State-sponsored welfare programs are often constrained by corruption and inefficiency. The problem is of particular concern in India, where former Prime Minister Rajiv Gandhi once suggested that only 15 percent of spending on social programs actually reached the intended beneficiaries. Such corruption adds strain on state finances and reduces the potential impact of the programs. One potential solution involves transferring benefits through debit cards that can verify the identity of the recipients using biometric authentication. This has the potential to reduce financial leakages, transaction costs, and time spent accessing payments. However, it may also have negative impacts on participation if beneficiaries do not register for the biometric debit cards or lose them. It may also simply displace corruption into other dimensions of the programs.
In 2006, the Government of the state of Andhra Pradesh (AP) started a pilot initiative to provide all residents with "Smartcards" to ensure efficient and timely transfer of government benefits to the poor, and to reduce the possibility of fraudulent payments. While the cards are intended to be used to access any government services, the government has chosen to pilot the program with two large social welfare schemes: the Mahatma Gandhi National Rural Employment Scheme (NREGS) and the state-sponsored social security pension (SSP) program.
Researchers are using a randomized evaluation to assess the impact of Smartcards on leakages within NREGS and SSP, and welfare outcomes for the program beneficiaries. As of 2009, the Government of Andhra Pradesh (GoAP) had started rolling out the Smartcards in 15 districts, with 8 districts; yet to start coverage. In 2010 , researchers partnered with the GoAP to conduct a rigorous randomized evaluation of the Smartcard Program in these eight districts.
In these eight districts, the mandals (sub-districts) were randomly assigned to three phases of coverage, with the first phase being the treatment group, and the last phase service as the comparison group. A total of 157 mandals were placed in the first and third phases, with a time lag of around two years between the start of coverage in Phase 1 and Phase 3 sub-districts. Mandals in the comparison group will be phased into the program, after the completion of the endline survey.
In each district, the Department of Rural Development gave a list of all households who were eligible for the SSP and NREGS programs (within the treatment mandals) to a contracted bank. The banks then conducted enrollment camps in each village to collect fingerprints, photos, and
other details for each beneficiary. The collected data was then encrypted on biometric "Smartcards." The bank was also responsible for appointing a business correspondent (BC) to physically transport the cash from the bank to the village and a Customer Service Provider (CSP) to manage the required technology (card and fingerprint readers, printers, mobile phones, etc.) and cash management within each village.
To receive payments, the Smartcard is inserted into a card reader. After the identity of the beneficiary is established using the fingerprint reader, the payment is made in cash and two receipts are printed (one for the beneficiary and one for government records). In addition, the CSP uploads the record of disbursements on a daily basis, which is then submitted to the Government.
A baseline study was administered from August to September 2010, prior to any Smartcard payments. A midline study was then administered between September and October 2011. The endline survey is currently underway.
Results and Policy Implications
Researchers found that the Smartcard program reduced the time it took beneficiaries to receive payments, reduced leakages, and increased beneficiary satisfaction, even though it was not fully implemented.
Take-up: After two years, about 69 percent of villages in the first wave of the program rollout had converted to using the Smartcard-based payment system for NREGS and SSP, and just over 50 percent of all payments in treatment areas were made using the new system.
Payment time: In areas assigned to adopt the Smartcard payment system, the amount of time NREGS beneficiaries spent collecting payment fell by 21 minutes (a 19 percent reduction from 112 minutes). The system also reduced the lag between working on an NREGS project and collecting payment by about seven days (a 21 percent reduction from 34 days). There was no significant effect on the amount of time SSP beneficiaries waited to collect their payments, but unlike NREGS payments, these payments were delivered at the village-level prior to the adoption of Smartcards.
Leakages: NREGS recipients in areas assigned to receive the Smartcard system reported weekly earnings that were Rs. 35 higher (a 24 percent increase from Rs. 146). However, there were no major impacts on the amount the government spent on the NREGS program, suggesting a reduction in leakages. There was no significant impact on earnings for SSP beneficiaries, as these benefits were fixed, but there was a 1.8 percentage point reduction in the incidence of bribes demanded for disbursing payment (a 47 percent reduction from 3.8 percent).
Beneficiary satisfaction: In surveys, 84 percent of NREGS beneficiaries and 91 percent of SSP beneficiaries preferred Smartcards to the status quo. However, many recipients feared losing their Smartcards (53 percent of NREGS beneficiaries and 62 percent of SSP beneficiaries) or reported having problems with the authentication device (49 percent of NREGS beneficiaries and 59 percent of SSP beneficiaries).
Cost effectiveness: Researchers estimated the value of the time beneficiaries spent collecting payments and found that the value of time savings to beneficiaries (US$4.44 million) was approximately the same as the cost of the new system (US$4.25 million) for NREGS. Although the cost savings were less substantial for SSP (US$320,000, with system costs of US$1.85 million), these calculations suggest that the times savings to beneficiaries alone can sometimes justify the costs of implementing improved payments technologies. In addition to the pure efficiency gains, there was an estimated $38.7 million reduction in annual leakage.
2010 - 2012
Photo Credit: World Bank Photo Collection via Flickr