CONTENTS

Pradhan Mantri Jan Dhan Yojana ........................................................................................................... 2

Benefits and Schemes under PJMDY: .................................................................................................... 3
Financial Inclusion in India: ................................................................................................................... 4
Strategies for Implementation: ................................................................................................................ 6
Current Indian Economy and Jan Dhan Yojana: .................................................................................... 7
Challenges in Implementation: ............................................................................................................... 8
Possible Solutions/Recommendations: ................................................................................................... 9
Appendix:.............................................................................................................................................. 10

1
Jan Dhan Yojana
""Vish-chakra se gareebon ki aazadi ka parv" – celebration of liberation of the poor from a
poisonous cycle
- Narendra Modi during launch of this Yojana 2014
Since the liberalization era, Indian economy has been moving at a very high pace. A large number of
companies have opened in India and contributed heavily to the high growth rate in GDP. As the
economy opened, cash started flowing through the system and there was requirement of more banks
to cater to the rising demand of financial securities. Private players came into picture and exploited
the conditions prevailing in the country. But they focused only on the urban population where the
scope of using the financial services was more dominant. The rural population living in the secluded
areas were completely unaware of the benefits of this progress and stayed in dark for long. Some
efforts were made by the government but they were unsuccessful due to poor strategic
implementation. But the new NDA government formed in 2014 addressed to the plight of these
people by launching a new program.

Pradhan Mantri Jan-Dhan Yojana or Pradhan Prime Minister's People Money Scheme is a
national scheme to ensure financial inclusion of the vast population without a bank account. It will
also ensure that the financial services like banking services, credit, insurance, pension can be accessed
by mass in an affordable manner. It was inaugurated by the prime minister on 28th August 2014.
Department of finance , Ministry of finance was given the responsibility to run and regulate it
throughout the country. The success of this scheme can be gauged by the fact that on the inauguration
day 15 million people opened their account creating a world record. It has presently around 12 crore
accounts.

The success of this program is very important to address to the vast grievances of the rural
population. It will completely change the ways subsidy is transferred to the rural population and will
prevent exploitation of the money by the middlemen. This will generate hope in the rural population
who feel they have never been attended to by any government. Subsidies hardly reach them and they
remain unaware of the benefits provided by the government. They were prevented from being a part
of the development of the country and were busy in keeping their ends meets. Terms like insurance,
pension and bank accounts were jargon to them as they were unaware of the its benefits. This plight
needed to be addressed by the new government and it realized it is the best way to transfer benefits to
them. It will also help them avail loan facility which was the biggest issue for them. The success of
this program will revolutionize the banking system of India and remove most of the discrepancies that
exist in loan system of the country for the poor. It is now possible for the government to implement
this program as the technological outreach is at its peak and wide coverage of population can be
ensured.

But there are a lot of challenges that need to be managed effectively to prevent it from falling
apart. The government also decided to provide life and accident insurance to the population at a
subsidized rate to ensure economic requirements of the poor are met. It would make an efficient way
to transfer other benefits to the poor in realistic time. Thus we as a team will try to put forward the
different strategies and benefits of this program.

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Benefits and Schemes under PMJDY

Overdraft facility: In case the account holder doesn’t have any balance left in the account and
is in need of money, he/she’s able to withdraw ₹5000 as an overdraft facility if the account is
opened under PMJDY. The scheme is of great benefits to the lower sections of the society
where people do not have a penny to spend on or to start their business. This move can help in
reducing the number of suicides among farmers in different parts of the country. But the scheme
comes with certain conditions. Overdraft facility will be available only after the successful
operation of accounts for first six months. In addition to that, the facility is only for one member
per household and female member would be given higher preference over males. There would
also be interest 12-20% charged on the overdraft amount.
Zero-Balanced Accounts: This benefit has been the great attraction factor for the success of
PMJDY in its first phase. There were no charges while opening the account and people liked
the fact that they don’t need to have the minimum balance in the accounts. The move was great
in terms of reach of the scheme as the rural population of the country didn’t have much access
to banking. People would be able to deposit their regular savings in the banks.
Direct Benefit Transfer: The best thing about PMJDY is DBT (Direct Benefit Transfer). All
the Government subsidies, damage repair during any calamity, etc. are directly transferred to
the accounts of needy. This has helped to eliminate the middlemen from almost all the
transactions, who used to score a high on commissions. To quote an example, PAHAL Yojna
of Government under which LPG subsidies have been transferred to 14.62 crore people of the
country and it’s still going forward.
Mobile Banking facility: As the scheme is targeted towards achieving financial inclusion of
the lower sections of the society, Mobile Banking facility is provided. One does not need to
have a smartphone to access the services. One just need to dial *99# and respond accordingly
to access the services like funds transfer, balance checking and basic banking services. The
tariff charged would not be more than $1.5 per minute irrespective of the network one uses.
Life Insurance Cover Eligibility: The scheme will provide a life cover of $ 30000 and the
amount would be payable on the death of the beneficiary given that all the conditions are
fulfilled. There are many conditions mentioned like: The account should have been opened
between Aug, 2015 to Jan, 2016. The beneficiary should be the earning member or the head of
the family and the cover is available only to one member of the family. Cash premium of ₹90
is to be paid annually as a premium for the insurance.
Accident Insurance cover: The Accidental cover comes as one of the many perks of opening
the account under PMJDY. The insurer doesn’t need to pay any premium and still the
Government provides ₹100000 accident cover.
Small Accounts: In case, one wants to open the bank account and he/she has lost all important
documents or is not in the position of submitting one, there is facility of Small accounts. The
A/c holder will have to submit the documents within one year of the opening of the account.
There are certain conditions for the small accounts like: Balance at any time in the account
should be less than ₹50000. Total deposits in the account should be less than ₹100000 during
a year and maximum withdrawal limit is set to ₹10000.

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Financial Inclusion in India
Financial inclusion is the availability and delivery of financial services to the low income
segments of the society. Services delivered are affordable in nature.
NSSO data reveal that 45.9 million farmer households in the country (51.4%), out of a total of
89.3 million households do not access credit, either from institutional or non-institutional
sources. Further, despite the vast network of bank branches, only 27% of total farm households
are indebted to formal sources (of which one-third also borrow from informal
sources). Farm household not accessing credit from formal sources as a proportion to total
farm households is especially high at 95.91%, 81.26% and 77.59% in the North Eastern,
Eastern and Central Regions respectively. Thus, apart from the fact that exclusion in general is
large, it also varies widely across regions, social groups and asset holdings. The poorer the
group, the greater is the exclusion. (Finance, 2008)

The total number of farmer

Households is 89.3 million.
What we see in the pie chart is
that people with no access to
credit out of this is more than
50% which is quite shocking.
Only 27% people have access
to credit out of which only 18%
have access through formal
sources like banks. Rest 9% fall
in vicious circle of local lenders.
Source: pib.nic.in, 2008

Vicious cycle of Credit for poor in India

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Why such a scenario?
The reasons that such a scenario was created were:
• Banks look to focus on urban customers as financial services is not a public good
• Poor people don’t have any collateral or are risky investments for the bank
• People want easy access to cash and don’t want to save
Dimensions of financial inclusion:
The dimensions which critically affect the inclusion definition are:
1. Branch Penetration: More the branch penetration more will be the access to banking services
and hence more exposure to the financial system prevailing.
2. Credit Penetration: It is a measure of access to loan products, access to credit for small
borrowers and access to credit for farmers. It is one of the most important factors to determine
the financial inclusion level in an economy.
3. Deposit Penetration: As the access to saving products increase, the deposit penetration
follows a similar trend.

Demand and Supply side of the scenario:

Demand: Low income level coupled with lack of financial literacy and people relying on the
bank accounts of other members in the family affects the demand side of financial inclusion.
Supply: Lack of suitable products and absence of bank branch in the vicinity affects the supply
side of financial inclusion.

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Strategy of Implementation

The success of this yojna depends mainly on reducing and eliminating financial untouchability. In
India, there are people who earn merely 40 rupees in a day. Their priority is to ensure their ends meet.
Bank accounts are completely out of their priority list and they are not able to avail any kind of subsidies
from the government. Thus they should be connected and exposed to the benefits of this process. This
needs a sound strategy to ensure success of this program. Some of these strategies are mentioned below
Reaching the poorest – To ensure the success of the yojna, connectivity with the backward section of
the country was required. For that a new concept of bank correspondent was implemented where people
were hired at low salary in large number for wide connection.
Implementation of Aadhar – Aadhar card was promoted as a large number of citizen of India do not
have any identification proof. This was done to make the process easy for the government officials to
open bank accounts. Thus people having Aadhar card were able to get their accounts opened in quick
time.
Use of Technology – Large number of cost effective technology was used to ensure better and quick
processing. This was a very difficult process and needed support from all sections of government
agencies. Special technological help was taken from various technology companies and connectivity
throughout the country was maintained. E-KYC forms were made and the bank officials were trained
to use it to speed up the process of opening a bank account.
Regularity Push – This process needed to be implemented on mass level so it required collaboration of
a large number of government agencies. Regularity bodies like Reserve Bank of India, TRAI,
NABARD, State government agencies worked together for the common goal to provide a bank account
to every family.
Infrastructure – Good and quick infrastructure was required to ensure physical and digital connectivity.
It was a challenge especially in states like Bihar, Orissa, West Bengal, Jammu and Kashmir and the
North eastern States. It is surprising to know that only about 46000 villages have banks out of nearly
600000 villages. So to ensure proper coverage boot camps were made in less penetrated villages. New
banks were promoted and were incentivized to open their branches in villages. Rural banks were
promoted. Technology savvy methods were also implemented to increase modernization and
connectivity. Thus economically viable business model was implemented.
Dormant Account – Major challenge for the GOI to ensure long run of this program was the infrequent
use of these accounts. The accounts if not used for a long time becomes dormant and it becomes cost
intensive for the banks to keep running these accounts which are not used frequently and which do not
have any amount in them as well. To ensure regular transaction through these accounts government
thought to link it to the various subsidy programs like MREGA, Kaushal Vikas Yojna, Gramin Aawas
Yojna, Gram Jyoti Yojna and also the health schemes. This will increase the flow of cash through these
accounts.
Monitoring – Regular monitoring of the process is required to prevent any discrepancies which creeps
inside the process. To ensure safety of the interest of the account holders. Even multiple accounts
should be prevented from being opened by the same person. Quick and concise reporting process
should be implemented. Data management should ne outsourced for control on the process and
decrease faults in the data. Leakage of the data should be checked.Add more benefits – Newly
implemented crop insurance can also be attached to this account and any payment can be directly
transferred to these accounts. This will provide a safe path to transfer benefits directly to the rural
population.

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Current Indian Economy and Jan Dhan Yojana

As per the government of India

report 43,128.25 crore rupees
were deposited in nearly 13 crore
accounts. This ensures that a
huge amount of money which
otherwise would have remained
idle in the hands of the people is
circulated in the mainstream
economy of India.
Another important factor is that
the contribution of private sector
Source: GOI 2016
One of the major impacts has been in the distribution of banks has started. This not only
subsidies. The government has spent around Rs 20000 helps in the expansion of the
crore rupees. Though it is a small portion of the total scheme but also to increase in the
subsidies that is distributed under the Union Budget 2016- growth rate of the scheme.
18. But, it has brought about one good change that it is
trying to eliminate the middle men in the economy. The government is trying to target specific
section of the society using this scheme so that the subsidies flows down to the intended
beneficiaries.

When subsidies reach the poorest

of the poorest people, they get cash
in their bank accounts. It is safe in
there and can be used by the
people for buying different types
of goods. This definitely causes a
demand shift in the economy as
people have more purchasing
power. Secondly, with the
overdraft scheme of Rs. 5000,
allows the poor people to open
their own business however small
it may be.
Overtime, there is a possibility of this business expanding
and creating more job opportunities for the people and turning their business into a Small or
Medium Enterprise. Not only the SMEs provide job opportunities but they also increase the
supply of goods in the market. This creates a supply shift in the market. Moreover, with the
money which comes into the bank account can be used by the banks to make investments and
support mini enterprises in the rural market. This will go back into the previous loop and cause
a supply shift.

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Challenges in Implementation
Jan Dhan Yojana despite being a success faced several problems. The three major segments
involved in the yojana include People, Banks and Government. Problem or challenges were
encountered by all three.

People
1. Government did not clarify all the clauses such as RuPay card should be used in every
45 days to claim the insurance. Another secret clause was that life insurance was
applicable for the age group of 18 to 59 years.
2. People did not receive any official documents for insurance and so it became difficult
for people to claim insurance.
3. Pins for RuPay cards reached after the cards have already expired and thus people
could not use card and thus their accounts became inactive.
4. Many people opened the account because they were told that they would get an
overdraft of Rs.5000 when they open the account but later they were told that they
need to be active for 6 months to claim the money.

Banks
1. 1/3rd of the bank accounts were non-operational and bank has to incur a fixed cost on
every account and because of these accounts banks had to incur the losses.
2. On an average just 3 transactions took place per account.
3. Average amount in an account was Rs.1000, at this amount banks could not break
even.
4. Government did not provide incentives to the banks for overdraft facility or insurance
facility.
5. KYC was not implemented and thus duplicate accounts were made.

Government
1. Several instances have been observed where banks denied overdraft facility to the
people.
2. Rural areas does has poor infrastructure and due to that people did not have access to
banks and ATMs.
3. Government committed to provide an amount of Rs.50000 for equipment, Rs.50000 for
transportation and Rs.25000 for working capital to extend the services to rural area.
These arrangements were made without any provision for budgets.
4. Private banks levy hidden charges. This defeated the purpose to Yojana that was
financial inclusion of everyone who could not expense on banking services.
5. Bank Mitras or correspondents earned an average of Rs.2000 only and thus iteration
rate of correspondents was very high.
6. People are unaware about the benefits of banks because of low financial literacy.

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Possible Solutions/ Recommendations
 Opening an extension counter adjacent to Post Office
Post offices exist in almost all the rural areas, so if we open an extension counter
adjacent to the post office we need not work much on infra structure and we can use
the facilities and transportation network of post office for functioning.

 Work according to Know Your Customer(KYC) guidelines

Government did not enforce know your customer guidelines and because of that
customers created multiple accounts.

 Financial learning centers

A big part of the population is still not aware about the benefits and facilities of banks.
To make people aware about that few sessions could be taken by bank authorities in
different rural areas.

 Inclusion of private banks

Government should cover some part of the expenses that bank bear due to Jan Dhan
Yojana so that banks don’t have to incur the losses and thus will be motivated to
promote the scheme.

 Increase the salaries of Bank Correspondents

Average Bank correspondents have a very low income as compared to the level of skill
set and education they require. They work on commission based system and this
amounts to very less. Bank mitras should have a fixed salary or commission percentage
should increase so that they promote the scheme.

 Mini Bank in every Gram Panchayat region

Government should start the mini bank kind of facility in every gram panchayat region.
They can also work with Grameen banks or other rural banks and improve their
facilities

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