industry captains from sectors like telcom, retail,BFSI,IT etc.

Finally, we have a 22 page document on the bank’s website cobbled up with familiar arguments for a business case to facilitate entry of “for profit corporate BCs” citing reasons like “risk mitigation and organizational capabilities” and “too big to fail” as pros and a few cons as well. But the conventional public policy reasoning reminds: “Behind every policy decision there are winners and losers”. I leave it to the wisdom of esteemed readers to find out the set of winners and losers in this case.

The paper shores up case for quashing entry barriers in favour of corporate BCs who would be either telcos or organized retail players (organized retailing in India is less than 2-3 percent in India) or “bankers to poor” NBFC –MFI . The pivotal argument put forth in the draft arrows that there is a paucity of organizational innovation and technology adoption by the existing players for furthering the “business of financial inclusion” in India, hence the entry of corporate BCs for speeding financial inclusion.

By mentioning this, does proponents find a technology and innovation vacuum in the current network of BCs? And thus expects “for profit corporate delivery channels” to employ these engines of commercial viability?. If this is the case, then it becomes interesting to foresee how would a for profit corporate channel solve commercial viability jigsaw on its own which is primarily the outcome of “low take up rates” of financial services and products at bottom of the pyramid; particularly when end customers have erratic cash flows and there are not enough better designed and properly priced micro banking products and services available which is the domain specialization of financial institutions and not telcos and retailers .

Commercial viability of the model as a factor is cited in the draft to buttress the case, but there are no pointers as to how “for profit” BCs will make the model commercially viable. Finally a global overview of Business Correspondents and need for adhering to principles of client protection is also touched upon despite of the fact that globally celebrated telco led model of M-Pesa is also largely a remittance service oriented and Safaricom makes no or extremely razor thin profits from this business stream. In Brazil BCs are in picture since 1970s, they are commercial entities but still more than 95 percent revenues are generated from checking accounts, utility bill payments and remittances and they have to cross subsidize their operations.

Finally, it is an open secret that the RBI despite of its herculean endeavors to go with bank led model at present seems to be under tremendous pressure from various quarters to accommodate corporate interests. Retailer-Telco-Technology interest groups and corporate lobbying at high echelons has taken the debate of financial inclusion beyond obvious.

It needs to be understood clearly that business of banking is of bankers and not of telcos or retailers. In the Indian context is visible on ground that the regulator has been proactive and Banks have demonstrated serious intentions and vision for enabling universal financial inclusion. However the missing link is investment gap. To fund the gap, policy can play a defining role here by incentivizing banks monetarily and this could be done by propounding a clear cut financial support policy for banks.

Non banking Players like retailers and telcos have along way to go in demonstrating some scalable and profitable models of micro banking for bottom billion junta. BC model is just on the verge of stabilization after four years. Let the existing system be incentivized without further experimentation and keep the debate on technology for future.

Remittances as a means towards financial inclusion

Much has been said about remittances and how they in some countries constitute the second largest component of external finance after foreign direct investments.

In economic and financial literature much attention has been paid to two important points namely (1) how remittances help meet shortfalls in finances in countries and (2) how financial inclusion is a means to an end – helping channel these remittances from abroad to intended recipients; most of whom are often poor and beyond the reach of normal banking channels.

Though true the emphasis on these two points tend to miss another very important point. How remittances are a means to achieving financial inclusion for all.

Not only do these remittances flowing in from abroad provide an incentive to bring greater segments of the population under the ambit of formal financial institutions and channels as there is sufficient revenue to be gained for banking and financial institutions from channeling remittances to these recipients but they also make it possible for the recipients to gain access to formal banking channels and networks that were until recently structurally at least out of their reach. the result of this is an improvement in the lending capacity of banks and credit institutions in these countries who with greater numbers of people using their service; primarily for savings; suddenly have greater volumes of credit in their possession ; significantly enhancing their lending capability. An added impetus is provided by national and international  security considerations that look down upon informal channeling of money from abroad into domestic economies. Thus remittances by their very existence exert and demand pull to  improve formal institutional coverage to unbanked and under-banked sections of society. 

Under such scenarios remittances provide ample scope for “development” ; provided adequate policy is designed by governments and central banks to channelize the extra lending capability of formal financial  institutions; through infrastructural and policy initiatives; to help bridge the gap currently existing between demand for credit and supply of credit for particular segments of society and regions that are lagging behind. Structural change in economies to put them on to an accelerated path of development is hence a very possible consequence if remittances and their externalities are successfully harnessed.