The end of financial inclusion?

Now that the second phase of the Pradhan Mantri Jan Dhan Yojana (PMJDY), the BJP-led Union government’s landmark step towards financial inclusion, is going to close on August 14 this year, an analysis of its achievements and shortcomings would be in order.

Though the scheme has been a success, it is strange to note that most banks have stopped opening accounts under the PMJDY, perhaps as part of a hidden policy of giving it a quiet burial, except for a few like SBI, which are continuing with the older version of the zero balance basic savings bank deposit (BSBD) account. The pace of financial inclusion has become slow after achieving a peak of 80 per cent bank account ownership among the eligible population, although 48 per cent of the accounts have been found inactive.

Recently, the World Bank’s Global Findex (2017) has reported such figures for India. Also, it must not be forgotten that before the Jan Dhan was introduced, the bank account ownership rate had increased from 35 per cent in 2011 to 53 per cent in 2014, according to the report. During the first phase of the Financial Inclusion Programme (FIP), 2010-13, about 150 million accounts had been opened.

Since its beginning in August 2014, the PMJDY made spectacular progress until recently, creating a revolution of sorts by making possible the opening of an account only with a photograph, and without having to give residence proof. However, later, to become KYC-compliant for availing of benefits such as getting a Rupay ATM card, credit of up to Rs 5,000 for an individual per family after six months of running an account actively, automatic life insurance coverage of Rs 30,000 and accidental insurance coverage of Rs 100,000, documentation such as producing one government photo identity card was required. But owing to poor understanding of the insurance requirements, the common people were not drawn in much.

The PMJDY’s success is not an unalloyed one. Orchestrated rumours played a role in the initial burst of success. It was whispered that a one-time lump sum would be credited to PMJDY accounts and that may have attracted the poor to the scheme. Bank officials too were under pressure to meet targets, and continuously encouraged people to open accounts.

According to the current data (as of May 30), about 317 million beneficiaries have opened such accounts, with an aggregate balance of Rs 807.17 billion.

Now, since the government has published its success report on its third anniversary on August 27, 2017, there has been no fresh announcement on its closure or continuation. But the irony of the situation is that some 600 million BSBD accounts are to be brought under the PMJDY to use them as a vehicle for micro-insurance policies and pensions. Ordinarily, BSBD accounts with a Rupay card are as good as a Jan Dhan account, with the accident insurance coverage (attached to a Rupay cardholder) and automatic life insurance cover ceasing to exist after January 26, 2015, for Jan Dhan accounts.

Hence, it could be argued that the Jan Dhan scheme, except for its overdraft facility, was not entirely a novel one. It had aimed to send a feeler publicly through the overdraft facility that assistance was being provided to the poor with the purpose of wealth creation and that the scheme was not just about fulfilling the government’s commitment to wealth distribution through such means as direct benefit transfers. But the much-awaited announcement that the present overdraft facility would be doubled to make it more effective was missing in the Union Budget of 2018. There was also no announcement about relaxing the monthly withdrawal limit of Rs 10,000 from Jan Dhan accounts. 

The IRDA Micro-Insurance Regulations, 2005, already existed for economically vulnerable sections of society, with a sum of up to Rs 50,000 assured as life (covering term insurance, endowment insurance or health insurance) or general (covering hut, livestock, instrument, personal accident or health) insurance. The micro insurance scheme, so far prominently run by LIC, did not however attract much response.

Further, the Pradhan Mantri Jeevan Jyoti Bima Yojana and Suraksha Bima Yojana, with provisions of auto-debit from the beneficiary accounts, respectively, of Rs 330 and Rs 12 annually for separate life and accident coverage of Rs 200,000, were supposed to open up additional opportunities for the target population — in addition to the insurance benefits attached to the Jan Dhan accounts. Also, Swavalamban (upgraded to the Atal Pension Yojana from June 2015), a co-contributory pension scheme for the unorganised sector, launched in September 2010, already existed. 

Paying small insurance premiums or contributing towards the pension scheme from the bank accounts of the target population creates a culture of saving. If the PMJDY stays, it will be interesting to see whether the scope of the scheme can provide a boost to existing social security schemes like micro-insurance or pension.

Of late, the RBI has been sending text messages, irrespective of the target group, on opening BSBD accounts if anyone cannot maintain the minimum balance and sticks to not more than four debits a month. But one is not sure if such routine attempts will be enough to sustain the PMJDY-induced success of financial inclusion. So, as the bell has already rung for the closure of a vibrant scheme like the PMJDY, it has created an atmosphere of uncertainty for financial inclusion in the country.

With the country in the grip of a farm crisis, it may be unwise for the government to withdraw the scheme, particularly when there haven’t yet been any elaborate studies on the extent of its success. No assessment has been made about the extent to which people living in difficult terrain such as hill regions and tribal areas opened bank accounts through the PMJDY in its second phase. Worse, with microfinance institutions having been dealt a body blow by demonetisation, denying people the small bit of micro-lending attached to the PMJDY may turn out to be an unpopular move.   
The writer is professor of commerce at Vidyasagar University, West Bengal.

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