2015 started off as being action-packed in the space of financial inclusion in India - the Prime Minister announced in February that accounts opened under his national scheme exceeded targets and 41 payments banks applications were submitted.
But the list of centrally-driven policy interventions are stacking up. Here are the most notable ones of the last three months:
From Jan-Dhan to Jan-Suraksha
Encouraged by the account-opening success of the Pradhan Mantri Jan Dhan Yojana (PMJDY), Finance Minister Arun Jaitley proposed working towards creating a universal social security system for all Indians, especially the poor and the under-privileged, as he explained at the announcement of the Union Budget in February 2015. Coined Jan-Suraksha, the social security program was launched by the Prime Minister Modi over the weekend on May 9. It has three key parts:
- The Pradhan Mantri Suraksha Bima Yojana to offer accident insurance of INR 200,000 ($3,165) for a premium of just INR 12 ($0.19) per year, or INR 1 (just under two cents) per month.
- The Pradhan Mantri Jeevan Jyoti Bima Yojana to offer life insurance coverage of INR 200,000 ($3,165). The premium will be INR 330 ($5.00) per year, or less than INR 1 (just under two cents) per day, for people between 18 and 50 years of age.
- The Atal Pension Yojana to provide a defined pension, dependent on the contribution amount and duration of contributions. To encourage people to join this scheme, the government will contribute 50% of the beneficiaries' premium limited to INR 1,000 ($16.00) each year, for five years, in the new accounts opened before December 31, 2015.
These programs provide coverage in the event of death or disability due to an accident, and the pension program addresses the income and security needs of the elderly. The ease with which individuals can enroll in the program - the premium can be deducted automatically from a subscriber’s bank account-- has been recognized as a convenient delivery mechanism which could address the problem of a very low penetration of life or accident insurance and old age income security products in the the country. As of May 11, banks had enrolled 63.3 million people under the three programs.
JAM for DBT
Finance Minister Jaitley also introduced the concept of JAM or Jan-Dhan, Aadhaar and mobile during his budget speech. The idea is that the transfer of government benefits will involve all three - a bank account under Jan-Dhan, Aadhaar number or biometric ID and a mobile phone and number. Jaitely explained in his budget speech: “We are now embarked on…more game changing reforms...called the JAM Trinity – Jan Dhan, Aadhar and Mobile - to implement direct transfer of benefits…[which] will allow us to transfer benefits in a leakage-proof, well-targeted and cashless manner.”
The Direct Benefit Transfer for LPG (DBTL) program Pratyaksh Hanstantrit Labh (PaHaL) is the first digitized DBT program under the new government. It was launched in 54 districts in November, 2014 and in the rest of India in January, 2015. Those with an Aadhaar number can link their Aadhaar number to their bank accounts and LPG consumer number to get the subsidy, those without can submit their bank details. There are close to 130 million PaHalL beneficiaries and over INR 122 billion (close to $ 2 billion) have been disbursed through the program. This can serve as an example on how the government can digitize cash transfers.
Micro Units Development Refinance Agency (Mudra) Bank
Prime Minister Modi launched the MUDRA Bank on April 8. It is being set up through a statutory enactment and will be responsible for regulating and refinancing MFIs through a Pradhan Mantri MUDRA Yojana. It will cater to the almost 51 million micro and small businesses who employ about 20% of the country’s labor force in the manufacturing, trading, and services industries. These individuals are spread all across the country and usually do not have access to institutional credit. MUDRA Bank will be set up with a capital allocation of INR 20,000 crore ($3.2 billion) and a credit guarantee fund of INR 3,000 crore ($480 million). MUDRA will partner with local coordinators to provide financing to “last mile financiers” of small entrepreneurs and businesses.
MUDRA will initially started as a department of Small Industries Development Bank of India (SIDBI), a non-independent financial institution aimed aid aiding the growth and development of micro, small and medium-scale enterprises (MSME) in India. Its role is to promote and finance the small-scale sector, implement government plans and coordinate with other organizations. The primary product of MUDRA will be refinancing/lending to micro businesses.
Unified Payments Interface (UPI)
The National Payments Corporation of India (NPCI) expects to launch the UPI in the next few months. UPI is an additional layer of payments architecture built on the Immediate Payments System (IMPS) which will allow interoperability between different payments systems. The new interface is designed to enable all account holders to send and receive money from their smartphones with a single identifier – Aadhaar number, mobile number, email ID or virtual payments address – without entering any bank account information. Given the ease with which this enables people to transact digitally, it has the potential to dramatically reduce the use of cash and change the way payments are made in the country.
By all accounts, most, it not all of the above efforts were long overdue. Getting them all to work remains to be seen.
With the launch of the above products, processes and institutions, the Indian government has provided the financial inclusion efforts the necessary fillip. Now it is for the banking and bank agent channels to come forward and take these products to the users so that the excluded population can be covered at the earliest. The deposit accounts, accident and life insurance, and pension schemes are likely to be taken up satisfactorily by masses.
However, the provision of small loans in Basic Savings/ Jan Dhan deposit accounts, through the inbuilt provision of overdraft(OD), is likely to be unpopular with the bank managers as they may feel that the accounts may not be operated properly by the first time beneficiaries and these may turn into non performing loans. According to the Indian Central Bank- Reserve Bank of India- only 0.6 million new accounts availed OD during half year ending Sep 2014;and against the 305 million Basic Savings accounts, only 6.6 million account holders had availed the OD cumulatively up to Sep, 2014. The bankers are expected to follow proper due diligence and satisfactory operations in the account for six months while allowing OD for Rs 5000. While productive credit is being given to farmers and non farm entrepreneurs through other loans, it is the universal provision of ODs which shall need continuous attention and even tweaking if required to make it a success.
That's a nice piece. I really liked it. I am a former Senior commercial bank economist. I have been working in the area of Financial Inclusion for a long time. Recently, I carried out the Mid-term Review of PMJDY which the Indian Banks' Association published in its journal. This is perhaps the first mid-term micro-level evaluation of PMJDY in the public domain. I was wondering if I could send it to CGAP for wider readership and feedback. Could you please advise whether CGAP would be interested in it and if yes, whom should I send it?