Digital technology worsen financial exclusion in rural India

Synopsis- Internet Services’ base payment system is worsening the financial exclusion prevalent in rural India. 

Introduction Financial Exclusion in rural India

Internet services have provided much comfort to the user. But for the majority of the rural population digital technology has become troublesome due to a lack of technical knowledge and nexus of service providers, middlemen, government officials, and others.  

We need to find solutions so that the fruits of digital technology will be borne by all the rural population. 

Introduction of the digital payment based solution in rural India 

  • Direct Benefits Transfer (DBT) was launched with an aim of improving financial inclusion in 2011. Since 2015, it has become synonymous with the Aadhaar Payments Bridge Systems (APBS)
  • Money is transferred to the various beneficiaries of programs under DBT such as maternity entitlements, student scholarships, and wages for MGNREGA.   
  • To deal with the “last mile challenges” facing beneficiaries in accessing their money; banking kiosks, known as Customer Service Points (CSP) and Banking Correspondents (BC), were promoted. 
      • These are private individuals who offer banking services through the Aadhaar Enabled Payment Systems (AePS).  
      • At these kiosks, beneficiaries can perform basic banking transactions such as small deposits and withdrawals.  

However, it doesn’t solve the basic issues that are being faced by the lower strata of the rural areas in receiving their own money from their bank accounts.  

What are the issues faced by rural population in acessing their payments? 

The process of transition from older payment systems and the APBS technology needs to be scrutinised which impact all DBT programmes. 

  • Lack of technical knowledge– Workers have little clue about where their wages have been credited and what to do when their payments get rejected, often due to technical reasons such as incorrect account numbers and incorrect Aadhaar mapping with bank accounts. 
  • Lack of accountability– State governments have not set any accountability for APBS and AePS/payment intermediaries and there is no grievance redressal mechanism for the same.  
  • Lack of consultation– The workers/beneficiaries have rarely been consulted regarding their preferred mode of transacting. 
  • Creation of new forms of corruption  All the above factors have resulted into new form of corruption. For Example; Massive scholarship scam took place in Jharkhand, where many poor students were deprived of their scholarships owing to a nexus of middlemen, government officials, banking correspondents and others.  

Findings of the new report by LibTech India  

LibTech India recently released a research report based on a survey of nearly 2,000 MGNREGA workers across Andhra Pradesh, Jharkhand, and Rajasthan. The survey explains the experiences of workers in obtaining wages in hand after they were credited to their bank accounts.  

  • Access to wages from banks becomes arduous– Rural banks are short-staffed and tend to get overcrowded. Hence, it requires more hours and multiple visits to access wages from banks.  
  • Technical issues CSP/BCs appeared to be a convenient alternative to banks due to their proximity. However, an estimated 40 per cent of them had to make multiple visits to withdraw from CSPs/BCs due to biometric failures. 
  • Too much travel cost is involved – To get their DBT share, MGNREGA workers need to spend too much for travel leading in addition to loss of their daily wage on the day of travel. E.g. the average travel cost for one visit to a bank in Jharkhand is Rs 50 which becomes Rs 100 for two bank visits.  
  • Passbook related issues– The only way for rural bank users to keep track of their finances is through their bank passbooks. However, more than two-thirds of time workers were denied the facility to update their passbooks at banks, some workers are even charged (45 per cent in Jharkhand) for this free service by CSPs/BCs. 

Way forward

The right to access your own money in a timely and transparent manner is a basic right of every individual that must be protected by the government at any cost. 

  • There are just 14.6 bank branches per 1 lakh adults in India. This is sparser in rural India. Despite the hardships of access, most workers preferred to transact at the banks. Hence Branch expansion into rural unbanked locations will significantly reduce poverty. 
  • The technological solutions must be coupled with a governance structure, in which protection of rights and choices of individuals must be fundamental 


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