Jan Dhan Yojana- a Step to Financial Inclusion

December 6th, 2014

  • Spreading financial inclusion — the process of spreading the banking services — in Asia’s third largest economy is critically important to rescue the poor and economically weaker sections from the claws of informal financiers.
  • Financial inclusion has progressed in a depressingly slow pace, despite 60-long years of independence, and several decades of existence of nationalized banks and progress of technology, especially mobile-based in the last decade.
  • In India, about 42 percent of the population lacks access to a formal financial institution such as a bank and is not part of the country’s banking system.
  • Today, despite the network of 82,000 bank branches of commercial banks across the country, India’s banks cater to only about 5 percent of the villages. The cost of this financial distance is paid by the poor. A visit to the bank for the poor often means substantial travel and expense, and the loss of a day’s wages. The poor find such costs especially untenable given their preference for micro-transactions.
  • Elaborating the benefits under PMJDY, it was not a mere bank account, but had other benefits including a RuPay debit card, Rs1 lakh accident insurance cover, and an additional Rs. 30,000/- life insurance cover for those opening bank accounts before January26th, 2015. The account performance would be monitored and overdraft facility would be given.
  • As long as the poor remains poor and don’t have savings, bank accounts opened for them as part of a financial inclusion program will remain inoperative. It might be too early for them to embrace the world of commercial banking.
  • In the past three-four years, participation of private sector banks in lending to farmers and other economically weaker sections have lagged way behind state-run banks, despite private bank’s


Pradhan Mantri Jan Dhan Yojana

  • A scheme that aims to provide all the citizens of India – especially the poor masses – a bank account, credit facility, insurance cover and debit card.
  • The aim of this scheme is highlighted by its slogan “Mera Khata – Bhagya Vidhaata”.
  • The implementation of the PMJDY was carried out in two phases. The first phase was likely to last till August 2015, while the second phase till 2018. By 2018, about 7.5 crore households (two per household, i.e., 15 crore bank accounts) will have bank accounts. In the second phase, the government will also make pension schemes available to these account holders.



  • Even with reduced KYC (Know your Customer Challenges) norms, banks must corroborate the identity and address of a resident, before they get a bank account. Prospective customers applying must consequently provide identity documentation or letters from local authorities verifying their identity and residence. These requirements make it difficult for many among the poor to get a bank account.
  • Despite the network of 82,000 bank branches of commercial banks across the country, India’s banks cater to only about 5 per cent of the villages. The cost of this financial distance is paid by the poor.
  • Limited Accessibility: The costly processes of cash management, cumbersome identity verification processes and high transaction volumes create inefficiencies across the system and a web of delayed payments and long waiting times for the ultimate beneficiaries.
  • The information asymmetry between the bank and the beneficiaries on when payments have arrived gives rise to middlemen, who pass on this information to the beneficiaries for a price.
  • Challenges for Banks: In much of rural India, unbanked regions are those that are sparsely populated, which lack basic infrastructure, and where large numbers of small transactions is common. As a result, banks face high costs of customer acquisition; high potential transactions costs of micropayments; and large expenditures on infrastructure and IT.



  • Efforts need to be undertaken including improving human and physical resource endowments, enhancing productivity, mitigating risk and strengthening market linkages for the people who are largely deprived due to their poor economic condition.
  • The task of financial inclusion must be taken up in a mission mode as a financial inclusion plan at the national level. A National Mission on Financial Inclusion (NaMFI) comprising representatives from all stakeholders may be constituted to aim at achieving universal financial inclusion within a specific time frame.
  • A National Rural Financial Inclusion Plan (NRFIP) may be launched with a clear target to provide access to comprehensive financial services, including credit, to at least 50% of financially excluded households, say 55.77 million by 2012 through rural/semi-urban branches of Commercial Banks and Regional Rural Banks.
  • Micro Finance Institutions (MFIs) could play a significant role in facilitating inclusion, as they are uniquely positioned in reaching out to the rural poor. Many of them operate in a limited geographical area, have a greater understanding of the issues specific to the rural poor, enjoy greater acceptability amongst the rural poor and have flexibility in operations providing a level of comfort to their clientele.
  • Micro-insurance is a key element in the financial services package for people at the bottom of the pyramid. The poor face more risks than the well off. It is becoming increasingly clear that micro-insurance needs a further push and guidance from the Regulator as well as the Government. There is a need to emphasise linking of micro credit with micro-insurance.


Main MenuMain Menu