polity : good governance : What are the pros and cons of the Indian Government's Jan Dhan Yojna -3
Answer by Vishwas Virani:
The quick overview of the gigantic financial inclusion scheme named Pradhan Mantri Jan Dhan Yojana unveiled by honorable prime minister Mr. Modi is as follows:
It will be implemented in 2 phases.
Phase-I from 15th August 2014:
1) Universal access to banking facilities for all households across the country through a bank branch or a fixed point Business Correspondent (BC) called Bank Mitra within a reasonable distance except areas with infrastructure & connectivity constraints.
2) To cover all households with at least one Basic Banking Account 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.
3) Financial literacy programme which aims to take financial literacy upto village level.
4) The Mission also envisages expansion of Direct Benefit Transfer under various Government Schemes through bank accounts of the beneficiaries.
5) The issuance of Kisan Credit Card (KCC) as RuPay Kisan Card is also proposed to be covered under the plan.
1) Providing micro –insurance to the people.
2) Unorganized sector Pension schemes like Swavalamban through the Business Correspondents.
The detailed press release can be accessed here:
1) Banking the unbanked: As many as 65% of adult citizens of India still live without bank account. The giant scale of the scheme holds the potential to cover huge chunk of these people. Only on launching day, 1.5 Crore accounts were opened. These accounts can bring unbanked people into formalized financial system where they can avail wide range of financial services like savings, credit, remittances and insurance. They can break free from trap of moneylenders who often charge usurious interest rates for short term credit.
2) Targeting households: The earlier financial inclusion scheme (2011) focused on and targeted villages. This scheme is one step ahead and targets directly households.
3) Technology backed banking: National Payment Corporation of India (NPCI) has a huge role to play in this 'financial and technological inclusion'. All banks and telecom operators have been suggested to collaborate greatly to provide quick mobile banking facilities to these beneficiary households. Not only smartphones but even ordinary phones of beneficiaries would be able to perform tasks like balance inquiry and money transfer. This is in line with Mr. Modi's emphasis on technology backed governance be it allocation of natural resources or integration of financial systems.
4) Indianization of payment methods: The scheme with its provision of Rupay debit card is a clear indication for promotion of Indian payment cards as against Master or Visa. This is in line with our PM's 'Make in India' approach. With this, a huge amount of financial resources would be geared towards Rupay backed systems.
5) Plugging leakages: The cash transfers to bank accounts would become possible and beneficiaries can avail social scheme benefits directly into their accounts. With this, marketization of subsidies can be prevented.
6) CASA for the banks: The banks (mainly cash strapped PSBs) would be able to avail huge amount of current and savings account deposits. These are the low cost money which, given the high interest rates, banks can greatly benefit from.
7) Systematic approach: The fundamental scheme approach focuses in first phase on savings and credit (insurance given is free here) and in second phase on micro insurance and pension. This is an important feature aimed at avoiding any sort of clutter at any level – household, bank or administration.
1) Huge burden on PSBs: The banks (mainly public sector) are the main responsible entities for scheme implementation. In the current macroeconomic ecosystem, all PSBs are cash-strapped, have loads of stressed assets (bad loans and restructured loans) and are mostly performing inefficiently due to number of reasons. The program implementation relies heavily on financial and administrative efficiency of PSBs which don't have produced credentials to do so. There are certain differences between government and RBI too. They may affect the actual implementation of scheme.
2) Risk of becoming SHG part 2: The very concept of mammoth program called SHG-Bank linkage by NABARD was very benign to cover women who usually are good financial managers and provide financial cover to all member households. If this scheme had succeeded, there would not have been such huge pressure now on this scheme. Nevertheless, the failure (or at least minimal impact) of SHG program offers a very important lesson that schemes of such scale are extremely difficult to monitor on ground level. The same can be feared about this scheme.
3) Limitation in plugging: In many villages, under NREGA work, people share their money with Panchayat as a part of 'mutual understanding' of 'No-work-share-money'. People share their wages with panchayat officials in return of being allowed for only half day or no work. The scheme doesn't address this issue.
4) Defunct accounts: This is really what can enervate PSBs already in trouble due to reasons cited in point 1. The huge amount of financial and administrative resources spent on accounts can go in drain without efficient training to households on financial services.
5) financial literacy: We have not been able to produce effective financial literacy tools so far. The financial literacy toolkit designed by RBI and launched in 2013 focuses excessively on giving moral lessons on savings to people rather than developing a client-centric approach that can really understand client's perspective and problem and address it.
6) Support infrastructure: This is one of the most important bottlenecks that has to be addressed. The present availability of bank branches in rural areas or BCs and ATMs poses critical challenge for government. Nevertheless, lack of support services to beneficiary households like product counseling and micro-entrepreneurship training will have great potential to overshadow the benefits of the scheme.
Disclaimer: Please feel free to share feedback, add or suggest modification as I have limited knowledge on subject.