Pradhan Mantri Jan Dhan Yojana (PMJDY) - A Study of its Role in Financial Inclusion and Sustainable Development

Pradhan Mantri Jan Dhan Yojana (PMJDY)  - A Study of its Role in Financial Inclusion and Sustainable Development

Dr. Rajiv R. Thakur, Director, Jaipuria Institute of Management, Noida

Jitender Sharma, Librarian, Jaipuria Institute of Management, Noida

Abstract

In India, banking system has grown tremendously over past decade but it failed to end the rule of usurious money lenders in rural areas and urban slums who still exploit the poor and illiterate section of the society. In past, Government of India and Reserve Bank of India (RBI) both had undertaken number of initiatives for inclusive growth but still very large population and households didn’t have access to formal banking services. Keeping this excluded section of the society in mind, current Prime Minister Shri Narendra Modi announced Pradhan Mantri Jan Dhan Yojana on 15 August 2014 and launched it as a national mission for financial inclusion on August 28, 2014. Initially the scheme was launched targeting about 7.5 crore accounts to be opened but soon these targets were revised to 10 crore accounts due to record accounts opening under the scheme.

This paper is a systematic attempt to study the progress, shortcomings and what lies in future for the Pradhan Mantri Jan Dhan Yojana and explores into how this scheme has been able to influence life of poor people. A comparison has been made of this scheme with various other schemes launched previously in India and worldwide for financial inclusion.

Key Words: Pradhan Mantri Jan Dhan Yojana, PMJDY, Financial Inclusion, Sustainable Development

Introduction - What is Pradhan Mantri Jan Dhan Yojana?

Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched by the current Prime Minister of India on 28 August 2014 after he announced the same in his Independent Day speech on 15 August 2014 under his promised slogan “Sabka saath, sabka vikas”. Since then 17.08 accounts were already opened as on 22 July 2015¹ under this scheme both in urban and rural areas. Opening of new accounts is more in rural areas in comparison to urban areas. The basic purpose of this scheme was to make access of financial system and services to each household in the country. For this purpose, even zero balance account opening was allowed and promoted in this scheme so that even poorest among poor can open the accounts under this scheme and become a part of financial inclusion system.

This mission is aimed to provide universal access to banking facilities to every family in the country, promote financial literacy, to provide access to financial credit, insurance and pension facility to weaker sections of the society etc². This is also aimed to transfer Government schemes benefits directly into beneficiary accounts hence controlling the leakage and increase transparency.

Under this scheme, accounts can be opened in any bank branch or Business Correspondent (Bank Mitr) outlet even with zero balance. Apart from interest earned on deposits made in the account, account’s holder gets an accidental insurance of Rs. 1 Lac and life insurance of Rs. 30000. This account may offer for overdraft facility on satisfactory operation of account for six months and provides access to pension and insurance products.

Aims and Objectives of Pradhan Mantri Jan-Dhan Yojana (PMJDY)

Aims and objective of launching Pradhan Mantri Jan Dhan Yojana were to recognize and extend financial inclusion services to every household in the country with particular emphasis and focus to empower the weaker sections of society both in urban and rural areas.

This scheme lies at the core of development philosophy of "Sab Ka Sath Sab Ka Vikas". According to Prime Minister, this scheme’s objective is to ensure all urban and rural households of India get easy access to financial services³. As per data available to the Government, less than two-thirds of the households in the country had access to banking facilities even after 67 years of independence.

The Mission seeks to provide all households in the country, both rural and urban, with access to the financial services, like bank account with RuPay Debit card, access to credit, remittance, Insurance & Pension. Thus, the Mission not only aims to bring the excluded sections into the financial mainstream but makes the transfer of benefits of various subsidy schemes of the government more efficient.

Financial Inclusion of the poorest citizen of India will help encompassing them into the formal financial system. It is a national priority as it enables inclusive growth. Once each citizen is in formal financial system, it helps them remit money from their workplaces to their families even in remote villages and further ends their dependence upon usurious money lenders formerly known as zamindars who used to charge exorbitant interest in such a way that poor were never out of their net resulting even in bondage labour.

Relationship between Sustainable Development and Pradhan Mantri Jan Dhan Yojana

Unprecedented industrialization and over exploitation of natural resources has resulted in a highly alarming climate situation that has potential of wiping out the human race and leaving the earth as an inhabitable planet like other planets. World bodies and countries’ leaders and environmentalists have realized the gravity of situation and that’s why United Nations had recognized the need of sustainable development and fixed millennium development goals. Sustainable Development is all about meeting the current needs without affecting the future generations’ ability to meet their requirements.

After several rounds of negotiations between nations and overcoming major reservations of various countries, the United Nation Organization has come out with new Sustainable Development Goals (SDGs) that entail 17 goals and 169 targets and these will apply from January 1, 2016 replacing the Millennium Development Goals, set by it earlier. 192 Nations will sign the new document in September 2015 in United Nations General Assembly. These goals are to be achieved by the year 2020. India has now agreed to adopt and meet 169 targets fixed under these new goals against its earlier stand after its point of view was taken care by the new document. Poverty alleviation and recognizing climate change as a development change are two key elements of these goals⁴. 

Extreme poverty is still wide spread specially in rural parts of India. Due to unseasonal rains or drought, each year many farmers commits suicide unable to bear the loss or seeing their families starving due to ruined crops. Unemployment and illiteracy rate is still very high in the country. According to data released by Ministry of Labour and Employment, India has about 4.9 per cent unemployment rate with female rate is on comparatively higher side than males. According to the Education for All Global Monitoring Report (2014), India still has highest illiterate population in the world i.e. 287 million or 37 per cent of world total illiterate people⁵.  Extreme poverty and inequality necessitated the Government of India to take immediately corrective actions and also to take initiatives that ensure sustainable growth in future. To increase employment level in the country, Government of India started Make in India programme which is progressing well and large corporations from world over have established their manufacturing base in India resulting in large increase in employment opportunity.

Another burning problem that India has faced since decades is exclusion of a large section of society, primarily the farmers and illiterate people spread in both rural and urban areas, outside the formal financial system. They were forced to approach private moneylenders who exploited them. Moreover a large chunk of money has remained outside the formal banking system due to non-availability of bank accounts to this large segment of society. Government was also unable to transfer any benefits directly to actual beneficiaries and there was lot of leakage in the system and government mission of financial inclusion and sustainable development remained unfulfilled. For financial inclusion of all households and for sustainable development, Government of India has launched Pradhan Mantri Jan Dhan Yojana as a national mission.

Growth of Banking System in India after Pradhan Mantri Jan Dhan Yojana

According to Business Standard Report, as published on 26 December 2013⁶, expansion in number of branches of public and private sector has risen faster during last one decade. Financial inclusion programme of Government of India aimed to provide banking services across 625,000 villages has also led to the increase in numbers of rural and semi-urban branches. However, still as per the 2013 statistics there were a little over 300,000 villages that did not get banking services. Hence, banks had a large rural segment to reach out and open their branches in these areas.

Figure 1 – Spread in Bank Branches in India

(Source: Business Standard, 26 December 2013)⁷

About six months after Pradhan Mantri Jan Dhan Yojana was launched, according to the data released on PMJDY website (Table 1), there were about 171202 ATMs across the country by all types of banks by the end of January 2015. Public sector banks have the largest share (70.7 %) of ATMs across the country, followed by private sector banks (28.67%) and foreign banks share was least (0.6%).⁸

Table 1- Number of Bank ATMs in the country

Number of Bank ATMs by the end of January 2015
Types of Banks	Total	In %
Public Sector Banks	121086	70.72698
Private Sector Banks	49082	28.66906
Foreign Banks in India	1034	0.603965
Grand Total	171202	100

The website also provides the statistics about region wise spread of banks ATMs⁹. Out of the total 181252 ATMs by the end of March 2015 divided region wise, public sector banks are present in all areas in largest number. In fact, in rural centres, public sector banks are in highest percentage. Private sector banks are having present generally in metro, urban and semi-urban sectors. In rural centres, only about 13.33% private banks have their ATMs. Foreign bank ATMs availability is less in all areas.

Table 2 – Region wise Bank ATMs in India

Region wise Bank ATMS by the end of March 2015
Type of Banks	Metro Centres	Urban Centers	Semi - Urban Centres	Rural Centres	Total
Public Sector Banks	28644 (56.96%)	36139 (70.7%)	36481 (75.69 %)	27401 (86.57%)	128665 (70.99%)
Private Sector Banks	20805 (41.37%)	14768 (28.89%)	11698(24.27%)	4219 (13.33%)	51490 (28.41%)
Foreign Banks in India	835 (1.66%)	208 (0.41%)	22 (0.04%)	32 (0.1%)	1097 (0.6%)
Grand Total	50284	51115	48201	31652	181252

Figure 2 - Region wise Bank ATMS by the end of March 2015

State wise distribution of ATMs is also available as on March 2015 at Prime Minister Jan Dhan Yojana website¹⁰ (Table 3). The data shows that Public sectors lead in opening ATMs across the states. Also, capital city of India, Delhi and financial state of the country, Maharashtra have largest number of ATMs in the country. Penetration of private sector banks is comparatively lesser in union territories except Dadra and Nagar Haveli. Foreign banks have their ATMs concentrated mainly in large states.

Table 3 - State wise distribution of ATMs is also available as on March 2015

State Wise Deployment of ATMs for the Quarter ended March 2015
State	Public Sector Banks	Private Banks	Foreign Banks	Total
Andaman and Nicobar	80	19	0	99
Andhra Pradesh	6945	1493	25	8463
Arunachal Pradesh	173	15	0	188
Assam	2784	430	2	3216
Bihar	5113	826	2	5941
Chandigarh	283	246	10	539
Chhattisgarh	2391	346	1	2738
Dadra and Nagar Haveli	40	63	0	103
Daman	59	42	0	101
Delhi	4978	3130	131	8239
Diu	7	2	0	9
Goa	623	331	2	956
Gujarat	7515	2914	31	10460
Haryana	3781	1998	79	5858
Himachal Pradesh	1380	182	0	1562
Jammu and Kashmir	961	1122	0	2083
Jharkhand	2705	499	0	3204
Karnataka	9386	5105	218	14709
Kerala	5294	2708	10	8012
Lakshadweep	15	1	0	16
Madhya Pradesh	7632	1080	8	8720
Maharashtra	12844	7979	296	21119
Manipur	260	37	0	297
Meghalaya	295	53	0	348
Mizoram	121	21	0	142
Nagaland	302	32	0	334
Odisha	4380	972	2	5354
Pondicherry	422	141	1	564
Punjab	5143	1738	8	6889
Rajasthan	5911	1568	12	7491
Sikkim	113	47	0	160
Tamil Nadu	10825	7390	105	18320
Telangana	4529	2870	43	7442
Tripura	352	92	0	444
Uttar Pradesh	11524	3273	47	14844
Uttarakhand	1920	317	1	2238
West Bengal	7579	2408	63	10050
Grand Total	128665	51490	1097	181252

Difference between PMJDY and Earlier Schemes

Financial inclusion of poor has always been a prime concern for all governments who occupied power in India. Prior to launching this scheme, UPA government in the year 2011 launched a scheme under which about 74,000 villages with population more than 2,000 were brought under banking facilities. In past way back in 1969 nationalization of Banks was done by the then Prime Minister Ms. Indira Gandhi. Later many other initiatives like expansion of banks branch network, establishment & expansion of cooperative and RRBs, introduction of PS lending, lead Bank Scheme, formation of Self Help Groups (SHGs) and many other state specific approaches were launched. Reserve Bank of India in the year 2006 allowed the banks to use the services of Non government organizations, Self Help Groups, Mutual Fund Institutions and other Civil Society Organizations as intermediaries in providing financial and banking services through use of "Business Facilitator and Business Correspondent Model". 

Pradhan Mantri Jan Dhan Yojana mission is however much bigger in scale and aims to encompass each household of the country under its umbrella. It is the most ambitious scheme launched so far for the financial inclusion of all citizens of the country. The earlier schemes were limited in terms of reach and coverage and various aspects of comprehensive financial inclusion like opening of bank accounts, access to digital money, availing of micro credit, insurance and pension were lacking. Focus on households was missing. PMJDY focuses on every household and has intends to channelize all government benefits directly to the beneficiaries’ accounts and pushing the Direct Benefits Transfer (DBT) scheme of the Union Government. It has addressed technological barriers faced by earlier schemes like poor connectivity. Under this scheme mobile banking transactions through telecom operators and their established centres as Cash Out Points are also planned. For the first time, this scheme has tried to make use youth of this country by their participation in this scheme under Mission Mode Programme¹¹.

Mission Mode Programme¹² envisages provision of affordable financial services to all citizens within a reasonable distance. Under mission mode, six pillars of this scheme have been identified:

(I)                Universal access to banking facilities:

Each district has to be mapped into Sub Service Area (SSA) catering to about 1000 to1500 households with access to banking services within a distance of 5 kms by 14 August, 2015. Also planned under next phase are parts of J&K, Himachal Pradesh, Uttarakhand, North East and naxalites’ affected areas overcoming telecom connectivity and infrastructure by15 August, 2018.

(II)             Providing Basic Banking Accounts with overdraft facility and RuPay Debt Card to all Households:

Banks will provide basic banking account with the facility of overdraft and RuPay Debt Card with aim of about 6 crores bank accounts to be opened in rural areas and about 1.5 crores accounts in urban areas for the people who don’t have a bank account.

(III)          Financial Literacy Programme:

Under this, it is planned is to establish adequate number of financial literacy centres (FLC) and to provide easy mechanism to increase financial literacy among the financial excluded sections. In addition, it also aims at effective use of technology for training through video conferencing.

(IV)          Credit Guarantee Fund:

The fourth target of this plan is the creation of a credit guarantee fund to provide guarantee against defaults in over draft in basic banking accounts.

(V)             Micro-Insurance:

This scheme plans to provide micro-insurance to all willing and eligible persons by August 2018 and to continue the scheme on an ongoing basis. The estimated target of this scheme is to cover around 12 Crore families. Government has already launched two schemes covering accidental insurance and life insurance at a very nominal rate under this scheme.

(VI)          Unorganized Sector Pension Scheme (Swavalamban):

Government has also planned the pension scheme like government employees for the unorganized sector as well. The scheme ‘Swavalamban’ is mainly related to old age income security. Objective of this scheme is to encourage the informal sector workers to save small amounts during their working years to enable them to draw a pension in their old age.

Progress and Achievements of Pradhan Mantri Jan Dhan Yojana

The Pradhan Mantri Jan Dhan Yojana met with huge success from the very first day itself when it was launched. It was reported on PMJDY website that over 1.5 crore accounts were opened in different banks on the very first day itself under this scheme. In initial months of the scheme, about one lakh accounts on each day were opened¹³.

As per statistical data released by Government of India (Table 4), total 17.08 Crore accounts have already been opened under this scheme for those who have so far remained outside the banking network. Public sector banks are the leaders in accounts opening under this scheme. More number of accounts has been opened up in the rural regions than in urban regions justifying the aims and objectives of the scheme.

Table 4 – Banks accounts opened under PMJDY as on 22 July 2015

S. No.	Type of Banks	No. of Accounts opened
		Rural	Urban	Total
1	Public Sector Banks	7.31	6.03	13.34
2	Rural Banks	2.6	0.45	3.05
3	Private Banks	0.41	0.28	0.69
	Total	10.32	6.76	17.08

                                 (Source: http://www.pmjdy.gov.in/account-statistics-country.aspx)¹⁴

Figure 3 – Accounts opened in Different Banks in

Rural and Urban Areas as on 22 July 2015

These accounts have been added with the unique identification numbers under the Aadhar scheme, so these account holders will also be benefitted from direct benefit disbursement under various government schemes. Deposits in these accounts have brings new capital into the banking system. So far deposits in these accounts have crossed 20473.82 Crore rupees. These deposits will help in positive development of financial market sentiments and Indian economy will further grow.

Comparison of PMJDY with Similar Schemes in Other Countries

For attaining sustainable and inclusive growth, inclusion and integration of poor and vulnerable groups of society into mainstream financial system is necessary. Financial Inclusion is a global concern as no inclusive growth is possible if large section of the society remains out of it. In Sweden and France, banks are legally bound to open an account for anybody who approaches them. In Canada, law requires Banks to provide accounts without minimum balance to all Canadians regardless of employment /credit history. United States Community Reinvestment Act, 1977 encourages depository institutions to help meet the credit needs of the communities in which they operate, including low and moderate income neighborhoods, consistent with safe and sound operations. Brazil, Indonesia, Malaysia, Mexico etc. have allowed non-banks to offer payments, deposits and cash-in/cash-out services as public sector banks have not been able to reach all sections of the society.  In India, some efforts were taken for financial inclusion in past but these were insufficient as large number of most vulnerable and poor group of society was outside the gamut of formal financial system. Pradhan Mantri Jan Dhan Yojana (PMJDY) has been able to cover up this difference as latest data shows that over 17 crore households have been covered under this scheme. Along with this scheme, government has launched various other schmes like Atal Pension Yojana, accidental and life insurance for all citizens of the country above 18 years of age. India has also been able to cover most of its adult population under social welfare schemes. Hence, Pradhan Mantri Jan Dhan Yojana coverage and scope is much larger than that of other countries.

Challenges in Implementation of Pradhan Mantri Jan Dhan Yojana (PMJDY)

Effective implementation of the scheme has been the biggest challenge. India is a big country with very large population. Reaching out to each household is a major challenge. Another major concern is the duplication of accounts. The lack of Know-your-customer (KYC) regulations in the scheme makes it easy for account holders to open multiple accounts in different banks to avail of multiple insurance policies. Moreover, this scheme has a provision for overdraft facility without adequate documentation; hence there are chances of greater non performance assets (NPA) accumulation in the banking system. Misuse of debit card facility is another concern as a large number of account holders will be illiterate people. Also, illiterate rural women or men account holders can be tricked by middlemen to use overdraft facility and withdraw money on their behalf. These poor and illiterate people will later be victimized and penalized for wrong doings of such fraudsters. There are no checks in place to save such illiterate people. Lack of ATMs in rural area may defeat the very purpose of the scheme. There are ambiguities in procedure and not clear if an existing account holder would get 1 lakh rupees accidental insurance or not. Funding pattern of various schemes is still not clear. Another major challenge lies in increasing transaction per account to make the scheme really meaningful. Willingness of private sector banks in promoting this scheme is also a concern as is willing from number of accounts opened by public sector versus private sector banks.

What Lies Ahead for Pradhan Mantri Jan Dhan Yojana (PMJDY)?

Initial target to achieve 100 per cent opening of accounts under PMJDY scheme was kept as 14 August 2015. Though very large number of accounts has already been opened, but till today scheme has not been able to achieve 100 per cent target as fixed earlier. It is learnt from the state wise data that difficult terrains like some parts of North East, Jammu and Kashmir, and Himachal Pradesh and also some other places are yet to be fully covered under this scheme. Plan of linking Unique Identification Number (UID) or Aadhaar number to each account has still to be completed. Duplication in form of multiple accounts has to be checked in. Moreover, in next phase the Government has to think extending scope of the scheme to cover each individual from its current stand of covering each household then only financial inclusion of all individuals will actually be possible.

Conclusion

India has world largest illiterate population and poverty is wide spread in India besides very large unemployed population. Most of this segment of people was away from the bounds of formal financial system. Reaching out to such large section and bringing them under formal financial system is not an easy task and requires continued efforts for many years to come. Government of India, has, however, taken a huge step and been able to cover majority of this section under its financial inclusion scheme through Pradhan Mantri Jan Dhan Yojana. It is high time that Government now put its emphasis on quality of accounts and check if the accounts opened are really operational or not. Through this scheme Government has been able to attract huge sum of money lying idle and out of formal financial system into the banking system. Beginning has been made and good progress is achieved so far, however, it is essential that this momentum is not broken unless poverty is eradicated from the country and till everyone is brought under financial inclusion domain. To achieve its mission, this scheme requires continuity in long run irrespective of which party is in power at the centre. Unless system reaches to the last poor person, dream of sustainable growth for everyone will remain elusive.

Parallel to PMJDY scheme, Government of India has also undertaken few other steps in offering life and accidental insurance to all citizens of the country. It is hoped that all these initiatives together will be able to bring everyone under financial inclusion umbrella, eradicate poverty in the society and achieve sustainable and inclusive growth of India. 

References

1.      http://www.pmjdy.gov.in/account-statistics-country.aspx [Accessed on 3 August 2015]

2.      http://www.pmjdy.gov.in/Pdf/PMJDY_BROCHURE_ENG.pdf [Accessed on 15 July 2015]

3.      Ibid

4.      Chauhan, Chetan. India strives towards 17 UN goals. Hindustan Times, 5 August 2015, Page 10.

5.      http://www.thehindu.com/news/national/indias-illiterate-population-largest-in-the-world-says-unesco-report/article5631797.ece [Accessed on 3 August 2015]

6.      http://www.business-standard.com/article/finance/bank-branch-expansion-at-a-decade-s-high-113122500555_1.html [Accessed on 8 July 2015]

7.      Ibid

8.      http://www.pmjdy.gov.in/account-statistics-country.aspx [Accessed on 3 August 2015]

9.      Ibid

10.  Ibid

11.  http://www.pmjdy.gov.in/Pdf/PMJDY_BROCHURE_ENG.pdf [Accessed on 15 July 2015]

12.  Ibid

13.  http://www.pmjdy.gov.in/account-statistics-country.aspx [Accessed on 8 July 2015]

14.  http://www.pmjdy.gov.in/account-statistics-country.aspx [Accessed on 3 August 2015]