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Context: The Pradhan Mantri Jan Dhan Yojana (PMJDY), which is India's National Mission for Financial Inclusion, has reached the milestone of completing nine years since its successful implementation began.

Details

• The Pradhan Mantri Jan Dhan Yojana (PMJDY) was officially introduced by the Prime Minister during his Independence Day speech on August 15, 2014. The program was subsequently launched on August 28, 2014. In his speech, the Prime Minister characterized the occasion as a festival dedicated to commemorating the emancipation of the impoverished population from a destructive cycle of financial exclusion and poverty.
• The core objective of the PMJDY has been to facilitate financial inclusion on a national scale, ensuring that every individual, regardless of their economic background, has access to a range of financial services.
• The program aims to offer affordable banking services, savings and deposit accounts, remittance options, credit facilities, insurance coverage, and pension benefits to the economically marginalized sections of society.
• By launching the PMJDY, the government aimed to utilize technology to reduce costs, broaden the reach of financial services, and break the cycle of financial untouchability faced by many individuals in the country. The program has made strides in banking the unbanked, providing them with basic savings accounts that require minimal paperwork, zero balance requirements, and no charges. It has also focused on securing these individuals by issuing indigenous debit cards that come with cash withdrawal options and free accident insurance coverage.
• Over the years, the PMJDY has evolved and expanded its offerings, including micro-insurance, overdraft facilities, micro-pensions, and micro-credit options. The program has successfully brought millions of previously unbanked individuals into the formal banking system, contributing to the financial empowerment and inclusion of various sections of society.

Initially, PMJDY was launched with a focus on six key pillars

• Universal Access to Banking Services: The scheme aimed to provide universal access to banking services, ensuring that every individual, regardless of their location or economic status, could have access to formal banking facilities. This involved the establishment of banking branches and the use of Banking Correspondents (BCs), who act as intermediaries to deliver banking services in remote and underserved areas.
• Basic Savings Bank Accounts with Overdraft Facility: Under PMJDY, basic savings bank accounts were introduced for eligible adults. An important feature was the provision of an overdraft facility of up to Rs. 10,000 to every eligible adult. This overdraft acted as a financial safety net, allowing individuals to access a certain amount beyond their account balance.
• Financial Literacy Programme: The initiative included a comprehensive financial literacy program to educate account holders about various financial concepts and practices. This program aimed to promote habits such as regular savings, efficient use of ATMs, preparing for credit options, understanding insurance and pension benefits, and utilizing basic mobile phones for banking transactions.
• Creation of Credit Guarantee Fund: A Credit Guarantee Fund was established as a protective measure to encourage banks to extend credit to underserved and marginalized sections of society. This fund provided banks with a guarantee against potential defaults, reducing their risk and incentivizing them to offer credit to those who might otherwise have been considered risky borrowers.
• Insurance – Accident and Life Cover: An essential component of the PMJDY was the inclusion of insurance coverage for account holders. For accounts opened between August 15, 2014, and January 31, 2015, an accident cover of up to Rs. 1,00,000 and a life cover of Rs. 30,000 was provided, offering financial security to individuals and their families in case of unforeseen events.
• Pension Scheme for the Unorganized Sector: The scheme recognized the need to provide pension benefits to individuals in the unorganized sector who may not have access to formal pension plans. The introduction of a pension scheme targeted this sector, ensuring that individuals could save for their retirement and have some financial stability during their later years.

These six pillars collectively aimed to address various dimensions of financial inclusion, from ensuring access to banking services to promoting financial literacy, offering insurance coverage, and providing opportunities for credit and savings in both formal and informal sectors. The PMJDY's initial features sought to empower individuals across different socio-economic backgrounds and create a more inclusive financial ecosystem.

Key approaches adopted under the PMJDY:

• Online Accounts in Core Banking System: The PMJDY shifted from the earlier method of offline account opening with technology lock-in to online accounts integrated into the core banking systems of banks. This change improved the efficiency and accuracy of account opening, making it easier for individuals to access their accounts and conduct transactions.
• Interoperability through RuPay Debit Card or Aadhaar-enabled Payment System (AePS): To promote interoperability and accessibility, PMJDY adopted the use of RuPay debit cards and the Aadhaar-enabled Payment System (AePS). RuPay cards allow individuals to conduct transactions across various banks and payment systems, enabling them to access their funds and make payments seamlessly. The AePS leveraged Aadhaar identification to facilitate transactions, making it convenient for individuals to perform banking activities using their Aadhaar credentials.
• Fixed-point Business Correspondents: The scheme recognized the importance of Business Correspondents (BCs) in reaching remote and underserved areas. Fixed-point BCs acted as intermediaries, providing basic banking services in areas where physical bank branches might be lacking. This approach extended the reach of banking services to rural and far-flung regions, ensuring that more individuals could benefit from financial inclusion.
• Simplified KYC / e-KYC: The PMJDY adopted a simplified Know Your Customer (KYC) process, known as e-KYC, to replace the traditionally cumbersome KYC formalities. E-KYC utilises technology to verify individuals' identity and address through electronic means, reducing paperwork and making the account opening process faster and more accessible. This approach was particularly beneficial for those without traditional identification documents.

By adopting these innovative approaches, the PMJDY aimed to overcome barriers to financial inclusion, such as geographical distance, paperwork hurdles, and lack of access to technology. These measures streamlined processes, enhanced convenience, and promoted the participation of previously excluded individuals in the formal financial ecosystem.

Key modifications made with the time

• Shift in Focus: The focus of the program was shifted from targeting "Every Household" to ensuring access for "Every Unbanked Adult." This change aimed to concentrate efforts on reaching individuals who were still excluded from the formal financial system, regardless of their household status.
• RuPay Card Insurance Enhancement: The scheme introduced an enhancement in the insurance coverage provided with RuPay debit cards issued under PMJDY. For PMJDY accounts opened after August 28, 2018, the free accidental insurance cover on RuPay cards was increased from Rs. 1 lakh to Rs. 2 lakhs. This change aimed to offer enhanced protection to account holders and their families in case of accidents.
• Enhanced Overdraft (OD) Facilities: The overdraft facilities offered to PMJDY account holders were improved and expanded.
  • The overdraft limit was doubled from Rs. 5,000 to Rs. 10,000, providing account holders with increased access to credit.
  • Additionally, an overdraft of up to Rs. 2,000 was allowed without imposing any specific conditions.
  • The upper age limit for availing of the overdraft facility was increased from 60 to 65 years.
  • These changes aimed to provide more flexible and accessible credit options to individuals, particularly those in need of short-term financial assistance.

These modifications demonstrated the government's commitment to refining the PMJDY program based on lessons learned and evolving needs. The changes reflected a deeper understanding of the challenges faced by the unbanked population and aimed to provide more comprehensive and valuable financial services to uplift their economic conditions.

Key points highlighting the impact of PMJDY:

• Catalyst for Economic Initiatives: PMJDY has acted as a catalyst for various people-centric economic initiatives, including direct benefit transfers, COVID-19 financial assistance, PM-KISAN (an income support scheme for farmers), and increased wages under MGNREGA (a rural employment guarantee program). The existence of a bank account, which PMJDY has facilitated, serves as the foundational step for these initiatives to reach beneficiaries efficiently and directly.
• Widespread Adoption: PMJDY has achieved remarkable success in terms of adoption. One out of every two accounts opened between March 2014 and March 2020 was a PMJDY account, underscoring the program's popularity and effectiveness.
• Immediate Response During Lockdown: The agility and responsiveness of PMJDY were evident during the COVID-19 pandemic and the subsequent nationwide lockdown. Within just 10 days of the lockdown, over 20 crore women PMJDY accounts received financial assistance of Rs. 500 per month for three months through the Direct Benefit Transfer (DBT) mechanism. This rapid disbursement of funds showcased the program's ability to provide swift financial support to vulnerable sections of society during crises.
• Efficiency and Transparency of DBTs: PMJDY has played a significant role in ensuring the efficiency and transparency of Direct Benefit Transfers (DBTs). DBTs via PMJDY accounts have been successful in delivering financial security to beneficiaries while preventing leakages and ensuring that funds reach their intended recipients.
• Transformation of Financial Landscape: One of the most noteworthy impacts of PMJDY is its role in bringing the unbanked population into the formal banking system.

The Pradhan Mantri Jan Dhan Yojana has not only provided access to banking services but has also acted as a vehicle for broader economic empowerment and social change. Its impact extends beyond the individual account holder to touch various economic initiatives and transform the financial landscape of India, fostering financial inclusion and resilience.

Present status of the Pradhan Mantri Jan Dhan Yojana (PMJDY)

• PMJDY Accounts: As of August 9, 2023, the total number of PMJDY accounts is 50.09 crore (500.9 million). Out of these accounts, 55.6% (27.82 crores) are held by women, showcasing the focus on gender inclusion. Around 66.7% (33.45 crores) of the PMJDY accounts are located in rural and semi-urban areas.
• Deposits under PMJDY Accounts: The total deposit balances in PMJDY accounts amount to Rs. 2,03,505 crore.
• Average Deposit per PMJDY Account: The average deposit per PMJDY account is Rs. 4,063 as of August 16, 2023. This marks an increase of over 3.8 times compared to the average deposit in August 2015. The rise in the average deposit is indicative of increased usage of accounts and the inculcation of a saving habit among account holders.
• RuPay Cards: The total number of RuPay cards issued to PMJDY account holders is 33.98 crore (339.8 million). The issuance and usage of RuPay cards have steadily increased over time.

Picture Courtesy: PIB

Picture Courtesy: PIB

Challenges

• Account Usage and Inactivity: The opening of accounts is just the first step; encouraging people to actively use these accounts for transactions and savings is equally important. Incentives, simplified procedures, and awareness campaigns can help address this challenge.
• Financial Literacy: Enhancing financial literacy is a long-term endeavour. Providing easily understandable financial education, workshops, and guidance can help individuals better understand banking services, manage their money, and make informed decisions.
• Access to Credit and Services: While overdraft facilities are a positive step, expanding access to credit and other financial services like insurance and pensions could involve partnerships with financial institutions and tailoring products to the needs of the low-income population.
• Technology and Connectivity: Addressing this challenge involves improving technological infrastructure, especially in remote areas. This could include mobile banking solutions, digital literacy programs, and utilizing government initiatives like the Digital India campaign.
• Sustainability of BC Model: Business Correspondents play a crucial role in bridging the gap between formal financial institutions and rural communities. Ensuring their sustainability involves fair compensation, training, and monitoring mechanisms to maintain quality service delivery.
• Data Privacy and Security: As digital transactions increase, the risk of data breaches and privacy concerns also rises. Implementing robust cybersecurity measures, educating users about safe digital practices, and stringent data protection regulations are vital to address this challenge.

Way forward

• Promote Account Usage: Offering cashback rewards, discounts, or exclusive offers for using accounts can incentivize regular transactions and engagement. Collaborating with local businesses to encourage digital payments can create a thriving ecosystem that benefits both users and merchants.
• Expand Financial Services: Customized financial products like micro-insurance and micro-pensions cater to the specific needs of the unbanked population. These products should be designed to be easy to understand and affordable, making them accessible to a wide range of people.
• Digital Infrastructure: Building digital literacy alongside infrastructure is crucial. Conducting digital literacy workshops and leveraging mobile phone penetration can empower individuals to use digital platforms for financial transactions.
• BC Sustainability: Introducing performance-based incentives for Business Correspondents (BCs) tied to their outreach efforts can motivate them to effectively reach remote areas. This approach ensures their continued dedication and effectiveness.
• Integration with Government Schemes: Integrating PMJDY with various government schemes streamlines benefits delivery. This not only reduces leakages but also creates a seamless experience for account holders, enhancing the overall impact of both financial inclusion and social welfare initiatives.
• Continuous Monitoring and Evaluation: Regular assessments help identify trends and areas for improvement. This iterative process allows for the refinement of strategies based on real-time feedback, ultimately leading to more effective outcomes.
• Partnerships: Collaborating with fintech companies allows for the development of user-friendly digital platforms and services. This simplifies financial transactions for users. NGOs can contribute by raising awareness about financial literacy and facilitating the delivery of financial education.

Conclusion

• The initial success of the program is just the beginning, and sustaining its impact requires a commitment to addressing challenges and implementing innovative strategies. By doing so, PMJDY can play a pivotal role in shaping a more inclusive and robust financial landscape in India. The key lies in the continuous adaptation and evolution of the initiative to meet the changing needs of the population it aims to serve.

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PRADHAN MANTRI JAN DHAN YOJANA (PMJDY): https://www.iasgyan.in/daily-current-affairs/pradhan-mantri-jan-dhan-yojana-pmjdy

PRACTICE QUESTION Q. What are the key features of the Pradhan Mantri Jan Dhan Yojana (PMJDY), and what is its significance in promoting financial inclusion in India? Highlight some of the challenges that the program has faced, and propose potential strategies for the way forward to ensure its sustained impact.

https://pib.gov.in/PressReleasePage.aspx?PRID=1952793