Could India’s Unique ID be a Financial Inclusion Game-Changer?

05 February 2014
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The Indian government’s plan to provide every resident with a unique biometrically linked identity number is an exciting development for those of us dedicated to broadening financial access to unbanked people worldwide. This unique ID could be a real game-changer.

India’s financial regulators have recognized the use of the unique ID to meet e-KYC (“know-your-customer”) identification requirements. Biometrics establishes identity, thereby reducing the barriers for providers and customers alike when it comes to opening a financial account. As of October 2013, 30 million new financial accounts were opened with the unique biometric identification link, and the chairman of the Unique Identification Authority of India projects this number could reach 100 million within the next year.

Photo Credit: Jeanette Thomas

Related to the ID program, is the Indian government’s effort to switch social transfer payments from in-kind or cash to electronic payments. On an experimental basis, some Indian states have used the unique ID to both verify entitlement and make the payment to a linked bank-account. If this is taken to scale, the impact could be significant. When I was at McKinsey & Company, we looked at the leakage and inefficiencies in some transfer programs based in cash, and we estimated that switching to electronic payments could save the government more than $22 billion. For many of the transfer programs the potential efficiency gains were 30 percent or more, resulting from reduced overhead, transaction costs, and as they say in India “leakage”.

In scale and ambition, India’s unique identification effort is unparalleled. If all goes as planned, an estimated 600 million people – about half of India’s population – will have been enrolled by mid-2014. Such a program underscores how smart public sector investments can dramatically accelerate important economic development and hopefully boost our financial inclusion efforts.

When looking at access to financial services, it’s important to note that half of the adult world and most of the poor in developing countries and emerging markets like India live and work in the informal economy. By necessity, they need to make a living. In pure economics terms, they are producers and consumers at the same time.

As such they need access to a broad range of financial services to invest in livelihoods, build assets, smooth consumption in the face of highly irregular earnings, and manage risks. The less formal their jobs and the less advanced the mechanisms of a national health insurance or pension scheme in the countries they live in, the more poor people have to rely on middlemen, some of whom could be loan sharks, to manage their financial lives.

There is no doubt that appropriate financial access helps households and spurs economic activity. At the macroeconomic level, studies show that financial intermediation fosters growth and reduces inequality. This is why global bodies such as the G20 and a large number of national governments have made financial inclusion a development priority. CGAP supports governments and providers to advance financial inclusion.

Efforts to advance financial inclusion, center on a number of elements to foster sustained market development: a technology-led business model has the potential to dramatically increase reach and lower transaction costs; regulatory policies that enable the desired innovation and domestic market development, yet protect consumers from unintended side effects; and investments in infrastructure that supports industry development.

 At CGAP, we have documented many efforts like these which have helped to advance financial inclusion when taken to scale. We hope that the Indian unique ID system could also be transformative.

This article was originally published by Visa at



Submitted by Y P Issar on
Let us consider Indian Unique ID project from the financial inclusion perspective only. This project is collecting sufficient demographic details( photo,name, address, date of birth, father/ husband name)along with biometric data of fingerprints and iris in an digital mode, and is storing it in a Central server from which identity can be verified by just putting a finger on a biometric reader. We are giving a unique number also to each person to identify himself. Now let with this information, UIDAi open an electronic bank account by crediting one rupee, which will always remain in the balance and can not be withdrawn, by converting itself into a bank.Let this account be accessible online from all ATMs, POs Machines, bank branches, etc for depositing/ withdrawing moneys/cash. Let each transaction be authenticated by the person through his finger prints, and thus we can keep this account perennial without applying any inoperative/ dormant conditions guidelines. In this scenario, have we not virtually financially included everybody who has just enrolled for the unique ID. We can satisfy Indian Banking regulator by meeting any types of conditions it may put, only if only, it gives UIDAI any type of limited baking licence ( say Mor Committee's Payment Bank) to operate and maintain these limited purpose limited balance accounts. Not many people know that India' s best private sector bank prescribes that to maintain an account in its rural branch, one has to maintain a minimum monthly average balance (MAB) of Rs 2000(say 30$) and if the MAB goes below Rs 1000, it charges Rs350 per month. Under present arrangements, some govt banks need a quarterly QAB of Rs500 and charge Rs 50 per quarter. Still very high. These charges itself built up a case for mobile accounts or MNOs are also lured by the same. With this type of cost structure, will it be possible to serve clients serving two dollars a day? Central government and RBI must stop looking to the traditional Indian banking system which like legacy land lines has very limited capacity and hence no urge to serve the masses. Unique ID has created necessary conditions for full financial inclusion in India and by simply converting UIDAi into a bank, most of the battle will be already won. Otherwise UIDAi will keep on collecting customers' mandate to open a bank account and keep in forwarding to banks who know they can not fulfil the demand. Neither they will do so because of lack of capacity nor they will admit it. Banking for Poor, Karnal India

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