IS THAT REALLY THE AIM THOUGH?
TO NOTE: There is no official paper by the Government of India on this policy, just a mission Statement
WHAT IS THE PMJDY?
From the advent of finance, policy makers have grappled with the issue of reducing the role of informal sector lending. This is mainly because such kind of markets feed off the lack of symmetry of information and collaterals and exploitation of the illiterate or those financially worse off. The Nicholson Report of 1895 concludes the establishment of “LAND BANKS” as an alternative to supremacy over money lenders. Now the question that arises is what good are these banks if they are only available to the section of the population that has ease of access to these facilities in terms of both availability and affordability. Even after 70 years of independence a huge section of the population remains financially excluded. This malaise had led generations of the population towards financial instability and pauperism especially among those belonging to the lower income groups. For a country like India, with mass untapped potential, for coverage under financial inclusion, the Prime ministers Jan Dhan Yojana is the first step in that direction. Financial inclusion in the sense of this policy of the NDA government would mean the availability and accessibility of financial services at affordable costs as well ulterior motive of upping their standards of living. The policy would be revolutionary in nature provided it achieves what its set out to.
WHY WE NEED IT
Financial inclusion is of utmost importance in India because of the following reasons:
- The policy would serve as a habit of perpetuating a cycle of income and savings.
- So far a majority of the rural India has satisfied its need for credit from the informal sector, borrowing through money lenders, loan sharks etc. This policy would provide an avenue for systematic lending at uniform rates and eliminate exploitation.
- For a subsidiary providing government, this could plug the gaps and the leaks in such welfare programs. The current government is also pushing for Direct Benefits Transfer scheme through these bank accounts.
PMJDY (Prime Minister’s Jan Dhan Yojana) is not the first of its kind of policy. The previous UPA government introduced Swabhimaan as a policy measure for financial inclusion in 2011. Under the policy, 74000 villages were covered, each with a base population of 2000 or more, with an aim for provision of basic banking facilities to all. Although, in its nascent stage, it faced issues as it only focused on the supply side of factors. According to guidelines issued by the RBI, banks are advised to make available “no frills” account at either nil or minimum balances as well as charges that makes these accounts accessible. The banks are also been asked to make a collaborative effort with NGOs, SHGs, MFIs and other civil society organizations to cover a large section of the rural population.
According to the Census data of 2011:
|WITH ACCOUNTS||9.14 Cr (54.46%)||5.34 Cr (67.68%)|
|WITHOUT||6 Cr||2.25 Cr|
The census data shows a huge potential for exploring these untapped resources. Another set of data from NSSO, as on 31/03/2014 shows that the current level state of things is insufficient for assuring financial inclusion.
|BRANCH NETWORK||ATM ( AUTOMATIC TELLER MACHINE)|
|RURAL||43,962 (38.2%)||23334 (14.58%)|
Apart from the current infrastructure being fairly inadequate, most of these branches are just numbers. They are not operational and exist only as buildings, not fulfilling the desires of the inclusive dream. Another number shows that BCs (business correspondents); those in charge of opening bank accounts, cash deposits, cash withdrawals, mini statements, balance enquiries etc. are often not present.
The scheme broadly includes the following basic banking facilities:
- Opening of bank accounts with RuPay debit card and mobile banking.
- Cash withdrawals and deposits
- Balance enquiry
- Mini statements
- Banking outlets to be provided within 5KM of the village
- Infrastructure for e-KYC for opening bank accounts.
- AEPS for withdrawal of cash based biometric authentication from UIDAI Data Base.
- Target minimum of one individual per household.
The scheme, in its roll out phase, provides the above universal banking facilities combined with a financial literacy program and an inbuilt accident insurance of 1 lakh. In its second phase, it would provide for an overdraft facility of Rs. 2500 and later Rs. 5000, but only after a period of six months of observed saving/ credit history. This phase would also include the creation of credit guarantee fund for coverage faulty A/Cs, micro insurance, coverage of pension schemes for the unorganised sector (Swavlamban). The plan aims to channel all Government benefits (DBT, MGNREGS) to individuals through these bank accounts.
Since the program is still in its nascent stage, it is only a speculation as to what its impact will be on the economy in the long run. If the program goes as predicted and even achieves half the desired goals as stated in the mission statement released by the Government of India, the country will become more financially stable as a whole. More people are hence expected to be inducted in the economic cycle of growth. Most of these people usually keep their liquid assets in the form of cash at home or they turn it into Gold, a dead financial asset with zero returns for the individual as well as the economy. The money that comes into the banks can now be put to better economic use.
The program is expected to inculcate a habit of savings by providing ease of access to banking facilities. It has already been established that easier access to savings accounts in particular, help lower the impact of activities that require a lump sum outlay of money. A research done by Dupas and Robinson (2010) in Western Kenya shows that when given the opportunity to open zero balance accounts, 92% took up the offer, 39% made no deposits in the first six months. 43% of those who held accounts used them more than twice and few of them used the same intensively. What the study also concludes is that most of the individuals who took up the offer were women, also suggesting that the bank deposits in no way crowded out saving through informal means (SHGs), which meant that this was a net increase. It was also observed that women tended to make more investments although the causes for the same could not be made. The numbers would most probably vary in India, but if the trend is the same then this program would lead to bettering of gender equity factors.
On a macroeconomic level, if successful in implementation, the scheme is expected to help curb corruption as DBT will now be linked to the receiver’s account instead of passing hands before it reaches the benefactor.
As mentioned in the mission statement, appropriate infrastructure needs to be in place for carrying the scheme out. Any sort of infrastructure addition, especially one that supplements financial inclusion, helps better social indicators.
The second phase of the scheme is closely related to the ideas of Microfinance through SHGs, BCs, NGOs and other civil bodies. As in the case of Bangladesh, Microfinance institutions such as the Grameen Bank have helped reduce poverty even before the fruits of economic growth kick in.
In the urgency of opening bank accounts, 1.5 Crores on the day of the launch of the scheme, the E-KYC norms have been lax as the RBI directed these accounts to be “No frills account” and this could lead to possible duplication of accounts, which would be counterproductive for the economy.
As can be seen from the above data, which justifies the minimal involvement of Private Sector Banks (PSBs) contributing to the opening of 3.5 million of 75 million accounts opened under the scheme. The numbers are very high. The cost of handling these accounts are very high while the deposits earned from these accounts are minimal. A lot of these accounts are dormant in the nature of transactions. If forced by legislature, these banks will have to open certain number of accounts under the scheme, but these, as of now, certainly don’t seem profitable.
From a study done by Jaysree Venkatesan, a scholar at King’s College, London a research scholar at Hindu Centre for Public Policy and Politics, it’s the rigidity in the mindsets of bankers, who don’t see the poor as viable candidates. The infrastructure in place is such that it shuts them out. The forms are not available in local languages, their queries are not answered properly and often they are treated disrespectfully. Also, the overdraft facility is at the discretion of the banker, which could again work against the intended benefactor.
Of all the literature that I have come across in the study of this ambitious policy, I have found that this is not the first scheme to be launched that aimed at achieving financial inclusion. The laxity in implementing the schemes resulted in the inability to achieve the same.