Monday, October 1, 2012

Banking Reform, Cash Transfer and a Promise of Transparency: PMO's Paradox

This Photo was taken by Kaleidoscope during his MGNREGA fieldwork and is awarded by UNDP as one of the top 50 photographs in Humanising development campaign

Kaleidoscope was enthusiastic to evaluate the implementation of MGNREGA in Bardhaman - one of the better performing districts in West Bengal for four consecutive years.

The banking factor:

In the last two years of his evaluation period, MGNREGA payment was supposed to be made by direct account transfer, which required the following things:
1. Location of state recognised banking systems in villages, which was often not the case.
2. Bank's readiness for opening a zero balance account for all the job card holders in the region, many of them might draw Rs. 1000/- or less per year.
3. People's banking know-how.
4. Adequate staff in the banks to handle such a huge number of accounts
5. Security facility to the bankers to manually carry the money from one branch to another.

The noble aim was: a) make the money transfer transparent; b) install banking behaviour; c) reduce workload from PRIs

The issues with banking:

kaleidoscope during the long fieldworks found out the following:
1. forget the private banks, even nationalised banks did not show any interest to open zero balance account, Panchayats had to pursue the matter, sometimes with threat and potential violance.
2. Staff shortage made it horrible to the bankers to manage such a huge amount money transfer and account handling, as people queued from early morning to late evening to collect money primarily because of a mistrust to banking system.
3. Banking staffs took high risk to bring lakhs of rupees without police support.
4. Actual workers, in places had to pay a percentage to the local dadas, which they also paid when banking system was not installed.

The two interesting recent phenomenon:

Before coming to the actual point Kaleidoscope must quote from two contradictory facts:

August, 22 India's national bankers observe a two-day strike to oppose Banking sector reform.

"Foreign ownership of Indian public sector banks is capped at 20 percent, and some global banks have been pitching for a hike in their holding limit to expand their presence in Asia's third-largest economy by acquiring smaller regional banks.
In what is being seen by analysts as a positive step towards reform, parliament is likely in coming days to approve amendments to banking laws that include raising the limit on shareholders' voting rights in public and private banks" [see Reuters]


September, 28 "Prime leads initiatives for direct cash transfer to subsidy beneficiaries"

NDTV reports that "The Prime Minister has begun the process of developing a system that will allow cash to be transferred directly to the bank accounts of those who qualify for government subsidies and schemes." []

The paradox:

The MGNREGS experience which Kaleidoscope reports is still there. There are payment delays, people loose several man-days because of banking takes huge time. Banks and Post offices are reluctant (and they have every reason to be so) to work for these schemes. Middlemen are there, in the name of help they take away a certain percentage of money from the beneficiaries. Furthermore, if gradual reform in banking sector ultimately results in a significantly high degree of privatisation, should we expect private banks to open accounts for such beneficiaries? Does rural India's has such infrastructure that we can run banking reform and subsidy transfer hand in hand?


  1. I can understand the paradox, but what do you suggest? Should GoI step back from implementing the banking transfer system that can actually remove huge burden from ill equipped PRI system?

  2. Jene,

    Thanks a lot paying attention. Well, I am suggesting to step down from this brilliant idea, but I am skeptical with the possibilities of such an initiative. You know, this is what happens in most of the Indian policies. They are though out in one fine morning, then without assessing the actual situation they are implemented. This approach might be fruitful in so called advanced villages in India, but implementing these in villages of Purulia, Paschim Medinipur, Bankura, etc., would result in furthering difficulties for not only the beneficiaries, who might have to spend money, time and energy to collect the subsidy, but also to the banks who might have significant shortage of staff.

    What I am suggesting is that before implementing this policy GoI need to develop the infrastructure, and for the time being GoI should make it flexible, i.e., implementing this policy only where proper infrastructure is available. One size does not fit all.

  3. How long should the country wait? When India can take initiative for a moon venture, its villages must be changed as well. In fact, you have rightly said we need different approach for different villages.

    1. That should be the question. Why should a country with loads of people living below poverty line, people living without proper healthcare and sanitation initiate moon venture? :)

  4. I can feel the skepticism. btw Congratulations Kaleidoscope for getting your photograph awarded in United Nation's global campaign :)