Jan Dhan Yojana
By Moin Qazi
India’s flagship financial inclusion programme, the Pradhan Mantri Jan Dhan Yojana (PMJDY), got a big boost as the Government is set to lace it with several sweeteners. The Cabinet has doubled the overdraft limit to Rs 10,000 and allowed holders of such no-frills accounts to withdraw as much as Rs 2,000 without any conditions. The age limit for availing of such overdraft facility has also been raised to 65 years from 60 earlier.
The PMJDY, under which 32.54 crore accounts have been opened since inception, would now be an open-ended scheme. The PMJDY accounts, 83% of which are Aadhaar-seeded, collectively have deposits of about Rs 81,200 crore now. Free accident insurance cover on RuPay card for new Jan Dhan accounts has also been doubled to Rs 2 lakh.
As per the existing scheme, an overdraft facility of up to Rs 5,000 is available to one account holder per household after six months of satisfactory conduct of the PMJDY account. The objective of PMJDY, which was launched in August 2014, is to ensure access to various financial services through these basic savings accounts.
Access to the right financial tools at critical moments can be a key element in overcoming stubborn realities. It can provide an opportunity to move out of poverty or absorb a shock without being pushed deeper into debt. The poor need to set aside money in times of plenty and draw it out in lean times. Without a safe place to save money, it’s difficult to cope with the unexpected or to plan for the future. Without access to affordable credit, it is difficult to get a business idea off the ground or to acquire an asset like a house or higher education. Without insurance, all your security can be wiped out by one misfortune. Financial services allow you to insure for health care, save for children’s education, and borrow for wedding or funeral costs.
There are basically three financial needs of the poor:
Life cycle needs: Life cycle events that impose financial burdens include births, deaths, marriages, education, home-making, widowhood, old age, and the need to leave something behind for one’s heirs.
Impersonal emergencies are caused by floods, cyclones, and fires etc., while personal emergencies include illnesses, accidents, bereavement, desertion and divorce.
Financial and life-style opportunities can require large sums of money for starting or running businesses, acquiring productive assets (including land and housing), or buying life enhancing consumer durables (fans, radios etc.).
Access to a transaction account is a first step toward broader financial inclusion. As accountholders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives.
To use financial services to their full potential, to protect their families and improve their lives, the low income people need products well suited to their needs. Bringing this about requires attention to human and institutional issues, such as quality of access, affordability of products, sustainability for the provider of these services, and outreach to the most excluded populations.
Recall the PMJDY scheme was launched on 15 August 2014 with a target to provide universal access to banking facilities. This scheme is the now the most powerful driver of financial inclusion. It consists of six pillars: Universal access to banking facilities; providing basic bank accounts with overdraft facility and RuPay Debit card to all households; Financial literacy to enable use of financial products; A credit guarantee fund to mitigate risks stemming from overdraft facilities extended to these accounts; Micro-insurance for all account holders under PMJDY, and Pension schemes such as Atal Pension Yojana
The opportunity to reach the financially excluded with a new generation of financial services now has huge developmental as well as commercial potential. One of the ways for accelerating this path is through digital financial inclusion. It is perhaps the most powerful tool to unlock the most value for those at the bottom of the pyramid. Although digital technology is opening new channels for delivering financial services, challenges persist. Sparse populations, inconsistent network coverage, lack of trust, or insufficient capital for building new business models, can stand in the way of success, particularly in connecting remote or underserved communities.
The most revolutionary recent development in the financial inclusion space is the entry of two categories of small and nimble financial institutions. Designed to offer financial services to the underserved, small finance banks (SFBs) and payments banks began their operations in 2017. It’s still early days to assess the impact of these entities on financial inclusion. But they can complement the efforts of mainstream banks in expanding the footprint in the financial inclusion space.
The latest entrant is India Post Payments Bank. It will offer a range of products-savings and current accounts, money transfer, direct benefit transfer, bill and utility payments, enterprise and merchant payments. Customers will be able to access all products and services across various channels-over-the-counter services, micro ATM, mobile banking app, text messages, phone calls. The payments bank will also provide access to third-party financial services such as insurance, mutual funds, pension, credit products and forex.
A payments bank is a differentiated bank, offering a limited range of products. It can accept deposits of up to ? 1 lakh per customer. Unlike traditional banks, it cannot issue loans and credit cards. India Post Payments Bank will offer three types of savings accounts-regular, digital and basic-at an interest rate of 4% per annum. It will provide doorstep banking facility at a charge of ?15-35 per transaction. The limit for doorstep banking is ? 10,000.
A number of Government agencies are also actively involved in efforts to deepen financial inclusion. Most of these are reaching previously grossly neglected groups, such as women. Their contribution has been quite significant and noteworthy.
India is certainly on the cusp of a vibrant financial revolution and is poised to making full financial inclusion a reality. But it will require bold innovation, hard timelines, practical policy reorientations and fundamental shifts in business models to make the financial lives of the poor simple and fulfilling.—INFA