A finger print was enough for 80-year-old Roorki Bai to withdraw a couple of hundred rupees from the newly opened ultra small bank (USB) in her village Bhakhera Hassan, about 60 kms from Bhopal, Madhya Pradesh.
Before this branch opened in August 2012, Bai had to travel about 10 kms to Ahmedpur to withdraw her monthly pension of R500. It is not an unusual sight in rural India, where just 5% of six lakh rural habitations have a commercial bank.
“Kharab sehat ki vajah sa wahan jana bahut mushkil hota tha aur time bhi bahut lagta tha (Because of bad health going there was difficult and it used to take a lot of time),” she said, as banking correspondent Gobind Bihari Sharma took her finger print on a small machine.
The state government realised that someone like Bai would not benefit from a three-fold increase in direct public spending ---- Centre and State --- unless it formulated its own financial inclusion model, different from the one prescribed by the Reserve Bank of India.
The RBI allows a small bank branch for a population of 2,000 but in bigger states like MP it would translate into villagers having to travel 10 to 20 kms to visit a branch.
Banks in states like Orissa and Bihar appointed banking correspondent for villages for last mile banking service but the model failed because of inadequate business and inconsistency in visits of the banking correspondents.
The MP government moved away from the population criteria to distance — maximum of 5 kms travel to avail a banking service six days in a week at panchayat office. It identified 14,767 villages for opening USB branches of which about 3,000 have been opened.
To attract banks, the state government provided a room with adequate infrastructure and online facility free of cost. “Even furniture was provided so that the banks could operate from day one,” said Brajesh Kumar, additional secretary in the state rural development department.
Initially, the banks were unsure about business not being adequate. “We thought getting business of Rs 3-4 lakh a month for viability will be difficult,” said Prakash Pendharkar, the Sehora district coordinator for all banks said.
However, opening a branch at Bhakhera Hassan meant that vendors deposited their daily earning providing the bank with a business of R6-8 a month. “They (vendors) have now started applying for loans as well,” Sharma said.
But, the prospects of electoral gains was the driving force behind taking banks to villages and introducing an electronic fund management system (eFMS), as it was key to implement the state’s direct benefit transfer before the scheduled assembly elections in October-November.
There are schemes worth R 10,000 crore for rural sector, half of which are in direct cash mode through rural job wages and pensions.
“There have been R2.72 crore fund transfers under state DBT since this April,” said Aruna Sharma, state’s additional chief secretary. It meant a beneficiary got pension in the first week of the month and employment wage within a fortnight of completing work.
In contrast, the Centre’s unique identification number linked DBT has failed to take off as only 2.76 crore of 7.46 crore beneficiaries have got Aadhaar numbers and there have been less than one crore transfers. In addition, the banks have not opened branches in rural areas to ensure disbursing of entitlement at the doorstep.