10 June 2010

Financial exclusion by KYC

I have a piece in the Economic Times yesterday where I discuss my personal experiences of denial of services by service providers on the argument that KYC norms are not fulfilled. On the contrary, what really occurs is that a person who lives in a city is unable to use services in another city - including something as necessary as a bank account. This is not KYC, as a person is willing to show multiple proofs of his actual residence - which is his permanent residence. Here is an excerpt:

"The gardeners , drivers, blue collar workers, even highly educated persons who move from their home for better opportunities are excluded from vast swathes of services even though they can prove their permanent residence in their original hometowns and thus prove their identity and conversely that they are not terrorists or money launderers or whatever other thing they are not supposed to be.

We thus have a system where poor people including marginal farmers are excluded from the formal financial sector because of their lack of understanding or because of volatility in their incomes and expenditures . We also have a so called KYC system which systematically excludes the upwardly mobile middle class from financial inclusion. By one estimate, over 70% of temporary workers don't even have a bank account even though many of them earn over five or even ten thousand rupees a month merely because they do not have these identifications.

These people also stand disenfranchised because their election cards are hard to get at the place they actually live, as election cards cannot be shifted without a whole laundry list of proofs. This fact alone should be reason for politicians to move quickly to push for change. It is time we applied our mind to these policies and rationalised them, instead of making promises of some automatic rationalisation in the distant future based on yet another ‘unique' identity card."

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