The COVID-19 has turned
out to be a pandemic in a very short time causing significant disruption of
normal life and economic activities around the world. This has led to increased
stress to financially marginalised and has also pushed many who are not
otherwise included in the financially challenged segment down the precipice at
least in the short term.
Therefore, financial assistance by the government to a larger cross section of
society has become a necessity.
One of the foundational elements
to target benefits to deserving
citizens is the ability to
uniquely identify every person. Many developing countries don’t even have reliable
functional IDs that generally cover the majority of population. Hence, the
relevance of national ID becomes even more important. In this world with
increasing mobile penetration if this ID database also includes a mobile number
and/ or email ID seeded the whole targeting process can become more efficient. ‘Aadhaar’,
in a country as large as India, has demonstrated the benefit of having a
platform that issues a unique ID to every resident and enables easy
authentication. Many experts have observed significant variations in targeting
benefits between countries that have well-established infrastructure,
institutions & processes to uniquely identify/ authenticate its residents
and countries that don’t have such facilities.
The other two important foundational elements for
targeted delivery are digital social registries and digital financial inclusion.
A well-established social registry
consolidates the list of residents along with their key attributes essential
for determining the nature and extent of assistance needed. This registry could
be built by linking multiple databases against unique ID of the resident subject
to good practice personal data sharing rules. Such a registry maintained
digitally and updated dynamically will go a long way in correctly identifying
and targeting the deserving persons and avoid leakage through fraud,
double-dipping or because of any processing error. A social registry built on a unique national ID is more efficient and less error prone.
An efficient and low-cost payment system that is inter-operable among
all segments of institutions that hold a customer account storing value is another critical element that encourages and enables financial inclusion. The digitalisation of holding and
transaction is key to reducing the cost of account maintenance and transaction.
The success of Unified Payment Interface (UPI) that has been introduced in
India enabling interoperability across all banking transaction networks at
practically nil cost has revolutionised the payment ecosystem. The high volume,
low value transactions which were hitherto not encouraged in the conventional
card driven ecosystem have found exponential growth in this regime. In January
2020, the UPI transactions crossed 1.3 billion, amounting to close 30 Billion
USD, which is about 3.5 times the number of transactions in the VISA/ MASTER
network. In addition to the interoperability offered by UPI, it removes the
need for plastic cards and relatively expensive to maintain POS network, with
conventional smartphones for both the account holder and merchant. It also
enables feature phones based USSD transactions that widen the serviceable
segment of the population thus giving boost to financial inclusion. This has
been endorsed both by large multinational private sector players like Google
and by the banker to the Central Banks, BIS. The National Payment Corporation
of India (NPCI) established by the Reserve Bank of India, which introduced UPI
is expected to establish and promote an entity to introduce UPI to countries
around the world to help them launch this in their countries.
The COVID-19 pandemic
now brings to the forefront the
importance of mature systems for ‘national
ID’, ‘social registry’ and ‘interoperable
payment systems’ as
discussed above. As a response to the immediate need, many countries are
quickly establishing beneficiary registries. Considering the urgency of the
short term need, this is being built with lesser safeguards against ghosts,
double dipping and such possible avenues for leakage. In the short term, this
may be acceptable. However, instead of seeing this as a one-time exercise, it
is advisable to consider this as a big step towards building a comprehensive
social registry and establish mechanisms to refine this in the next few months
so that this becomes the foundation for all social service delivery programs in
the future. For example, Philippines is in the process of undertaking a
door-to-door enumeration of 18 million households (out of 21 million total households)
to create a list of beneficiaries. There could be concerns as to whether this
is the best possible means to build the registry in this period. However, if
this plan is already rolled out, the way forward could be as follows.
Philippines is also expected to roll out their national ID project by the end
of this year. It may be a good idea to use the digitised database built on the
current enumeration as a starting point for enrolment for national ID by
providing it as a pre-populated form that could be refined during enrolment.
Thus, soon Philippines will have a biometric national ID seeded social
registry. In this fashion, every country needs to evolve appropriate strategies
to enrol deserving residents in the short term using the existing infrastructure
and use this, in medium to long term to build a robust social registry.
Large number of residents are being
provided cash transfer to tide over the crisis. While each country would
rollout this cash distribution using the existing infrastructure this is the
opportune time to encourage, enable and nudge the unbanked in this group to
open at least a limited purpose account operated online with capping on the
amount held in the account. This can be allowed with limited KYC processes.
Eventually, the customers can opt to upgrade to a regular account after
necessary due diligence. In this process, it is important to ensure that
infrastructure and policies are in place at the earliest to enable seamless
transactions across accounts at a cost that make sense for the small value
transactions of customers and merchants, irrespective of which entity holds the
account for storing value. Governments may have to consider regulatory nudge
for interoperability and to contain the cost for low value transactions. Also,
it is essential that all the entities holding account (including mobile
wallets) are also regulated uniformly with respect to the safety and security
of these accounts. Mobile platforms can also speed up the proliferation of
low-cost micro ATM making cash in cash out (CICO) centres widely available
using the mobile industry distributor network.
While each government will have their
own approaches on the most pressing and emergent issues of today, a robust
national ID integrated with a social registry and combined with digital
financial inclusion are the building blocks that will enable governments to deliver
benefits in good times as well as crises.
It is hoped that the governments and developmental agencies take these lessons in their design of
policy interventions in the social sector.
“Those who cannot remember the past are
condemned to repeat it”, George Santayana.
