India has some brilliant growth figures. For one, we have achieved a 6.2% growth in annual GDP per capita as on April, 2016 (as per tradingeconomic.com). Yet, 21.9% of its population still lives below the poverty line. We have definitely not succeeded in achieving equitable growth and one of the main reasons for this is the lack of access to formal institutions of credit and savings. In many cases even without the problem of access, the problem is that we have yet to grow out of our traditional saving and investment methods.
To satisfy the desperate need for inclusive growth that would lead to poverty reduction, the Prime Minister launched the Pradhan Mantri Jan Dhan Yojana – the biggest financial inclusion project undertaken in the world. It’s endeavours are succinctly described in its tagline of ‘Mera Khata, Bhagya Vidhata.’ Even though there had been similar projects before, this differed in its approach. It focused on both the urban and rural populace. PMJDY stood on the two pillars of great visibility and the use of technology. This project aimed at creating 7.5 crore new bank accounts and to this end divided all the villages into ‘sub service areas’ consisting of 1,000-1,500 households. Each such area was to be serviced by an official bank outlet (either a branch or a bank correspondent/bank mitr) not further than a maximum of 5 kilometers from the mandated area.
Any individual above 10 years of age could open an account with appropriate proofs and would open the portal to a host of services like interest on deposits, insurance remittance, credit and pension. The Yojana had a Phase I during the first year of its implementation which concentrated on financial literacy and provision of banking services for all. To deal with the problem of dormant accounts, the following facilities were provided only after active operation of 6 months – an overdraft facility of Rs. 5,000 at a rate of 12% (one overdraft account per household), a Kisan Credit Card in the form of a RuPay Kisan Card and a RuPay debit card with an in-built insurance of Rs. 1 lakh (if card is used at least once in 45 days). These additional benefits made the scheme more attractive to the people. The second phase which would extend upto 2018 included the setting up of a Credit Guarantee Fund to cover the risk of defaults, micro insurance, and pension for the unorganized sector. This phase would ensure a 100% coverage where tribal, hilly areas etc would be covered.
The accounts could be opened with a zero balance. Conduction of bank operations through mobiles was an example of technology being put to good use on such a large scale. Cheque books were provided if the minimum balance criterion was fulfilled. ‘Small accounts’ opened with two photographs and self-attested signatures could be converted into normal accounts if any proof could be produced within 12 months. The small accounts had restrictions on credit and balance. All these accounts were based on CBS platform – accessible anywhere, anytime.
There need for such programs have been felt for a long time now, and for varied reasons. This act of inclusion would definitely help the nation achieve poverty reduction and economic freedom. The rural population would have a buffer against income fluctuations and could easily access credit now. According to the report titled ‘Pradhan Mantri Jan Dhan Yojna : An Analysis of Policy Design and Implementation’ by Jayshree Venkatesan only 35% adults had access to formal institutions before this programme and a survey by Global Findex puts this figure at 53% in their 2015 survey. The dependence on informal sources of credit like moneylenders would finally end with increased reach of the institutional sources. Banks had been nationalized to this end but even then nearly 68% of the population did not have access to them. More recently, bank branches had adopted a ‘rationalizing’ approach and had started shutting down.
PMJDY enlisted the help of Bank Correspodents/Bank Mitrs for greater coverage at lower costs. It helped with the penetration into areas where bringing up a brick and mortar branch would not be feasible. The BCs are first provided training by the Indian Institute of Banking and Finance and by the banks themselves so that they carry out their operations successfully. They would identify potential customers, educate about financial services, provide debt counseling, file applications, collect and verify primary data, collect and pay small value deposits, transfers and withdrawals on behalf of the bank.
The biggest benefit however would be the Direct Benefit Transfer schemes that could be implemented once the whole population had proper bank accounts. Now, the poor use subsidized fuel and food through the rationing system. The public distribution system in India is full of leakages with corruption and inefficiency at every stage. With the introduction of DBT, there would be no scope for wastage with the benefits being transferred directly to the beneficiaries through their bank accounts. In this regard, the PMJDY was a very important step. Currently, the DBT system is being used for 27 schemes like MNREGS, LPG subsidies, provisions for scholarships etc. DBT is a step forward towards the dream of a cashless economy.
Another very important feature of these accounts is that the Aadhar cards are linked to these accounts. It paved the way for Aadhar Enabled Payment System. The Aadhar cards have a near about coverage of a 100%. Thus, it is easy for all persons to use this as a proof of identity and they could now perform basic bank services like deposits, withdrawals and even Aadhar to Aadhar transfers. Since, Aadhar accounts were to be seeded, efforts were also undertaken to open Aadhar camps alongside PMJDY account opening camps.
This program has been a massive success. On the day of the launch of the scheme, 1.5 crore bank accounts were opened in a single day. The Department of Financial Services was awarded the Guinness World Record for opening the maximum number of accounts in a week. This operation was conducted over 77,000 locations and the initial target of touching 7.5 crore families was surpassed speedily. Currently, there are 115363 active bank mitrs providing service, 24.74 crore accounts, 12.82 Aadhars seeded with the accounts. To factor for dormant accounts, we look at the figure of 0 balance accounts. Compared to August 2015 where there had been 44.9% zero balance accounts, only 24.05% such accounts were found in September 16 (all figures from the pmjdy.gov.in website). They have helped bridge the gap specially with respect to insurance for the poor and have made cheap credit available at their doorstep. It has been reported that leakages in LPG subsidies have fallen by 24% due to the combination of PMJDY accounts, Aadhar linkages and mobile phones.
However, the problems in implementation should also be taken into consideration. The picture of nearly 100% coverage might be misleading because the figures had been obtained from banking reports and they had good reason to manipulate them. A lot of the people are still not covered under this umbrella and many still might have an account but are not using it. Further, there is no proper mechanism in place to check for duplicate accounts. Since there was such a rush for these accounts, there was a lot of backlog regarding issuance of cards, cheque books etc. Even though lots of hype was generated around this project, there might still be insufficient knowledge about this program in many areas. It should also be ensured that the bank mitrs get adequate recompense or else they will easily lose initiative to work for this project or will resort to asking bribes (as was the case with earlier projects). Care should also be taken that the overdraft facility that is provided stays within sustainable limits.
Problems arising out of apathy and indifference cannot be solved as easily. The bank officials are reluctant to invest the required time to enlighten that part of the population that requires it the most. The intended beneficiaries are treated with contempt making them more averse to approach institutions. They are seen as obligations and not potential customers. This is the attitude that needs the most drastic change. If progress for all is not kept in mind, progress for the country is not possible.
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