Plan panel moots biometric ID to reach the poor

Proposal aims at curbing issuance of multiple or benami cards

The cards, it says, will help curb the issuance of multiple or benami IDs. The report titled ‘A Hundred Small Steps on Financial Sector Reforms’, prepared by the plan panel, under the chairmanship of Raghuram G Rajan, notes that technology can play a pivotal role in providing financial services to the customer thus facilitating transparent transactions.
Exhorting the need for using technology in a big way to reduce the cost of delivery, it observes that a unique ID for each citizen, which captures all transactions electronically and stipulates mandatory sharing of data, will help accelerate the process. Every country needs some basic and robust identification mechanism for its citizens for various purposes.

It will have two critical components–enumeration (assigning some unique number) and personalisation (enabling positive identification of individual by his/her biometrics such as photograph). Any identification system should ideally be unique, universal and widely recognised. A unique ID establishes a person’s identity in a decisive manner and is a critical element of any functional credit infrastructure for financial inclusion.

Credit registries

Once established, the unique ID will be the basis for storing information in credit registries. Borrowing and savings behaviour could be tracked through the ID.
Once national IDs and biometric identification become widespread, the credit bureau as well as the individual should be encouraged to deal more directly, the report says.

Stating that mobile phones are the most promising front-end technology for facilitating financial inclusion in India, the panel says as mobile banking becomes widely prevalent, it would be worthwhile to map a citizen’s unique ID to his/her phone number.  Pointing out that government funds could be used to promote the use of technology among the poorest clients as also small financial service providers, it says the Rs 500-crore financial inclusion technology fund (FITP) should be used to finance the creation of common technology platforms for small financial service providers who serve the poorest clients and promote mobile payments among them.

Further, the panel has called for the creation of a nationwide electronic financial inclusion system (NEFIS) that would link bank accounts and allow funds to be transferred into them electronically.

Once the NEFIS is in place and millions of outlets accept e-payments, the cost per transaction of the NEFIS could drop to a few paisas, which in turn will greatly incentivise the poor and the marginalised to make micro-savings to become active participants in the financial system.