Pradhan Mantri Jan Dhan Yojana is a scheme for comprehensive financial inclusion launched by the Prime Minister of India, Narendra Modi on 28 August 2014.It aims at the complete financial inclusion of the people of India and thereby ensuring access to financial services to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. This can also provide direct help to beneficiaries from various government schemes. The scheme has been started with a target to provide 'universal access to banking facilities' starting with "Basic Banking Accounts" with overdraft facility of Rs.5000 after six months and RuPay Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan Card. In next phase, micro insurance & pension etc. will also be added. Customers are not required to maintain any minimum balance in these forementioned accounts. A Rupay Kisan Debit Card will be issued which can be used to withdraw money from ATMs and free accident insurance up to Rs 2 Lakh will be provided for those who open their bank account within 100 days of scheme being launched. PMJDY is aimed at the poor, whether rural or urban. . Those who open accounts by January 26, 2015 over and above the 1 lakh accident, they will be given life insurance cover of 30,000(to be given by LIC). With the introduction of new technology introduced by National Payments Corporation of India (NPCI), a person can transfer funds, check balance through a normal phone which was earlier limited only to smart phones so far.5. Mobile banking for the poor would be available through National Unified USSD Platform (NUUP) for which all banks and mobile companies have come together. By giving more self reliance to the woman, its also said to empower the women.The mission will be implemented in two phases, the details of which are as follows.Phase I - 15 August 2014 - 14 August 2015Universal access to banking facilities for all households across the country through a bank branch or a fixed point Business Correspondent (BC) within a reasonable distance.To cover all households with atleast one basic banking account with RuPay Debit Card with inbuilt Rs 1 lakh accident insurance cover.Financial literacy programme to be taken to the village level.Expansion of Direct Benefit Transfer under various government schemes through bank accounts of the beneficiaries.Issuance of Kisan Credit Card is also proposedPhase II - 15 August 2015 - 14 August 2018Providing micro-insurance to the people.Unorganised sector pension schemes like Swavalamban through the Business CorrespondentsAn overdraft facility of Rs 5000 will be provided after six months of opening the account at the discretion of the bank only if your account has been active and seen a lot transactions. The over-draft limit which is like a short term loan can be increased up to Rs 15,000 if the repayment is prompt.Current state42% of the population of the country is out of the banking system now. Of the 24.67 crore households in the country, 10.19 crore do not have access to banking services. In rural areas, 44 per cent households and in urban areas 33 per cent still do not have a bank account.What? Here are six new aspects of Jan Dhan: accident insurance cover; life insurance cover; overdraft facility; higher incentive for banking correspondents; removing the RBI from monitoring. As RBI governor Raghuram Rajan stated, Financial inclusion in order to draw in the poor, the products should address their needs a safe place to save, a reliable way to send and receive money, a quick way to borrow in times of need or to escape the clutches of the money lender, easy to understand life and health insurance and an avenue to engage in savings for the old age Traditionally, financial inclusion has been understood to mean opening new bank branches in rural and unbanked areas.It has acquired a wider meaning to take formal financial services across the length and breadth of the country.It also includes direct bank transfers of government subsidies and all.Including lower level banks also.AdvantagesIf bank accounts become the norm, it will also be easier for the Government to directly pay all subsidies into the accounts of the poor, instead of dispensing them through the vast, leaky network of government agencies.

How

The governments latest plan of action, as envisaged in the CFIP or Sampoorn Vittiya Samaveshan, hopes to extend coverage of basic financial services all excluded households. In the first phase, the CFIP will endeavour to provide universal access to all the beneficiaries through sub-service areas (SSAs). Each SSA will consist of 100-1,500 families in a cluster of villages and each SSA will be serviced by a BC agent (BCA) whose task it will be to facilitate account opening and smooth banking operation.The latest inclusion plan will have as its focus households rather than geographical areas. After satisfactory conduct of accounts it is proposed to offer reasonable need-based credit facilities for which overdraft facilities will be sanctioned. A smart card (RuPay card) will be issued to enable customers to operate their accounts even without BCs. Simultaneously suitable awareness will be created among the financially excluded.In the second phase, there is a proposal to make available a pension scheme for identified individuals in the unorganised sector and offer microfinance products through government-owned insurance companies. HistoryThe RBI had begun its financial inclusion in 2009-10 and under the first phase, banks had opened banking outlets in 74,199 villages. The second phase began in 2013 and was originally scheduled until March, 2016.Financial inclusion and financial literacy have been important policy goals for quite some time.The UPAs financial inclusion policy achieved very little owing to its multiple infirmities and the urge to view inclusion as business. These infirmities have been imported into the PMJDY as well.Firstly, upon directions from the then Finance Minister Pranab Mukherjee in 2011, banks had identified about 73,000 unbanked habitations in India with a population of above 2,000. In 2012, Mukherjee announced Swabhimaan, a multimedia campaign to inform, educate and motivate people to open bank accounts. Under Swabhimaan, there were also plans to extend insurance and other services to the targeted beneficiaries. In fact, by 2012, banks claimed to have covered about 70,000 habitations with banking facilities. The Modi government has just renamed the Swabhimaan scheme as PMJDY, extended the scheme to urban areas and made certain concrete announcements on adding insurance products to the scheme.Secondly, both the Swabhimaan campaign and the PMJDY rely on the failed BC model. However, according to a recent RBI survey, about 47 per cent of the BCs were actually untraceable. The Modi governments plan is to make the BC model viable by (a) raising the salaries of BCs to at least Rs.5,000 a month; and (b) increasing the commission to BCs.Thirdly, following the UPA government, the Modi government also wants to use the DBT scheme as part of the PMJDY. The PMJDY brochure notes: It is proposed that DBT, including DBT in LPG, should be pursued to make the programme of financial inclusion a success. The DBT scheme of the UPA government had invited much public criticism. The introduction of DBT in LPG cylinder purchases and the proposed effort to convert in-kind food subsidies into cash subsidies had raised fears of a collapse of the subsidy system itself.This is a huge task and many bankers feel that it can drain huge resources of already strained industry. According to estimates, banks would have to spend around Rs. 18,000-20,000 crore on Jan Dhan Yojana. It could be an investment for long term benefits. India spends Rs. 3-4 lakh crore per year on all subsidies combined. If in the end, even if 10 per cent money could be saved then it will cover entire cost of the operation.AccusationsContinuity While the Narendra Modi government tries hard to sell the PMJDY as its own, the scheme is largely a continuation of the financial inclusion policy co-authored by the United Progressive Alliance (UPA) government and the Reserve Bank of India (RBI) after 2005.Why this scheme?Right now, most Indian households rely on usurious money-lenders for credit and on the Saradhas and Saharas for their savings needs. Bank accounts for all may solve this problem. But whos going to foot the bill, sceptics ask. The premium on accident insurance will be borne by the National Payments Corporation of India. But it cannot also pay the life insurance benefit tacked on at the last minute. In that case, the governments go-to pawn, the Life Insurance Corporation, may be roped in. There is also the question of how banks will service these accounts once theyre operational. Will banks be interested in providing good service if the account is zero-balance? While the Centre has promised to reimburse the costs, the quantum and mechanics of compensation are unclear at the moment.Current StatusAre financial inclusion targets and strategies effective?

Evidence on their effectiveness is still emerging. But some examples already indicate that significant improvements can be achieved through shared public and private sector commitments to financial inclusion. For example, the South Africa Financial Sector Charter helped increase the percentage of banked adults from 46 to 64 percent in 4 years, with six million Mzansi basic bank accounts opened. In the UK, a Financial Inclusion Taskforce successfully halved the number of unbanked adults--through e-money regulation, Government to Person payments linked to bank accounts, and access to financial services through post offices. And the Government of Brazil implemented regulatory reforms that enabled the financial sector to respond with innovative products and expanded access, leading to a dramatic expansion of financial service access points. As a result, every municipality in the country, including in remote rural areas, is now covered.

DisadvantagesPrima facie, this appears as a very encouraging sign and yet another major achievement of Modi, who is known for his task mastering skills as a leader. But the major difference with the RBIs rather slow-paced financial inclusion and Modis brand-new, rocket-paced financial inclusion is KYC (know your customer).Unlike the conventional plans, Jan Dhan Yojana significantly diluted KYC norms by permitting customers to produce any document such as PAN card, Aadhhar card, driving licence etc to open the account.Absence of uniform identity proof resulted in large chunk of duplicate accounts. The RBI has indicated that some 30 percent of the accounts opened under Jan Dhan Yojana are duplicate. Under the Jan Dhan Yojana, customers will be eligible for Rs 5,000 overdraft facility, free insurance facility and a free debit card. This is something the RBI has acknowledged several times and has cautioned. Many customers have opened multiple accounts using multiple documents as proof to avail the freebies.t present, majority of these accounts (about 70-75 percent) still do not have any money in them, even though the scenario can change once the governments direct benefit transfer start flowing in through this accounts.The real problem is that after opening several crores of duplicate accounts, it may not be easy to rectify the mistakes at a later stage. Thats because Aadhaar linkage takes time and by then the system will effectively create millions of non-operative accounts.There are no second thoughts on whether India needs more bank accounts. For sure, it does. Even after 67 years of independence from the colonial rule, only half of the population has any access to formal financial services.Among the rest, majority of them are being exploited by private moneylenders who charge exorbitant interest rates for loans and attach the hard-earned assets of the rural on failure of repayments.Merely opening crores of bank accounts without proper KYC can be detrimental to the whole system as duplicate accounts can be misused by 'smurfing' and by 'moneymules' as highlighted by RBI executive director P Vijay Bhaskar.According to bankers, even though the plan is to seed all accounts with Aadhaar at a later stage, the duplication of accounts will be difficult to handle and rectify for an operational account.Also, the absence of tailor-made products for the first-time banked is a big negative. The needs of the low-income group are different from the regular bank customers and may not necessarily match with the typical loan deposit products commercial banks offer.These customers will need specialised products like the ones microlenders offer. Without that, it is difficult to generate activity in zero-balance accounts.In the absence of a careful approach, as the RBI highlighted, 10 crore zero-balance accounts will become a liability to the systema mistake that will surely take many years to correct.On January 26, 2015, Phase I of the Pradhan Mantri Jan Dhan Yojana is set to come to an end and Phase II will be launched. In the run-up to this phase, the Finance Ministry has asked the Life Insurance Corporation (LIC), Indias largest life insurance provider, and all other State-owned general insurance companies to finalise the details of the products to be sold to all the bank account holders under the scheme. Anoop Wadhwa, Joint Secretary, Insurance, at the Ministry of Finance, held a meeting in October to review the progress on the preparations for the Phase II plans. About 15 micro-insurance products have been identified for Phase II. These will be sold to the PMJDY account holders. Some of them like crop insurance are targeted at the rural sector while life insurance may be applicable to all account holders. While the rollout of Phase II is scheduled for January, news reports say that a number of State insurance providers have already started selling these micro-insurance products in small quantities to the PMJDY account holders.Another major concern that has come up is that of duplication of accounts. The lack of KYC regulations make it easy for account holders to open multiple accounts in different banks to avail of multiple insurance policies. Provision of overdraft facility without adequate documentation is another worry. These concerns have not been addressed yet. Linking the accounts to Aadhar cards looks like the only feasible solution and banks are working in this direction.More delays and concernsPMJDY as continuit Some of the finer points of the scheme does not look that good. The insurance cover is linked to the transaction history of the accountholder. RBI promoted NPCI will bear the insurance cost, not the government, from the income generated from the transactions on the RuPay platform. For every ATM transaction, the bank will pay NPCI 40 paise. For every sales transaction, NPCI will get 60 paise. Most probably, although the volume of accounts will increase for banks, but not same can be said about number of transactions.

Last mile connectivity is still a big question mark. According to the plan, this will be taken care by banking correspondents. These agents will go to each and every village, thus banks will not have to open branches in remote areas. But they are paid as per the commission on the transactions. So until and unless government plans to include fertilizer, food and kerosene subsidy in it, generating enough commission would be tough task.

Right now, there are two lakh agents working with different banks, but to roll out the entire plan as envisaged would require another five lakh agents to be recruited. The concept of agents has not worked as efficiently as planned. Therefore recruiting more agents raises questions. However, if new accounts have to remain active not dormant, then only solution is to increase number of banking correspondents.There are two aspects of financial inclusive growth, bank account and access to loan. Jan Dhan Yojana is currently addressing first issue. However second problem still persists. The current banking system is equipped to disburse loans of lakhs and crores of rupees, not of thousands. The cooperative institutions which are equipped for such loans are acutely corrupt. Therefore for perfect financial inclusion, the entire banking system has to undergo overhaul. - See more at: http://slugpost.com/2014/09/04/jan-dhan-yojana-problems-flaws-implementation/#sthash.CIBTCQOh.dpufChances for failureBanks making a business out of this instead of social serviceStill using the BC s which are proven to be not effectiveAadhar card validationLimitationsThe scheme still heavily relies on fixed point bank mitras or on a mobile business correspondents (BCs) ecosystem that were the single biggest point of failure in the past due to financial non-viability of the scheme.

While the 2% transaction fee proposed is a good start, it is still short of the 3% recommended by various committees and reports. Soon the blame game between banks and BCs will again start.Both these carry responsibility without accountability. Financial inclusion without poverty alleviation is meaningless. The growth rate of self-help groups (SHGs) and joint liability groups (JLGs) has been declining.

Livelihood-linked credit is in a sorry state. Access of credit for women and the marginalised is a major area of alarm. All these issues need to be addressed almost simultaneously. The National Bank for Agriculture and Rural Development (Nabard) has been a complete failure, more so in the area of non-agricultural credit.

We also have a Bhartiya Mahila Bank without any real purpose. Can this not be reincarnated as a direct development financial institution for women without adding too many layers? Similarly, our skill-development programmes and Rural Development and Self-Employment Training Institutes(RUDSETIs) are completely divorced from livelihood realities.

The poor record of credit linkages of RUDSETIs is a telling sign. Their programmes need to be completely reoriented. Without the role of state governments and panchayati raj Institutions, this again would remain a problem area.Banks cannot be absolved of the responsibility of long-term servicing and enablement of the account. Eventually, through lower-cost models they would have to take over the operations. Two singularly bad ideas of the UPA government - the banking correspondents and the common service centres - seem to be carried forward by the NDA.

(1) The business correspondent model should be extended to include entities such as kirana shops, corporates and others. It is obvious that BCs need to be properly remunerated and have the full support of banks. Banks have tied up with common service centres (CSCs) as BCs.

(2) Insistence on KYC (know your customer) norms has hindered the opening of new accounts even in urban areas. Great significance is, therefore, attached to e-KYCs. The Aadhaar can play an extremely useful role.

(3) Since mobile banking through phones is to play an increasingly important role in a scenario where physical bank branches will be few, greater co-ordination between mobile telephone companies and banks will be necessary.

(4) It goes without saying that State governments support will be crucial.

(5) Commercial viability will be the key to the programmes success. Past experience suggests that without proper incentives, the facilities on offer will not be used by the really needy. Banks will be saddled with a large number of dormant accounts.

SuggestionsOne, the department of post should immediately be given a full banking licence as no one else comes even close to their level of reach. Two, a focus on branchless-banking (banks on wheels) and micro-bank branches have to be brought in.The delivery of financial services at affordable costs to vast sections of disadvantaged and low-income groups continues to remain a big challenge in our country. Policy-makers have been focusing on financial inclusion of Indias hinterland primarily for three important needs: Creating a platform for inculcating the habit of saving money; providing formal credit facilities; plugging leakages in public subsidies and welfare programmes.

Due to the absence of savings, the poor have been living under financial duress for long. The unbanked population has been powerlessly dependent on informal channels of credit, like the usurious moneylenders. In addition, a considerable sum of money that is meant for the poor does not actually reach them. The government is, therefore, pushing for direct cash transfers to beneficiaries, which needs a bank account.

Against this backdrop, the Pradhan Mantri Jan Dhan Yojana (PMJDY) launched in August 2014, has been conceived as a national mission of financial inclusion with the objective of covering all households in the country with a bank account. Other than being able to open a new bank account with zero balance, the Jan Dhan Yojana is offering certain incentives for the customers, such as a life insurance cover of Rs 1 lakh and health insurance cover of Rs 30,000 as an incentive to open a bank account, along with providing RuPay debit cards. Good customers would also be eligible for an overdraft facility of up to Rs 5,000 after six months.

The question that arises is why only RuPay debit cards, when private sector ones like MasterCard and Visa are also available. It is a competition distortion and relying on one public sector facility is fraught with problems of monopolistic abuses. On the inauguration day itself, 1.5 crore (15 million) bank accounts were opened under this scheme.

As of November 10, 7.24 crore accounts have been opened. The effort for financial inclusion is not new in our country. Ever since bank nationalisation in 1969, many schemes aim-ed at financial inclusion have been launched. Most have flopped. In 2011, the government launched Swabhimaan to bring banking services to large rural areas without banking services. However, this scheme quickly degenerated into merely an account-opening exercise, because no one really used it to save money. There is a real danger of the same thing happening with the Jan Dhan Yojana.

The Reserve Bank of Indias vision for 2020 is to open nearly 600 million new customer accounts and service them through a variety of channels by leveraging on IT. The idea of universal bank accou-nts was originally proposed by a panel constituted by the RBI to improve financial inclusion. The panel proposed that every adult Indian be granted a Universal Electronic Bank Account (UEBA) by January 2016.LimitationsThe government argues that the Jan Dhan Yojana is different as it focuses on coverage of households as against the earlier schemes which focused on coverage of villages. It promises coverage of rural as well as urban areas in a manner that banking facility will be available to all within a reasonable distance, say about five kilometres. Given earlier experiences, the size of the country and lack of infrastructure, this is overambitious.

The number of people with access to banking system continues to be very limited even years after introduction of several inclusive banking initiatives in the country. Still, out of the 24.67 crore households in the country, 10.19 crore do not have access to banking services. In rural areas, 44 per cent households and in urban areas 33 per cent do not have a bank account. Bank profitability is crucial for the success of any financial inclusion scheme. Only if people use the accounts and save money will banks have the incentive to service them. This is the reason why regular usage for six months is being incentivised and additional services will be on offer after August 2015.

But the data provided by department of financial services, in response to an RTI enquiry, says that as on November 7, 2014, out of the total 7.1 crore bank accounts opened, 74 per cent (5.3 crore) accounts are with zero balance. This is a matter of serious concern. In addition, duplication of bank accounts in the quest to achieve high targets, or to avail insurance benefits is a big challenge. If duplicate accounts are opened but remain dormant, itd be financial inclusiveness only in name.

Some critics fear that the overdraft facility could end up swelling bad loans for banks as the scheme does not spell out how the banks can collect debts. With so many grandiose debt waivers in the past, people may end up treating the loans as freebies. Overburdening/lack of incentivisation of bank officials resulting in hampering of normal operations, customer harassment etc. also needs to be looked into. Most of the schemes that aim to cover the entire population have had their share of errors in on-boarding citizen information. Bankers say that Aadhar is crucial for the success of the Jan Dhan Yojana. However, Aadhar scheme is a long way from achieving universal coverage. Since Aadhar is backed by biometric readings, it eliminates the risk of duplication. But while banks have been given targets with specific deadlines under the Jan Dhan Yojana, they do not have control over Aadhar implementation, which is going to take more time to cover the entire county.

The department of post, if given full banking licence, can play a key role in the Jan Dhan Yojana in view of their unparalleled reach. Seco-ndly, branchless-banking (banks on wheels) and micro-bank branches have to be brought in. Use of technology, such as mobile phones, can make the scheme workable/feasible.The Jan Dhan Yojana should be looked as just one of the multiple approaches to achieve financial inclusion. Only a holistic framework inclusive of the Jan Dhan Yojana, financial education, specialised products, improved infrastructure can result in effective financial inclusion. But that requires political will, bureaucratic support and persistent persuasion by the regulator. The ambitious plan of the government to achieve financial inclusion for all has taken a step closer to its target with 98.4 per cent household in India having bank accountsMeritsWith income inequality being excessively wide, India has been in need of a revolutionary reform to include the poorest of the poor in the development process. To this respect, Jan Dhan Yojana is been waited with much anticipation as the poor can greatly benefit from it and become a part of the economic development process in the country. This new scheme can also contribute towards raising awareness about the various insurance policies available, to which many are ignorant in India. It will benefit villagers in rural areas where there are no bank facilities. Through the use of technology, the scheme may prove to be a winner for both government and the public.If every Indian has a bank account, then Direct Cash Transfer scheme can be implemented which will potentially destroy the corruption and leakage in Public Distribution System (PDS ).Not muchWhile India has witnessed economic growth in the past decade, we still face challenges when it comes to implementing public policies. Mainstream financial institutions like banks have an important role to play. The scheme is a great move, provided the beneficiaries are genuine ones. Further, there exist apprehensions that the scheme may fall into corrupt hands with the benefits of it never reaching the people of the rural areas; the target group of the scheme being villagers, most of who fall under the uneducated lot. The scheme should ensure that there is complete transparency to its functioning with no middlemen activities of any kind.Banking is an essential global business, and its importance can be felt even more in developing countries where banks can help the poor to invest, borrow and save. With globalisation, it has become viable and profitable to engage in business with the poor, provided they are able to engage in dealings. It is expected that with the new scheme, India will soon have cashless transaction that is lined with other developed countries.

In the previous UPAs financial inclusion programme, Know Your Customer (KYC ) was a cumbersome process, which often restricted account openings. Compared to Jan Dhan Yojana, it did not give emphasis on urban financial inclusion. Rural migrants working in towns and cities faced the difficulties in getting access to banking services but now with the new scheme they can open bank accounts and avail the benefits intended for them from any part of the country.

The aim of Jan Dhan Yojana is commendable as there is free accidental coverage and one can open a bank account with zero balance even without KYC papers. It is said that effectiveness of this new scheme would depend on how fast the banking system improves delivery of services, availability of more players in the financial ecosystem and introduction of technology-based financial services.

The whole banking system for rural population gets revolutionized in one stroke. We have been hearing the phrase financial inclusion for quite some time now, but nothing tangible has ever phased out at the level that was expected. radhan Mantri Jan Dhan