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, say
that about 2 billion people are excluded from the blessings of financial service, all over
the world. And a whooping one-third of this number is from India itself ! The Rangarajan
Committee,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, those
excluded 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 in
worst cases local terrorisms. Some of these problems were suppressed and some went
unaddressed. These problems had no permanent solutions as its root cause was too heavy
and complex.

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

ABSTRACT

The 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 about
the curse called financial exclusion and finally how banks can overcome it.
Part B: It introduces Bioinformatics, describes its features, and finally describes how the
smart card, that is becoming “the weapon” for financial inclusion, uses bioinformatics for
its purpous.
Part C: This part selects one of the few companies that have selected this technology, for
the same purpose. It is doing a great business along with its venture for social uplifment.
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 groups
at an affordable cost”
The Committee on Financial Inclusion
(Chairman: Dr. C. Rangarajan, 2008)

India always had social-democratic based policies and therefore its economic
measures 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, the
bitter truth is that though the five-year plans have attempted to reduce regional
disparities by encouraging industrial development in the interior regions, the
industries still tend to conglomerate around urban areas and ports. Even after
liberalization in 1991, the more advanced states had a clear advantage to benefit from
them, with infrastructure like well developed ports, modern facilities and an educated
and 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 overall
growth.
• In the years 1960 – 1980, the efforts were given to the following:
• Social control of Banks (1960)
• Nationalisation of Banks (1969)
 • 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 the
poor technology and infrastructure prevailing at that era.

• In the next phase, from the years 1980 – 2005, the changes were more significant
and revolutionary
• Integrated Rural Development programme/ SGSY promoted by
Govt. Of India
• Microfinance programme– SHG – Bank linkage facilitated by
NABARD
But these were also not implemented properly, thanks to late advent of technology in
banking domain. But by 2005, the goals of financial inclusions were laid down, and
the target set were as follows:
• Development of MFIs
• Financial Inclusion in a “MISSION” mode

FINANCIAL EXCLUSION

Now let us understand what if we don’t go for a financial inclusion. Financial Exclusion,
by definition, is “the lack of access by certain consumers to appropriate, low cost, fair
and safe financial products and services from mainstream providers. It is generally
referred to the lower income consumers and/or those in financial hardship.”
.
There is a strong connection between poverty and financial exclusion. The problems like
financial 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 unequal
distribution 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 them
These are some of the causes, that hinders the entire country to come under one
financial roof.
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 along
with Bihar and Jharkhand, while the southern states were doing much better. Gujarat’s
relatively low rank is probably because businesses there have access to different sources
of 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 who
have to depend on non-institutional sources for loan purposes

The data also showed that bank the financial expansion had a narrow domain, though
economic potential for broader horizon exists. That is, even in relation to the level of
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 last
few decades, making significant improvements in all the areas relating to financial
viability, profitability and competitiveness. Yet, there lies a concern since the banks were
unable to include a large segment of people, specially the poor, into the financial fold of
providing basic financial services. Nationally and internationally, researches and studies
are going on to address this problem. The cause may vary in different countries and hence
the strategy could also be different, but the all out efforts are being made as financial
inclusion can really bring a havoc change in the entire world.

Inspite of the steps taken by the banking industry of India, like developing Lead Bank
Scheme, 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 phones–403 million (as on Apr.30, 2009) out of which 187
million (46%) do not have a bank account (Source: Cellular Operators
Association of India)
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
 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 ? 8

Financial Inclusion will provide huge opportunity to every segment of the society. Its
potential is immense and beyond imagination. To start with, it is the Largest Financial
Inclusion 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
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 of
technology in financial inclusion and increase the technological awareness of financial
service 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 Ombudsman
Regulatory and developmental power to NABARD

B. BIOINFORMATICS

WELCOME TO THE WORLD CALLED BIOMETRICS

 ‘Bio’ relates to life and ‘metric’ means measurement, in Greek. Thus the name
itself gives a very clear picture about what the subject deals with. It deals with the
measurement and statistics of the vitals of life.
This subject is fast emerging as a promising technology for authentication. It has
already found place in many recent hi-tech security fields. And this is the field that I’ll
emphasize here, to explain how well can biometrics be used for security and
authentication, 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 constant
decrease of prices for the hardware design, the systems are becoming more feasible for
low and mid-level budgets and thus making this more adaptable in small businesses and
even households.
Let us see what are the various developments in this field.

A. Individal Biometrics Solutions:

Behavioral Biometrics Solutions:

a. Speaker Recognition
b. Signature
c. Keystroke

Physical Biometrics:
a. Fingerprint
b. Vascular Patterns
c. Iris Scan
d. Hand Geometry
e. Retinal Scan
f. Facial Recognition
g. DNA

B. Other Biometric Solution:

Smart Cards it incorporates biometrics in identification cards

A very common misconception amongst the people is that, Biometrics is meant

only for the hi-fi security projects and is very costly. This is becoming increasingly far
from truth with evolution of technology and its continually decreasing price. Biometrics
is quite cost-effective and thus can be used in the concerned project of designing smart
cards for every customer.
. With the growth of this industry, like every other field, this field is also not void
of legal issues and privacy policies. Laws and regulations are continually being updated
and 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

 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 the
card 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 Moore’s Law, it is
very much possible to store the amount of information space needed to store a person’s
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.
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 person’s fingertips which is then stored

or recorded in the card. It can be either by ink or by digitally scanning it. The
characteristics of a fingertip includes the detailed pattern of its “whorls, arches, and
loops along with the patterns of ridges, furrows, and minutiae”. This information may
then 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, and
map 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 match
them accordingly..
In biometric fingerscan, like normal fingerscan, the finger is placed on the surface, which
can be either silicon or optical, and the image is taken and stored in the computer. But
unlike normal fingerscan, the biometrics, like blood pressure and blood flow of the
fingers. This is done as extra precaution, to check fake finger imprints.
C. ONE LIVE EXAMPLE : FINO
“Financial Inclusion Network & Operations Ltd. (FINO) was founded on 13th July, 2006
with the single objective of building technologies to enable financial institutions (FIs) to
serve the under-served and the unbanked sector and also to service the technology
requirements of entities engaged in servicing the bottom of pyramid customers. One of
the biggest challenges in the micro banking industry is the huge amount of paperwork
and human effort traditionally involved in supporting micro-transactions and credit
scoring potential customers. Other hurdles include Information gap, accessibility and
reach, infrastructure, illiterate populace & fool proof identity. High costs coupled with
low returns did not make microfinance viable beyond a certain threshold, thus hampering
growth. The concept of FINO was germinated to overcome all the above mentioned
hurdles 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
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 bank’s server PC,
where all the information was stored.
 TECHNOLOGY ENABLERS
CUSTOMER Biometric Enabled
Instruction Card
BUSINESS POT, PC, Menu
CORRESPONDENT Based 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
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 BANK BUSINESS 2013 TARGET

FINANCIAL ACCOUNTS CORRESPONDEN
INCLUSIONS 2008- 2009-10 TS VILLAGES ACCOUNTS
09 (in millions)
AXIS BANK .55 1.25 11 8,000 2.40
BANK OF ..05 .40 1270 40,000 12.50
INDIA
SBI 2.06 3.43 18000 1,00,000 10.00
UNION BANK 1.59 2.42 2600 32,000 10.00
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 due to this social welfare, the 2nd largest economy of the country will grow 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 world’s 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 business
sector, that is till very recent past, was left unaware.
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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

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