The Gist of Kurukshetra: January 2015

The Gist of Kurukshetra: January 2015

Jan Dhan Yojana – National Mission of Financial Inclusion

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. An estimated 2.5 billion working age adults globally have no access to the types of financial services delivered by regulated financial institutions. It is argued that as banking services are in the nature of public good; the availability of banking and payment services to the entire population without discrimination is the prime objective of financial inclusion public policy.

Indian economy is the second fastest growing economy in the world. Majority of the population in India resides in rural areas. Thus development of rural India is a key step towards economic development for a country like ours.

Even after 60 years of independence a large section of Indian population still remains unbanked. This malaise has led to generation of financial instability and pauperism among the lower income groups who do not have access to financial products and services. The issue of financial inclusion is emerging as the new paradigm of economic growth. Financial inclusion plays a major role in driving away poverty from the country. The main focus of financial inclusion in India is to promote sustainable development and generate employment in rural areas. In India 40% of people, lack access to even basic financial services like savings, credit and insurance facilities.

Why Financial Inclusion?

The policy makers have been focusing on financial inclusion of Indian rural and semi-rural areas primarily for three reasons:

  1. Providing formal credit avenues: So far the unbanked population has been vulnerably dependent on informal channels of credit like family, friends and moneylenders. Availability of adequate and transparent credit from formal banking channels shall allow the entrepreneurial spirit of the masses to increase outputs and prosperity in the countryside.

  2. Plug gaps and leaks in public subsidies and welfare programmes

A considerable sum of money that is meant for the poorest of the poor does not actually reach them while the money meanders through large system of government bureaucracy, much of it is widely believed to leak and is unable to reach the intended parties. This laudable effort is expected to reduce government’s subsidy bill and provide relief only to the real beneficiaries. All these efforts require an efficient and affordable banking system that can reach out to all. Therefore, there has been a push for financial inclusion.

Prime Minister Narendra Modi announced the Pradhan Mantri Jan Dhan Yojana or the Prime Minister ‘Scheme for People’s Wealth’ - an ambitious scheme for comprehensive financial inclusion on his first Independence Day speech on August, 15, 2014. With the slogan “Mera Khata - Bhagya Vidhata”, the scheme is a financial inclusion scheme covering all households in the country with banking facilities, ensuring a bank account for each household. The scheme was formally launched on August 28, 2014 with a target to provide universal access to banking facilities starting with Basic Banking Account with overdraft facility of Rs. 5000, after six months and RuPay Debit Card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan card.

Here are some of the highlights of the scheme:

  • About 15 million accident insurance policies done on a single day and same number of bank accounts opened.

  • Programme held at around 77,000 locations with the participation of Chief Ministers, Union Ministers and Bank Officials.

  • Target to cover 7.5 crore households with at least one account will be achieved by Jan 26, 2015.

  • Universal access to banking facilities for all households through a bank branch or a fixed point business correspondent called “Bank Mitra”.

  • Coverage of all households with at least one basic banking account with RuPay Debit Card having inbuilt accident insurance cover of Rs. 1lakh.

  • Additional Rs. 30,000 of life assurance cover for those opening bank accounts before Jan 26,2015.

  • An overdraft facility of upto Rs. 5,000 after satisfactory operation for six months.

  • Full range of banking services would be possible through ordinary mobile phones.

  • Financial literacy to be imparted up to village level.

  • Expansion of Direct Benefit Transfer under various government schemes.

  • The second phase of rollout will involve providing micro-insurance to people.

  • Households being targeted instead of only being villages targeted earlier.

  • Platform has been built by the National Payment Corporation of India that connects all banks, and all telephone networks in the country.

  • The platform helps a customer access his/her account with any mobile set.

  • All the rural & semi rural urban areas of the country are proposed to be mapped into Sub Service Area (SSA) comprising 1000-1500 households with an average 3-4 villages with relaxation in north-eastern/hilly states.

  • It is also proposed that looking to the viability of each center around 74,000 villages with population more than 2000 which were covered by Business Correspondents under Swabhiman Campaign will be considered for

  • All the 6 lakh villages across the entire country are to be mapped according to the Service Area of each Bank to have at least one fixed point Banking outlet catering to 1000 to 1,500 households, called as Sub Service Area (SSA). It is proposed that SSAs shall be covered through a combination of banking outlets i.e. branch banking and branchless banking. Branch banking means traditional Brick & Mortar branches.

  • The implementation strategy of the plan is to utilize the existing banking infrastructure as well as expand the same to cover all households. While the existing banking network would be fully geared up to open bank accounts of the uncovered households in both rural and urban areas, the banking sector would also be expanding itself to set up an additional 50,000 Business Correspondents (BCs) more than 7000 branches and more than 20,000 new ATMs in the first phase.

  • The target for setting up additional 50,000 BCs is quite challenging given the constraints of telecom connectivity.

  • In order to achieve this plan, phase wise and state wise targets for banks have been set up for the period August, 15, 2014 to August, 14, 2015.

  • A web-portal would be created for reporting/ monitoring of progress.

  • Roles of various stakeholders like other departments of the Central Government, State Governments, RBI, NABARD, NPCI and others have been indicated.

  • Gram Oak Sewaks in rural areas are proposed as Business Correspondent of Banks.

The Prime Minister Jan Dhan Yojana is a significant improvement over the UPA’s financial inclusion programme. The earlier scheme had no focus on households and no emphasis was given on urban financial inclusion. Besides there was a cumbersome Know Your Customer (KYC) formality restricting account opening.

According to the Prime Minister, “Crores of Indians are still outside the ambit of organized financial system even after 45 years of bank nationalization. I call it financial untouchability. Gandhi Ji ended social untouchability, it is our mission to eradicate this kind of untouchability to eradicate poverty”.

Indians, especially from the rural and semi- urban areas, the underprivileged and the poor have reasons to celebrate this financial freedom.

Pradhan Mantri Jan Dhan Yojana (PMJDY) - Roadmap

The Prime Minister’s Jan Dhan Yojana is conceive with the objective of financial inclusion of the poor and rural population giving them dignity and financial independence.

The Prime Minister launched the National Mission on Financial Inclusion named as Pradhan Mantri Jan Dhan Yojana (PMJDY) in the national capital on August, 28, 2014.

The PMJDY, a national mission on financial inclusion, has the objective of covering all households in the country with banking facilities and having a bank account for each household. Financial literacy has been accorded priority under the PMJDY. A standardized financial literacy material has also been prepared in vernacular languages to create awareness about the Yojana. It is estimated to cover 7.5 crore households with at least one account under this Yojana. “

Highlights of the PMJDY

The present plan: Comprehensive Financial inclusion of the excluded sections under six pillars is proposed to be achieved by August, 15, 2018 in two phases VIZ:

Phase-I from August 15, 2014 to August 14, 2015 Envisages:

(i) Universal access to banking facilities for all households across the country through a bank branch or a fixed point Business Correspondent (Be) within a reasonable distance.
(ii) To cover all households with at least one Basic Banking Accounts with RuPay Debit card having inbuilt accident insurance cover of Rs.1 lakh. Further an overdraft facility upto Rs.5000 will also be permitted to Adhaar enabled accounts after satisfactory operation in the account for 6 months.
(iii) Financial literacy programme which aims to take financial literacy upto village level.
(iv) The Mission also envisages expansion of Direct Benefit Transfer (DBT) under various Government Schemes through bank accounts of the beneficiaries.
(v) The issuance of Kisan Credit Card (KCC) as RuPay Kisan Card is also proposed to be covered under the plan.

Phase-II from August 15, 2015 to August 14, 2018:

In addition, in this phase, coverage of households in hilly, tribal and difficult areas would be carried out. Moreover, this phase would focus on coverage of remaining adults in the households and students.

(i) Providing micro -insurance to the people.
(ii) Un-organised sector Pension schemes like Swablamban through the Correspondents.

In addition, in this phase, coverage of households in hilly, tribal and difficult areas would be carried out. Moreover, this phase would focus on coverage of remaining adults in the households and students.

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