Things have changed dramatically for M Malaiah, a resident of Shanigaram in the Karimnagar district of Andhra Pradesh, about 180 km north of Hyderabad. He no longer has to visit the local post office to collect his National Rural Employment Guarantee Scheme wages. Instead, a bank visits him to pay the wages.

Malaiah also does not have to maintain a passbook now and uses a credit card-sized biometric smart card for transactions at the branch-less bank. He knows a few other things too -- that the card should be carried only on weekends when payments are made and should be put in the safe on other days.

It is now close to a year that people in Shanigaram and a few other villages in Karimnagar and its adjoining Warangal district have stopped going to a post office or a 'real' bank.

Their pensions, job scheme wages and money under the Indiramma Housing Scheme are all paid through smart cards.

Malaiah's is one of the 200,000-odd cards distributed in a handful of states like Andhra Pradesh to make social service schemes accessible and transparent. "Smart cards are a step towards financial inclusion. The idea is to inculcate banking habits among the poor," says Anita Ramachandra, director, rural development (self-help groups). The government is paying 2 per cent of the amount disbursed through smart cards to the banks to engage them in the initiative.

Initially, the government gave the list of beneficiaries under the NREGS in 148 villages in Karimnagar and Warangal districts to the banks which agreed to participate in the project.

The banks, in turn, appointed Zeromass in Warangal and Financial Information Network and Operations Limited (Fino) in Karimnagar to disburse cash to the beneficiaries.

These agencies sent teams to the villages to collect fingerprints and photos for the biometric cards. Smart cards, complete with photos and fingerprints data, were then issued to a large number of people. A smart card has a unique reference number, the full address of the beneficiary and the details of the bank he is associated with.

Unlike traditional banks, a banking correspondent's office is simple and is equipped with biometric reader and two volunteers. For example, the Fino representatives in Shanigaram village sit in the gram panchayat office. They have a biometric reader to check the fingerprints, stored in the smart cards. The gadget records the transactions and gives a receipt indicating the balance. The agents also make the payment at homes if the person is unable to make it to the panchayat office.

The volume of business handled at the village level is small. For instance, Sharada, a Fino volunteer in the Kamalapur mandal, disburses about Rs 2.1 lakh (Rs 2,10,000) a month. There are about 5,000 people in the mandal of which 2,300 have been enrolled for accounts and 1,800 have been given smart cards. Among these, 1,000 people are beneficiaries of the NREGS scheme and 305 are pensioners.

"There is scope for using the smart card for all transactions of self-help groups, housing and regular banking schemes," says Ramachandra, adding that Rajasthan and Karnataka have evinced interest in replicating the project. The state government is in talks with post offices for tie-ups for financial inclusion and aims to cover most of the districts by 2009.