With the launch of the Jan Dhan Yojana, the government has given a major thrust to financial inclusion. ET explains the concept
1. What is financial inclusion?
Financial inclusion is a broad term used to describe the provision of savings and loan services to the poor in an inexpensive and easy to use form. It includes opening of bank accounts for those that have never had one, and allowing people to send and receive money easily. The main objective is ensuring access to formal credit for people who depend on informal means for their financial needs and also financial education to ensure that the poor and marginalised make the best use of their money.
2. Why is it important?
Higher penetration of formal financial services is a positive developmental indicator. Policymakers all over the world are pushing for greater financial inclusion because it is seen as welfare enhancing for the poor. Governments especially in poor countries like India are pushing to get more and more people under the formal financing umbrella as there is increasing evidence that direct cash transfers into bank accounts cuts leakages.
3. Where does India stand?
According to the Reserve Bank of India, just over 50% of Indian adults held an account with a financial institution, compared to close to 70% of adults in various BRICS economies, and an even higher percentage of adults in the US and UK. Similarly, in 2014, 6% of Indian adults had borrowed from a formal financial institution in the past 12 months compared with 10% or more in other BRICS economies. As of 2014, there were only 18 ATMs per 100,000 adult population in India against over 65 in South Africa and over 180 in Russia. Similarly, 10% of individuals aged 15 years and above had made payments through debit cards in India as against approximately 40% in South Africa.
4. How is financial inclusion happening in India?
Banks have opened 19.21 crore accounts under the government’s ambitious financial inclusion scheme, Pradhan Mantri Jan Dhan Yojana (PMJDY) with deposits of more than Rs 26,819 crore till November. These zero balance bank accounts have been accompanied by 16.51 crore debit cards, a life insurance cover of Rs 30,000 and an accidental insurance cover of Rs 1 lakh. More than Rs 4,273 crore have been routed through these accounts towards payment of wages under the rural employment programme ( MNREGA) and transfer of cooking gas subsidy amounting to Rs 17,446 crore. The government is pushing financial inclusion through the Jan Dhan, Aadhaar and Mobile (JAM)) trinity and use of innovative delivery channels, such as mobile wallets. RBI has also granted an ‘in principle’ approval to 10 small banks and 11 payment banks, which is expected to deepen the inclusion process.