8 years of PMJDY: have the poor been liberated yet?

(Image: india.gov.in)

Prime Minister Narendra Modi’s flagship financial inclusion programme the Pradhan Mantri Jan Dhan Yojana (PMJDY) completed its eighth year on August 28.

Modi announced the programme in his first independence day address in 2014., describing the occasion as a festival to celebrate the liberation of the poor from poverty.

The objective of the PMJDY was to ensure access to financial services like savings bank accounts, credit, remittance facilities, insurance, and pension, to the unbanked weaker sections and low-income groups through effective use of technology. Beneficiaries also get a RuPay Debit card with a built-in accident insurance of Rs 1 lakh.

Increase in the number of accounts 

The total number of beneficiaries under PMJDY stands at 46.40 crore, more than 25.7 crore of which are women account holders, the latest data released by the government in August shows.

After a year of the launch, the number of beneficiaries on August 31, 2015 stood at 17.9 crore and the number has since grown more than 2.5 times.

The number of beneficiaries on August 31, 2015 was 17.9 crore. Thus, within eight years, the number has risen more than 2.5 times.

Deposits in accounts under PMJDY have also grown exponentially in these eight years. While in August 2015 the total amount of deposits was around Rs. 22,900 crore, it is more than 7.5 times today — Rs. 1,72,539 crore.

Major milestones 

The programme was meant to provide an avenue for the poor to bring their savings into the formal financial system, to remit money to their families in villages, as also to extricate them from the clutches of usurious money lenders.

“The Jan Dhan-Aadhar-Mobile (JAM) trinity, that linked Jan Dhan bank accounts with account holders’ Aadhar and mobile numbers (with their consent), is one of the key pillars of the financial inclusion ecosystem, which has enabled direct benefit transfers (DBT) under various government welfare schemes to eligible beneficiaries,” said finance minister Nirmala Sitharaman on the occasion of PMJDY completing eight years.

According to several experts, the scheme was of particular help to people during Covid as they could avail of non-cash modes of transaction, as cash transactions were difficult during this period.

It also facilitated direct income support to farmers under PM-KISAN and transfer of ex-gratia payments to women PMJDY account holders.  It has also helped small businesses and farmers keep track of their money.

“As of last year, financial inclusion stood at 54 percent, and it is only going up,” said Sanjeev Kumar, co-founder & CEO, Spice Money, a rural fintech company.

“Money is moving into the banking system now, which was not the case earlier. With money moving to the banking system, there will be better savings. Data shows that over the years average savings have gone up for people in rural areas too,” added Kumar.

Major loopholes

While rural banking has done considerably well under PMJDY, the government has failed to address some major loopholes, according to experts. These include a rise in the number of dormant accounts, duplication of accounts, and lack of access to digital banking.

“Under initiatives like Jan Dhan Yojana, banks persuade people to open accounts as they have to show the numbers. So, often they ended up opening multiple accounts for the same person, leading to the rise in dormant accounts,” said Ashvin Parekh, banking consultant. Moreover, due to a lack of access to digital banking, account holders fail to keep track of their monies.

“To avail digital banking facilities like UPI, it is important that account holders have functional debit cards. If we look at the number of functional Rupay cards and the number of accounts, we find a very skewed ratio. Most account holders haven’t been able to renew their debit cards,” said Anand Kumar Bajaj, CEO, PayNearby, a fintech company working primarily on financial inclusion in rural India.

The data shows that between August 2015 and August 2022, the number of Rupay debit cards issued to beneficiaries has gone up by 16.27 crores, while the number of beneficiaries has jumped by more than 28.5 crore.

Also, a lack of digital literacy makes it difficult for rural customers to avail of banking services.

A burden on the banking system?

The rise in dormant accounts has been a major burden on the banking system. According to various bankers, the situation is all the more difficult as often it is not possible to reach out to account holders.

Dormant accounts, or those with low deposits, or minimal usage, increase the carry cost for banks. The total number of operative/active Jan Dhan accounts declined in August 2022.

Of the total 46.25 crore PMJDY accounts in August 2022, 37.57 crore, or 81.2 percent, were operative. However, in August 2021, 85.6 percent (36.86 crore) of the accounts were active.

It is often difficult to conduct the KYC, or Know Your Customer, procedure that needs to be done in person every time a new account is created.

The road ahead

According to industry experts, there is much room for improvement. Even Sitharaman said that financial inclusion needs policy-led intervention, suitable financial products, information and communication technologies, and data infrastructure.

Though some firms have launched initiatives like banking sakhis (women trained in banking who teach others in the community) and banking correspondents to help the people, digital literacy is required so that customers can make the best use of banking facilities.