The E-Rupi Could Take Us A Long Way Towards Financial Inclusion

Context: The recently launched e-Rupi, a payment-voucher system, makes it ideal for programmes aimed at Indians on the other side of our digital divide.

Bottlenecks faced by financial inclusion in India: There exists a divide between rural-urban areas and between states with respect to the following twin problems - 

• Access to technology:
  • While the share of telephone subscribers resident in rural areas has increased over time, at 44.8% in December 2020, a large gap still exists in terms of internet access.
  • There are 34.6 rural internet subscribers per 100 people in the country, as opposed to 104 in urban areas (as on the end December 2020) – the Telecom Regulatory Authority of India.
  • Internet penetration varies across states: Internet subscribers per 100 persons ranges from 210 in Delhi and 87.6 in Punjab to 40.8 in Uttar Pradesh, and 32.9 in Bihar.
• Access to banking infrastructure:  
  • Of the country’s total bank branches, 33.5% are located in rural areas.
  • There are around 190 million unbanked citizens in our country, residing mostly in rural parts

Measure took to achieve financial inclusion

• Jan Dhan Yojana: Central bank and government have been taking measures to expand bank infrastructure in unbanked areas, and open bank accounts for people under the Jan Dhan Yojana

Case study- Kenya’s solution to bypass banks and technology access 

• M-Pesa was introduced in Kenya as an initiative for financial inclusion geared towards its unbanked or underbanked population.
• This is a virtual banking system that provides services through a SIM card with no requirement of internet access and bank accounts.
• M-Pesa later expanded to many other counties and became a big player in the market for transferring or withdrawing money, saving or borrowing money, making merchant payments and paying the bill.
• Transactions worth half of Kenya’s gross domestic product are carried out over M-Pesa, as reported by its central bank and claims 49 million customers across Africa

Significance of e-Rupi: e-Rupi has the potential to redraw the contours of financial inclusion in India.

• Solution to the twin problems:
  • It allows transfers of purpose-specific prepaid vouchers that need no debit card, credit card, mobile bank application, internet connection, etc., to be used.
  • An e-Rupi voucher will be sent to the user as an SMS (for non-smartphone users) or QR Code (for smartphone users) (thus, offline payees can also transact.)
• Expected to be safe and secure: As it promises to keep the details of beneficiaries completely confidential. The entire process is both reliable and fast, as these vouchers are preloaded with money
• Potential of e-Rupi:
  • The decision of M-swipe to include e-Rupi as a mode of payment, for example, is a step towards building a financial ecosystem based on it.
  • Businesses can use it to provide benefits to their employees by distributing such prepaid vouchers; they could track their redemption as well.
  • It can improve public service deliveries: With the government’s focus on direct benefit transfers for assorted welfare programmes, the e-Rupi can prove pivotal in terms of preventing leakages and providing last-mile connectivity for routine state provisions and other forms of support.