Financial Inclusion through Opening of accounts for payment of NREGA Wages

Payment of NREGA Workers through Accounts – An Experience Financial Inclusion in Gulbarga (Karnataka).

                                                      Dr. PC Jaffer IAS[1]

Karnataka was once of the few states in the country to introduce the system of payments to the workers through accounts opened in the Banks or the Post Offices. In fact, the state did not permit cash payment at any point of the NREGA implementation. As on today, the state has more than 2.5 million accounts opened in for the NREGA workers. Of these accounts 2.3 million have been opened in the Scheduled Commercial Banks at the rest are in the Post offices. Gulbarga was once of the districts covered under the Phase I of NREGA in 2006. The district provides for many insights into the operationalisation of such an initiative as it is among the most backward districts in the country. In fact, the Human Development Indicators of the district can be compared with the African countries like Burundi and Botswana.

The district was able to make payments only through accounts from the day of inception. This required rounds of intensive training and fire fighting on a daily basis. The present case study explains the process and challenges in carrying out the financial inclusion of the villagers through the NREGA.

The focus at the beginning was to educate the functionaries and elected representatives at the critical level regarding the nuances of the scheme and capture attain their confidence. The district administration has clearly realised the importance of the cooperation of people at this level and their wholehearted involvement. Modalities of registering all the eligible households and opening bank accounts for them were discussed in these meetings. The state government has deliberately taken the decision to make the payments through bank accounts only. The opening of bank accounts was the first step in doing the registration in NREGS. In the mean time, the State Institute of Rural Development imparted training to the officials and elected representatives through the satellite mode.      

After the rounds of meetings at the taluka[2] level, all the officials were involved in getting the people registered. Gram Sabhas[3] and special campaigns were conducted in all the villages so that the people could get themselves registered. Prior to this, a survey was conducted in the villages utilising the services of the volunteers of the literacy programme to assess the demand and willing of the people for the programme. This led to the next step of actual registration of the families. As explained earlier, the registration was to be after opening of the accounts in the banks or the post offices. This has turned out to be the most challenging aspect of the whole scheme. Even though the state has a good network of banks; the district being backward was not having enough bank branches that could cater to the demands for the scheme. The penetration of the banking network in the district has been shown in Table 1. Moreover, the shortage of staff in the rural branches and their initial non-cooperative attitude made the situation very difficult.

   Table 1:  Banking Status of the District.

Sl No	Description	Numbers	%
1	Grama Panchayats	337
2	Villages	1363
3	Villages having banks at the head quarter	090	06.60%
4	Banks within 5 KM	752	51.17%
5	Banks 5-10 Km	345	25.97%
6	Banks 10-15 KM	119	08.73%
7	Banks beyond 15 KM	057	04.18%

Source: Office of the DPC, Gulbarga

 

The deliberations at the various levels and consultation with all the stakeholders have resulted in fixing the institutions where the accounts for the labourers have to be opened. The decision was to treat the Gram Panchayat[4] as a single unit. Thus 105 GPs have decided to open accounts with the Scheduled Commercial Banks, 198 in Post Offices and 32 in Cooperative Societies. Details are shown in Table 2. 

Table 2: Details of the accounts opened in Gulbarga District.

Sl No	Details	Number of accounts
1	Post Offices	62313
2	Scheduled Commercial Banks	160798
3	Co-operative Banks	17946
4	Post office accounts closed	43996
5	Post office accounts shifted but not closed	25579

Source: Office of the DPC, Gulbarga

 The opening of accounts at this huge numbers required a certain level of attitude and perception by all the stakeholders. The banks were not fully equipped to meet this heavy demand, the post offices did not have the competency to handle this level of workload, the people were not habituated of going to the banks and deferring the payments for a week and the officials were not familiar with the concept of transparency in distribution of the wages. The delay in processing of the application and opening of the accounts has reached a stage where the whole registration process was slowed down. The strategy was changed then. The idea came out in one of the meetings of the core group that the labourers have to be registered even without opening of the accounts. Instead they should be provided a bank account within ten days before the first payment is due. This will ease out the heavy load on the banks. The application can be filled in by the GP Secretary or any other functionary, got the signature of the labourer and transmitted to the banks. The bankers got around ten days to process them making it less than ten a day. This removed the perception of being overloaded by the banks while they are asked to handle huge application at the same time. 

Issues with the Post Offices

The initial phase of mapping of the network was more influenced by the philosophy of providing the payment at the location closest to the worker. This has resulted in opening many accounts in the post offices, as the penetration of the banking system is not very encouraging in a backward district. However, once the scheme was six months old, post offices turned out to be the biggest bottleneck for the implementation of the programme in many places. The inordinate delay from the part of Post offices resulted in labourers losing confidence in the system. Various factors led to such a situation. Firstly, banking is not their core activity and they do not have the capacity to handle such a huge increase in the business. Secondly, the post offices do not have provisions to open institutional accounts with them. This has lead to a situation whereby the accounts of the labourers are with the post offices and the money of the Grama Panchayat is kept in the banks. This requires clearance of the cheques before making the payments. The clearance leads to inordinate delay in making the payments, as there is no clearinghouse in the villages. Thirdly, the restrictions in carrying cash from head office to the branch and further to sub post offices restrict the volume of transaction per day. This has led to a situation whereby the payments were delayed beyond a month.

 

The postal department was not at all responsive towards this issue. Despite the issue being taken up at the highest level in the state, there was no respite to the issue. Much improvement could have been possible within the existing framework of operations itself. Such a situation compelled the Programme Officers to go for bank accounts for all the GP. This decision was taken following setting of the priorities properly. Timely payment was put above the payment at the doorsteps of the people. The bankers were requested to put a little extra effort to ensure that the payment to the labourers is made when and where they come to the banks. As on today, there are 241057 accounts being operated in the district.

 

As on today, a solution is being formulated for the problem at the state level. Instead of issuing cheques at the Gram Panchayat level for the workers, the GP should forward the payment order to the Programme Officer who in turn can issue a cheque in the name of the Branch PO at the Block headquarter. The Post Master at the Block HQ has an SB account with the State Bank Group. Since the NREGA funds are handled by the State Bank Group at the Block level, the clearance would not be a problem. The commitment being given by the Postal Department now is that the payment to the workers could be made on the third day of presenting cheques to the Post Office at the Block town. This appears to be a viable option worth trying. However, the inaction of two years from the part of the Postal department has resulted in people losing the confidence in their system. It requires lot of hard work to regain this confidence.  

 

The Experience so far shows that this is the single most important step in the history of development administration that has ensured the plugging of leakage in public money. Poor villagers who were hitherto kept out of the banking network have been given an opportunity to be brought to the formal banking network. This have started having an impact on the small savings in the villages. The interaction with the beneficiaries show that they save up to 50% of their earnings and spend on education, health care and self help groups to take up income generation activities. A recent study on NREGA in Gulbarga district has concluded that the NREGA is used fully has the potential to take the rural families to raise them above the Poverty Level.

 

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[1] The author is a member of the Indian Administrative Services and presently posted as Director, NREGS, Karnataka. He has worked as the District Programme Coordinator for Gulbarga district from 2006- 2008.  The case study is written for academic purposes only.

[2] Taluka is the administrative Unit at the Sub-district level. These are called blocks in some states.

[3] Gram Sabha is the meeting of all the voters of a particular village. This is the authority to decide the works to be taken up under the NREGS.

[4] Grama Panchayat is the Lowest tier of Local Self Government in India. In Karnataka, GP consists of four or five villages with an average population of 5000.