bio metrics and financial inclusion

8/8/2019 Bio Metrics and Financial Inclusion

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USE OF SMART CARD (BIOMETRICS) TO SHAPE

UP THE DREAM OF INDIA CALLED FINANCIAL

INCLUSION

In a democracy the poor will have more power than the rich, because there

are more of them, and the will of the majority is supreme.- Aristotle

But the reality seems otherwise. The general estimation in various surveys, saythat about 2 billion people are excluded from the blessings of financial service, all overthe world. And a whooping one-third of this number is from India itself ! The RangarajanCommittee,2006, (The Committee on Financial Inclusion) observed that in India 51.4%of the poor class of people are financially excluded from any kind of financial sources.73% of the poor households do not access formal sources of credit. More precisely, thoseexcluded are mostly the marginal farmers. The women are further excluded right from the

first stage of their life.

These sufferings for years together gave rise to violence, social agitations, and inworst cases local terrorisms. Some of these problems were suppressed and some wentunaddressed. These problems had no permanent solutions as its root cause was too heavyand complex.

But what could be done? What could be the target model set, that could solve allthese problems? Is it really possible to take only the merits of both socialism andcapitalism? Is it fair to dream about a country, where the society bestows its benefit forall, and the economy grows faster and reach the 2nd largest position in the world? Thenew phase of financial inclusion backed by the latest technology is really creating a road

to these cherished dreams..

ABSTRACTThe substance of this paper is divided mainly into 3 segments.Part A : It discusses with financial inclusion, and why it is a revolution. It talks aboutthe curse called financial exclusion and finally how banks can overcome it.Part B: It introduces Bioinformatics, describes its features, and finally describes how thesmart card, that is becoming the weapon for financial inclusion, uses bioinformatics forits purpous.

Part C: This part selects one of the few companies that have selected this technology, forthe same purpose. It is doing a great business along with its venture for social uplifment.


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A: WHAT IS FINANCIAL INCLUSION?

The process of ensuring access to financial services and timely and adequate credit

where needed by vulnerable groups such as weaker sections and low income groupsat an affordable cost

The Committee on Financial Inclusion(Chairman: Dr. C. Rangarajan, 2008)

India always had social-democratic based policies and therefore its economicmeasures were also shaped up accordingly. The five year plans were also designed,targeting the growth of both urban and rural population. But, as we all know, thebitter truth is that though the five-year plans have attempted to reduce regionaldisparities by encouraging industrial development in the interior regions, theindustries still tend to conglomerate around urban areas and ports. Even afterliberalization in 1991, the more advanced states had a clear advantage to benefit fromthem, with infrastructure like well developed ports, modern facilities and an educatedand skilled workforce which attract manufacturing and service sectors, among others.So the disparity still remains.

Lets quickly look back and understand what measures were tried, to inspire an overallgrowth. In the years 1960 1980, the efforts were given to the following:

Social control of Banks (1960)

Nationalisation of Banks (1969)


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Setting up of Regional Rural Banks (1975)

Priority sector lending stipulation by RBI (1972)

Lead Bank scheme (1969)These were very effective measures, but not so well implemented, given thepoor technology and infrastructure prevailing at that era.

In the next phase, from the years 1980 2005, the changes were more significantand revolutionary

Integrated Rural Development programme/ SGSY promoted byGovt. Of India

Microfinance programme SHG Bank linkage facilitated byNABARD

But these were also not implemented properly, thanks to late advent of technology inbanking domain. But by 2005, the goals of financial inclusions were laid down, andthe target set were as follows:

Development of MFIs

Financial Inclusion in a MISSION mode

FINANCIAL EXCLUSION

Now let us understand what if we dont go for a financial inclusion. Financial Exclusion,by definition, is the lack of access by certain consumers to appropriate, low cost, fairand safe financial products and services from mainstream providers. It is generallyreferred to the lower income consumers and/or those in financial hardship..There is a strong connection between poverty and financial exclusion. The problems likefinancial discrimination, financial illiteracy, and financial exploitation go hand in hand.

And they have only one solution: financial inclusion.

WHY DO WE HAVE FINANCIAL EXCLUSION?

It can be for many reasons.

Hilly areas and areas with poor development has a poor reach out

Tribal areas and some part of the country is very less educated.

The people uneducated mass is unaware of their rights, and cannot ask for them

There are unwanted political and social reasons which insist on unequaldistribution of education and facilities.

The lack of knowledge about technology and its efficiency resulted in manual

work in the banks, till some years ago. Cost of small value transactions is huge

There were very few suitable products and service for themThese are some of the causes, that hinders the entire country to come under onefinancial roof.


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WHO CAN BE FINANCIALLY EXCLUDED?

Poor

Socially under privileged under-

Disabled

Old as well as children

Women

Uneducated

Ethnic Minorities Un employed

STATISTICAL EVIDENCES:

In the NSSO- 2003 Finding Survey, some facts that came up was:

51% of the people lack the basic financial access

And this exclusion is predominant amongst: Poor and weaker sections X

In another survey, it showed that the north-eastern states at the bottom of the ladder alongwith Bihar and Jharkhand, while the southern states were doing much better. Gujaratsrelatively low rank is probably because businesses there have access to different sourcesof funding: non-banking financial institutions, co-operative banks and equity.

From various estimate sources and IIMS survey we find that still 50% of loans are to

meet the emergency rather than for business needs. Even rich people are excluded whohave to depend on non-institutional sources for loan purposes

The data also showed that bank the financial expansion had a narrow domain, thougheconomic potential for broader horizon exists. That is, even in relation to the level of


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economic activity prevailing, the bank penetration in many states has remained quite low,and could be scaled up to a greater extent.

WHAT CAN BANKS DO HERE?

The banking industry , all over the world, has shown tremendous growth during the lastfew decades, making significant improvements in all the areas relating to financialviability, profitability and competitiveness. Yet, there lies a concern since the banks wereunable to include a large segment of people, specially the poor, into the financial fold ofproviding basic financial services. Nationally and internationally, researches and studiesare going on to address this problem. The cause may vary in different countries and hence


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the strategy could also be different, but the all out efforts are being made as financialinclusion can really bring a havoc change in the entire world.

Inspite of the steps taken by the banking industry of India, like developing Lead BankScheme, patronizing RRBs, following Service Area Approach and hugely inspiring Self

Help Groups, it failed. And it failed miserably. But why? Among various other reasons,in India, technological backwardness was one prime reason.

WHY ARE WE TALKING OF FINANCIAL INCLUSION NOW?

Banking Technology has arrived

Focus on Inclusive Growth

Realisation that Poor is bankable

WHAT HAVE WE ALREADY ACHIEVED?

Number of No-Frill Accounts 28.23 million (as on Dec. 31, 2008) Number of rural bank branches 31,727 constituting 39.7% of total bank

branches (as on June. 31, 2009)

Number of ATMs 44,857 (as on May 31, 2009)

Number of POS 4,70,237 (as on May 31, 2009)

Number of Cards 167.09 million (as on May 31, 2009)

Number of Kisan Credit cards 76 million (Source: CMIE publication 2007-08)

Number of Mobile phones403 million (as on Apr.30, 2009) out of which 187million (46%) do not have a bank account (Source: Cellular OperatorsAssociation of India)


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WHAT ARE THE PROBLEMS / CONSTRAINTS?

Scaling up of activities

Transaction cost too high

Appropriate business model yet to evolve BC model too restrictive

Limitation of cash delivery points

Lack of Interest / Involvement of Big Technology Players

PRE REQUISITES FOR A SUCCESS OF A FINANCIAL INCLUSION

Appropriate Technology

Appropriate and Efficient Delivery model

Mainstream banks determination and involvement

Strong Collaboration among Banks, Technical Service Provider, BC Services

Involvement of all

Especially the state administration at grass-root level

Liberalisation of BC model


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GLOBAL MELTDOWN WILL ACT AS AN OPPURTUNITY

Focus on Inclusive Growth

Focus on Domestic Consumption and Investment

Focus on increased Social Sector Spending

Emphasis on giving benefits to poor clients Global (bigger) players looking Inward

WHAT ARE THE OPPURTUNITIES OF THIS PROGRAMME ?

Financial Inclusion will provide huge opportunity to every segment of the society. Itspotential is immense and beyond imagination. To start with, it is the Largest FinancialInclusion programme in the World, that will include:

58 million poor households provided access to banks through 3.48 million SHGs.

Savings of SHGs with banks $ 703 million.

Bank loans availed by SHGs $ 2473 million

NABARD Refinance support $1412 million

NABARD Promotional support $5.5 million

NOW, WHAT ARE THE SERVICES NEEDED TO BE PROVIDED:

Financial Inclusion eventually to include the following services

Savings/ Thrift Loans/ Credit

Remittance / Transfer of Funds

Micro Insurance Services (Life and Non- Life)

Mutual Funds/ Annuity Products

Pension Products


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FUND

There is a huge fund allotted for this purpose. The Financial Inclusion Fund (FIF)consists of Rs 5000 million. Its counter part, the Financial Inclusion Technology Fund

(FITF) conssts of another Rs 5000 million. The fund will be provided in the ratio of Govt.of India : RBI : NABARD is 40:40:20 .The objectives of the FITF is to increase the usage of Information Communication

Technology (ICT) aimed at promoting financial inclusion, enhance the advent oftechnology in financial inclusion and increase the technological awareness of financialservice providers as well as users.

TECHNOLOGY SOLUTIONS BEING TRIED IN INDIA:

Smart card, hand held terminal, central CPU

Low cost ATMs

Mobile Phone Banking SMS Banking

Public Call Office (PCO) Connectivity.

WAY FORWARD

Targets fixed for each Branch of Commercial Bank/Regional Rural Bank to :

Open 250 accounts every year

Issue 100 Farmers Credit Card

Issue 100 General Credit Card

Distribute 100 micro insurance policies

Micro Finance Sector (Development and Regulation) Bill, 2007 under consideration.

Setting up of Rural Credit Information Bureau.

Ensuring effectiveness of Business Facilitator(BF) /Business Correspondent(BC).

Micro finance Development and Equity Fund

Micro finance OmbudsmanRegulatory and developmental power to NABARD

B. BIOINFORMATICS

WELCOME TO THE WORLD CALLED BIOMETRICS


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Bio relates to life and metric means measurement, in Greek. Thus the nameitself gives a very clear picture about what the subject deals with. It deals with themeasurement and statistics of the vitals of life.

This subject is fast emerging as a promising technology for authentication. It hasalready found place in many recent hi-tech security fields. And this is the field that Ill

emphasize here, to explain how well can biometrics be used for security andauthentication, the principle used to design smart cards.Biometrics has drastically advanced in the last three decades and the technology

has moved from fingerprinting to more complex and evolved methods. With constantdecrease of prices for the hardware design, the systems are becoming more feasible forlow and mid-level budgets and thus making this more adaptable in small businesses andeven households.

Let us see what are the various developments in this field.A. Individal Biometrics Solutions:

Behavioral Biometrics Solutions:a. Speaker Recognition b. c. Keystroke

Physical Biometrics:a. Fingerprint b. Vascular Patternsc. Iris Scand. Hand Geometrye. Retinal Scanf. Facial Recognitiong. DNA

B. Other Biometric Solution:Smart Cards it incorporates biometrics in identification cards

A very common misconception amongst the people is that, Biometrics is meantonly for the hi-fi security projects and is very costly. This is becoming increasingly farfrom truth with evolution of technology and its continually decreasing price. Biometricsis quite cost-effective and thus can be used in the concerned project of designing smartcards for every customer.

. With the growth of this industry, like every other field, this field is also not voidof legal issues and privacy policies. Laws and regulations are continually being updatedand standards are beginning to be reframed.

Since no other biometric has yet reached the breadth of use of fingerprinting,which is used in the smart cards, this remains our topic of discussion in this paper.

BIOMETRIC IDENTITY CARD


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Like every other normal id card, this is also a piece of cardboard or plastic that is

shown to person concerned for checking ie, the security guards. Most of these cards

contain some basic personal information such as name, a photograph of the person's face

and a reference number that allows the card to matched to some central record held by the

card issuer. Some of the more sophisticated cards also contain magnetic strips or

barcodes that can be used with other machines to unlock some code or access so that thecard acts like an enabler. In case of a biometric cards, some more biometric information

are also added to the card memory.

A typical biometric smart card, used by fino looks as follows.

BIOMETRIC INFORMATION

In short, biometric information is information about a specific person's body statistics.

Some example may be: hair colour and weight. However for practical purposes, hair

colour or weight are not very useful information because they change relatively rapidly.

So, for identification purposes the most well known type of biometric information is the

fingerprint. These are used because it is generally taken that no two people have the same

patterns in the skin of their fingers formation, they might change a little as a person gains

or loses weight but that too within a tolerance range. Another commonly used form of

biometric information is DNA pattern sequences. DNA is the biological code present in

every cell in the body. It is unique for every human being and that describes each

individual person.

HOW IS THE INFORMATION INCORPORATED IN THE CARD?

With the advent of technology, and the successful implementation of Moores Law, it is

very much possible to store the amount of information space needed to store a persons

fingerprint can be easily stored in a small microchip or magnetic strip, which is then

embedded in the card. The same technology was used in the credit cards initially, and

chip and chin cards of UK.


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NOW, WHAT KIND OF INFORMATION WILL BE STORED IN THE CARD?

Though there is still not a unanimous decision on which bioinformatics information

would be the best, generally fingerprint or eye iris determination are the two most

popular information of any individual.

WHAT IS FINGER PRINTING ?

Fingerprinting basically refers to an image of an persons fingertips which is then storedor recorded in the card. It can be either by ink or by digitally scanning it. Thecharacteristics of a fingertip includes the detailed pattern of its whorls, arches, andloops along with the patterns of ridges, furrows, and minutiae. This information maythen be recorded using a microprocessor or a software algorithm. X

In case of the digital scan, the software breaks the imprint into thousands of points, andmap them and store them in order after coding them in algorithm. When checking, it will

search for similar characteristics in similar relative placement on the fingertip and matchthem accordingly..In biometric fingerscan, like normal fingerscan, the finger is placed on the surface, whichcan be either silicon or optical, and the image is taken and stored in the computer. Butunlike normal fingerscan, the biometrics, like blood pressure and blood flow of thefingers. This is done as extra precaution, to check fake finger imprints.


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C. ONE LIVE EXAMPLE : FINO

Financial Inclusion Network & Operations Ltd. (FINO) was founded on 13th July, 2006with the single objective of building technologies to enable financial institutions (FIs) toserve the under-served and the unbanked sector and also to service the technologyrequirements of entities engaged in servicing the bottom of pyramid customers. One ofthe biggest challenges in the micro banking industry is the huge amount of paperworkand human effort traditionally involved in supporting micro-transactions and creditscoring potential customers. Other hurdles include Information gap, accessibility andreach, infrastructure, illiterate populace & fool proof identity. High costs coupled withlow returns did not make microfinance viable beyond a certain threshold, thus hamperinggrowth. The concept of FINO was germinated to overcome all the above mentionedhurdles and make financial services available to the unbanked.Taken from http://www.fino.co.in/aboutus.aspx

CURRENT STATUS OF FINO

Taken from http://www.fino.co.in

THE HURDLES IN MICRO BANKING

The hurdles that even FINO faced, like most other companies in this field, are:

foolproof identity,

illiterate populace,

infrastructure,

accessibility and reach, and

information gap.

But like every other geniuses, it tried to look beyond all odds, and create newer ways. It

designed a complete paperless end to end technological solution to transact money. Its a


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fast, easy and hassle free procedure. It came up with hand held devices that acted as a

terminal. They were small, light, portable and powerful devices.

These hand held access control devices are routed and connected to the banks server PC,

where all the information was stored.


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TECHNOLOGY ENABLERS

CUSTOMER Biometric Enabled

Instruction Card

BUSINESSCORRESPONDENT

POT, PC, MenuBased Application

BANKS AND MFIs Middleware, Core

Banking System

It is promoted by various banks and MFIs. It has one of the hargest acceptance

among the FIs and has the highest reach among the needy customers. It is presently also

working on National priority projects like NREGA, RSBY and SSP.

INVESTORS WITH FINO:

A. The International Investors include : IFC, Intel Capital and HSBC

B. The Public Sector Entities include: Banks like United Bank of India, Union Bank,

Corporate Bank and LIC

C. The Private Sector Entities include IFMR Trust, ICICI Lombard, ICICI Bank

BUT WHAT IS THE SUCCESS BEHIND ALL THESE MESMERISING

OUTCOMES?

In their own words: FINO has an in-house Technology R&D team to develop and

enhance offerings. Centralized Processing Centre which is ISO 9001:2000 certified and

with Robust contingency management procedure. FINO has its Own network of agents

(Business Correspondents) at ground level and also works with several partners to reach

the remotest parts of the country.

It has an array of products that fits the needs of every customer, in their own way.FINO

wishes to be an aggregator of all these efforts to deliver. The various products in their

vertical are:

Finance Saving, Loans and Remittance Insurance Health and Micro Insurance

Social Benefits Wages and Pension payments

E-Governance Kiosk Initiatives

Health / Education Health history


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HOW IS IT HELPING THE BANKS TO REFRAME THEIR TARGETS?

he successful implementation by Union Bank, who were one of the first nationalized

banks to experiment with their product, helped the other banks to realize the power of

these technological benefits too. Now even they are fastening their seatbelts tight, and are

setting targets high.

FUTURE TARGETS:

BANKS IN

FINANCIAL

INCLUSIONS

BANK

ACCOUNTS

BUSINESS

CORRESPONDEN

TS

2013 TARGET

2008-09

2009-10 VILLAGES ACCOUNTS(in millions)

AXIS BANK .55 1.25 11 8,000 2.40

BANK OF

INDIA

..05 .40 1270 40,000 12.50

SBI 2.06 3.43 18000 1,00,000 10.00

UNION BANK 1.59 2.42 2600 32,000 10.00


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Information Source : Economic Times

THE WAY FORWARD : IS IT JUST A SPARK OF HOPE

OR THE BEGINNING OF A NEW REVOLUTION?

It sounded very unrealistic, even a few years ago, to have a society that was for

all. A society where every child gets an opportunity to study, every woman has the power

of self sufficiency, every deserving man has a source to ask for financial support, and,

every citizen has the power of education, right to demand and an opportunity to improve.

And to add more to it, along with this social welfare, the 2nd largest economy of the world

grows even stronger. Here the best of socialism and capitalism merge together, to

develop further.

But with the advent of new edge technology, it is seemingly possible. The ICT

(Information and Communication Technologies) plays a havoc role in increasing

efficiency, ease of communication and thus gives the strong platform for the purpose. If

the opportunity can be seized, with newer and better technologies round the corner, it is

really possible to have a successful business, as a huge portion of the worlds largest

microfinance market is still untapped, and this market segment still has a very less

competition.

The sole purpose of this paper thus lies in discussing a very prospective businesssector, that is till very recent past, was left unaware.


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BIBLIOGRAPHY

http://www.businessworld.in

http://www.idrbt.ac.in

http://www.questbiometrics.com

http://www.biometricidentitycards.info

http://www.fino.co.in

http://www.worldbank.org

http://siteresources.worldbank.org/FSLP/Resources/RishiGupta_RoleofTechnology.pdf

http://www.nabard.org

http://www.ismw.org.in/financial_inclusion.asp

http://www.equitymaster.com/research-it/sector-info/bank

http://www.thehindubusinessline.com

http://www.idlo.int/english

http://www.m2sys.com/EBS.htm

http://www.cab.org.in


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