Given that a large proportion of India’s population has no bank account, there is a great need for vastly improved banking penetration. Critical to the government’s 2013 to 2016 financial inclusion plan to strengthen and deepen financial services across India is an incredibly ambitious scheme, called Aadhaar (meaning 'foundation' or 'support'), which was established by the Unique Identification Authority of India (UIDAI).
The RBI explains: “India is embarking on a project to provide every Indian resident a 12-digit biometric number... Currently, many of India’s poorest citizens do not have any identification (ID) cards, bank accounts or even addresses that they can use to obtain social services. The Aadhaar number is intended to allow individual identification anytime, anywhere in the country through online verification from a central database.
"If successfully implemented, it would be the first biometrically verified ID implemented on a national scale and would provide the ‘identity infrastructure’ for financial inclusion, as well as for strengthening anti-money laundering implementation, delivery of social services, subsidies and other programmes, and national security and anti-corruption efforts.”
This unique online ID system, which began issuing Aadhaar numbers in September 2010, is headed by Nandan Nilenkani, former CEO of Indian business consultancy Infosys, and is making speedy progress. Mr Nilenkani says that up until the end of May 2013, 350 million people had been enrolled in the scheme and 340 million people had been issued with unique Aadhaar numbers. He notes that 1 million people are enrolled each day and that he expects to have 600 million people – or roughly half of India's population – enrolled by 2014.
He adds that direct benefit transfers (that is, social services) using Aadhaar numbers and related accounts have been initiated in 43 pilot districts and the government is expected to expand the project to 78 districts, adding that benefit transfers for the liquefied petroleum gas subsidy from the government were expected to begin in June.
Fostering growth
Mr Nilenkani is fully supported by India's banking community and it appears that the highly ambitious scheme is gaining momentum. Bankers such as Uday Kotak, vice-chairman and managing director of Kotak Mahindra Bank, believe Aadhaar numbers will help in setting up new bank accounts over the next few years, which will see "all banks grow faster”.
UIDAI will build partnerships with various registrars across the country to enrol residents for their number. Such registrars may include state governments, state public sector units, banks and telecoms companies. These registrars may in turn partner with enrolling agencies to sign up residents for their Aadhaar number.
It is hoped that Aadhaar will result in an increase in trust between public and private agencies and residents. Once residents enrol for Aadhaar, service providers will no longer face the problem of performing repeated know-your-customer checks before providing services. They will also no longer have to deny services to people without identification documents, and Indian residents will also be spared the trouble of repeatedly proving their identity with paper documents each time they wish to access services such as obtaining a bank account, a passport or a driving licence.
Access to services
By providing a clear proof of identity, Aadhaar is intended to empower the underprivileged members of India's population, giving them access to services such as the formal banking system, and other government and private sector services. The centralised technology infrastructure of the UIDAI will enable 'anytime, anywhere, anyhow' authentication.
Aadhaar will also give migrants mobility of identity. Aadhaar authentication can be done both offline and online, and a cell phone or landline connection will allow residents to verify their identity remotely. This remote online Aadhaar-linked identity verification will give poor and rural residents the same flexibility that urban non-poor residents presently have in verifying their identity.
Existing identity databases in India are fraught with problems of fraud and duplicate or ghost beneficiaries. To prevent these problems from seeping into the Aadhaar database, the UIDAI plans to enrol residents into its database with proper verification of their demographic and biometric information. This will ensure the data collected is clean from the beginning of the programme. However, much of the underprivileged population lacks identity documents and Aadhaar may be the first form of identification they can access.
The UIDAI is keen to ensure that its know-your-resident standards do not become a barrier for enrolling the poor, and has accordingly developed its Introducer system for residents who lack documentation. Through this system, authorised individuals ('Introducers') who already have an Aadhaar number can introduce people who do not have any identification documents, enabling them to receive their Aadhaar number.
Banks enthused
As of the end of March this year, non-banks had completed more than 220,000 transactions with Aadhaar authentication, compared with the 26,000 transactions performed by banks. But banks view Aadhaar as a significant leap forward in lowering costs, enabling know-your-customer validation, preventing forgery and ensuring a 360-degree view of the customer.
For banks, the Aadhaar number, if it continues to be implemented properly, will provide a massive boost in authentication, fraud reduction and lower cash management costs, as well as going some way to making non-urban, unbanked India both banked and profitable. The challenge is getting all Indians enrolled; a massive task but one that appears to be well on its way.
