As discussed in the State of Aadhaar Report 2016-17, the government contends Aadhaar can play an important role in financial inclusion, both in the initial stage of opening a bank account and then in facilitating the active usage of the account. Until recently there was insufficient data to examine these claims. While data gaps remain, we use the State of Aadhaar survey from rural Andhra Pradesh, Rajasthan, and West Bengal, along with other recent research and administrative data to begin to understand the role of Aadhaar in promoting financial inclusion.
Opening a bank account
The promise of Aadhaar in enabling the opening of a bank account is two-fold: first, it can serve as a legitimate identity document and second it can be used to verify a customer’s identity and securely share her or his demographic details via Aadhaar-enabled e-KYC.
Use of Aadhaar as an identity document
According to our survey data, among those who opened a bank account in the last three years, a large proportion of respondents used Aadhaar as an analog identity document. The figure below showcases the proportion of respondents who used Aadhaar for bank account openings, since 2014.
However, the extent to which having an Aadhaar exclusively enabled these respondents to open a bank account – compared to the counterfactual of not having an Aadhaar – is unknown. We estimate that nearly 90 percent of the respondents who used Aadhaar as an identification document to open a bank account also had another legitimate proof-of-identity document before securing an Aadhaar. Almost all also had a legitimate proof of address.
Use of Aadhaar e-KYC
As seen from the figure below, the number of successful e-KYC verifications has nearly tripled in FY 2017-18 compared with FY 2016-17.
As for the prevalence of e-KYC in the opening of bank accounts in rural settings, our data suggests uptake is fairly low.
The gap between the proportion of people who used Aadhaar as a means of identification and those who used e-KYC may be explained in part by the lack of a differentiation factor of e-KYC in the opening of bank accounts. In our survey data, using Aadhaar e-KYC is not correlated with a higher likelihood of accessing one’s bank account within one day of opening. The figure below shows the proportion of respondents who got access to account within 1 day among those who used e-KYC and those who did not.
Using a bank account
According to our data, more than 90 percent of respondents in Andhra Pradesh and Rajasthan and nearly 80 percent in West Bengal had access to a bank account. Despite growing access to bank accounts among Indian adults, we found only a subset of accounts are actively in use: 66.6 percent in Andhra Pradesh, 58.1 percent in West Bengal, and 44.9 percent in Rajasthan. The next major challenge in financial inclusion is active participation in the financial ecosystem.
Use of microATMs
Aadhaar-enabled microATMs, portable devices equipped to authenticate biometrics and generally accessed through business correspondents (BCs), can offer financial services to individuals who do not live close to a brick-and-mortar bank. These microATMs can help lower barriers to accessing a bank account and thus lead to more active usage.
Data from NPCI demonstrates an almost tenfold increase in the value of transactions conducted using AEPS, which includes microATM transactions, in FY 2017-18 compared with the previous year. The figure below shows the monthly transactions of AEPS and APBS,
Although transactions have been increasing, our data indicates that utilization rates are still low in the three states where we conducted our survey. In Andhra Pradesh, 33.4 percent of respondents who used their bank account in the last three months reported having used a microATM. In West Bengal and Rajasthan, it was 14.7 percent and 5.1 percent, respectively. The figure below showcases the proportion of respondents who have recently used a microATM.
Aadhaar seeding and direct benefit transfers
Research suggests that receiving DBTs into one’s bank account can increase account usage; not having a bank balance is a key contributor to account dormancy. Our survey data suggests a possible relationship between receiving DBTs and active account usage. We find that the likelihood of active usage of one’s bank account is significantly higher among those who receive DBTs. The figure below shows the proportion of respondents who used their bank accounts by whether they receive DBTs or not.
News & Updates
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