On 25 September, the Supreme Court of India struck down Section 57 of the Aadhaar Act of 2016, the full text of which is as follows:
Nothing contained in this Act shall prevent the use of Aadhaar number for establishing the identity of an individual for any purpose, whether by the state or anybody corporate or person, pursuant to any law, for the time being in force, or any contract to this effect.
The ruling by the court essentially means that private organisations or individuals can no longer demand the Aadhaar details from an individual to establish their identity.
The judgement has profound implications for fintech companies and organizations working in the alternative finance sector, including Rang De.
Aadhaar and the benefits of e-KYC
As a Peer – to – Peer lending platform, one of the cornerstones of Rang De’s work is providing a personal connect to the people and ensuring absolute transparency in our operations. This means that people investing money in Rang De’ s platform could choose the individual borrowers they wanted to support, those whose stories resonated with them the most.
On our part, we vouch for the authenticity of the borrowers. We ensure this through a thorough and extensive vetting process of the organizations we partner with. We also ask for documentation of the borrower, copies of which are sent to our office to verify against the details of the individual that are uploaded on our website. In rural areas, this proof of identity usually means a ration card, voter ID card, etc. Over the past years, we also began accepting Aadhaar as one of many forms of identity proof.
Besides this, we also conduct regular field audits to ensure the money is reaching the beneficiaries and is being used for the purpose for which it is given.
However, conducting KYC (Know Your Customer) verification through this traditional method is a time-consuming and expensive process. In rural areas where establishing the identity and proof of address is often a challenge, the presence of an Aadhaar card is a godsend. To begin with, it is Proof of identity and Proof of residence rolled into one.
When the set of India Stack APIs based on Aadhaar were launched and opened up to use by private organisations, it had us excited.
The possibility of conducting E-KYC using Aadhaar and biometric authentication not only promised to reduce costs, but also drastically reduce the time needed to process a loan application. Going forward, we had tentative plans to use the Aadhaar based APIs to authenticate the identity of a new borrower and instantly process their loans, something that takes us close to a week otherwise.
With the ruling of the Supreme Court preventing private organizations from using Aadhaar to authenticate the identity of a borrower, we have put those plans on hold.
Aadhaar and Swabhimaan
The India stack APIs also allowed us to launch and pilot Swabhimaan, our initiative to provide adaptive financial literacy and promote financial inclusion. Through Swabhimaan, we disbursed customised, low-cost loans to individual borrowers. The loan disbursal is linked to the results of the financial literacy test, and the entire process of disbursal and collection is entirely digital. Under Swabhimaan, we used the Aadhaar bridge API to authenticate the identity of the borrowers and administer a financial literacy program.
Using Aadhaar-based biometric details to authenticate identity for a financial literacy test had its own set of benefits: the entire process was digital, which meant that theoretically, a financial literacy test could be administered remotely.
Secondly, biometric details for the financial literacy test meant that we could track and address absenteeism and cases of proxy attendance at the test centres.
However, in light of some technical issues, we had suspended the use the Aadhaar bridge API in July 2018.
Our plans to resume the use of Aadhaar-based biometric authentication for Swabhimaan have been put on hold in light of the ruling by the Supreme Court on 25 September 2018. In lieu of biometric authentication, we will be using traditional KYC documents to establish the identity of the individuals.
The Road Ahead
While we are disappointed with the ruling of the Supreme Court, we do understand the rationale behind the judgement. Several private organizations were instituting practices that coerced people into providing their Aadhaar details and there was a real risk to an individual’s freedom of choice.
Once again, the Aadhaar is just one of many forms of KYC / identity proof that we accept at Rang De. We have never coerced people to provide their Aadhaar details and we will stand by and adhere to the Supreme Court ruling that prevents private organizations from doing the same.