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Insights into Editorial: The way to financial inclusion

Insights into Editorial: The way to financial inclusion

08 June 2016

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India’s ambitious programme to ensure universal coverage of all households by financial institutions, which was started in mid-2000s, is being fulfilled by the Prime Minister’s Jan Dhan Yojana (PMJDY). PMJDY intends all households to have at least one savings account at a financial institution.

About PMJDY:

The primary aim of this scheme is to provide poor people access to bank accounts.

  • The scheme covers both urban and rural areas of India. All bank accounts will be linked to a debit card which would be issued under the Ru-Pay scheme. Rupay is India’s own unique domestic card network owned by National Payments Corporation of India and has been created as an alternative to Visa and Mastercard.
  • Under this scheme, every individual who opens a bank account becomes eligible to receive an accident insurance cover of up-to Rs 1 Lakh for his entire family.
  • Life Insurance coverage is also available under PMJDY. Only one person in the family will be covered and in case of the person having multiple cards/accounts, the benefit will be allowed only under one card i.e. one person per family will get a single cover of Rs 30,000.
  • The scheme also provides incentives to business and banking correspondents who serve as link for the last mile between savings account holders and the bank by fixing a minimum monthly remuneration of Rs 5000.


So far, more than 22 crore bank accounts have been opened under the scheme, utilizing a network of more than one lakh business correspondents (BCs). However, it is widely believed that many accounts were opened in response to political pressure on banks to achieve programme targets. Others may have been opened to avail of the insurance benefits that the accounts enabled or under the expectation that government transfers would require a savings account. As a consequence, duplicate accounts with zero balances represent a high percentage of the total accounts.

What can be done to improve the situation?

Business Correspondents (BCs) can play a proactive role here. The government should effectively utilize their services to achieve the programme objectives.

Who is a Business Correspondent (BC)?

They are bank representatives who help villagers to open bank accounts and also help in banking transactions.

Why are they important?

  • They lower the costs of serving the poor. They address many of the behavioural constraints believed to adversely affect savings.
  • BCs, who reside in the vicinity of their clients and are often from the same community, can more easily address constraints specific to regions.
  • Many of the poor who live in small villages at some distance from the larger villages and small towns in which bank branches are located can now access banking services with the help of BCs.

Way ahead:

Significant increases in financial savings are only likely to occur if the government also addresses some of the factors that cause households to borrow heavily from the informal sector.

  • Various surveys suggest that, even now, moneylenders represent the major source of loans for rural households, accounting for 35% of total loans, with family members accounting for 26% of loans and commercial banks for just 10%. And the primary reason for borrowing is ill-health: 38% of loans (48% of the loans from moneylenders) are for health-related expenses.
  • Though BCs have increased savings for poor households, this increase is not primarily held in savings accounts. There is also evidence that BCs better serve households who reside in the larger villages of the Gram Panchayats, and that coverage increases with village size.
  • The government should try and address these problems as early as possible.


The architects of the PMJDY first need to acknowledge its current flaws, both in design and implementation. Second, policy makers need to determine what causes bankers to behave in the manner they do and incentivise them to act differently. Third, policy makers need to engage in building awareness and financial capability for low income households.