When KYC Denies Rights: The Burden on Marginalized Communities

KYC (Know Your Customer) was introduced as a safeguard against financial fraud, but for India’s marginalized communities, it has become a barrier to survival. The system assumes everyone has fixed identities-permanent addresses, standardized names, and verifiable documents. But for tribal populations, transgender individuals, migrants, and the elderly, this rigidity leads to exclusion, hunger, and loss of basic rights.

When the System Erases Tribal Identities

For tribal communities, KYC is often an impossible hurdle. Many lack birth certificates or land records, and Aadhaar enrollment in remote forest areas is irregular. Even when enrolled, errors persist, names are misspelled, fingerprints fail due to manual labor, and corrections are out of reach. Without internet access or regional language support, digital fixes are a myth.

The consequences are deadly. In Jharkhand, 11-year-old Santoshi Kumari starved to death after her family’s ration card was cancelled due to Aadhaar-linking failures. In Rajasthan’s Baran district, Sahariya tribe members were denied food because fingerprint mismatches flagged them as "frauds." For them, KYC isn’t about compliance-it’s a matter of life and death.

KYC forms often reject single names, forcing people to invent surnames like "Mr" or "Miss" to proceed. These artificial entries then haunt official records. Transgender individuals face rejection when banks refuse updated Aadhaar gender markers. Migrant workers and students, whose addresses change frequently, are penalized when rent agreements are deemed "invalid proof." Elderly citizens, whose fingerprints fade with age, find pensions frozen because biometrics no longer "match."

Marginalized groups rely on cyber cafés or intermediaries to navigate KYC, where one error- a mistyped OTP, a misuploaded document, can cut off access to rations, pensions, or welfare. Andhra Pradesh widow Sheik Amminabi was denied her pension because a clerical error listed her age as 16 on Aadhaar. For her, correcting it required resources she didn’t have.

The Scale of Exclusion

The data is staggering:

• 67,000 crore rupees lie unclaimed in Indian banks, much of it trapped in accounts frozen by KYC mismatches.

• 15% of mutual fund accounts are restricted due to outdated KYC, locking out small investors.

• 229 crore Aadhaar authentications in June 2025 alone show how deeply the system is entrenched, and how many are struggling to stay visible within it.

There’s no centralized redressal. Fixing Aadhaar doesn’t update PAN cards; correcting PAN doesn’t resolve bank errors. Each institution operates in isolation, forcing the poor to run between offices indefinitely. For those without time, money, or literacy, surrender is the only option.

What’s Needed

1. Human Intervention: Local officials must have authority to verify identities manually when technology fails.

2. Flexible Design: Allow single names, minor spelling variations, and offline grievance mechanisms.

3. Synced Databases: Aadhaar, PAN, and bank records should update automatically.

4. Mobile & Multilingual Support: Tribal areas need KYC vans and regional language helpdesks.

KYC wasn’t meant to exclude, but its design ignores how millions live. When a widow is denied her pension or a tribal family is stripped of rations, it’s not a "technical glitch"—it’s systemic violence. Digital India must include all Indians, not just those who fit its rigid boxes.

- Disha is a Ph.D. Scholar & Senior Research Fellow at Dr. K. R. Narayanan Centre for Dalit and Minorities Studies, Jamia Millia Islamia, New Delhi.