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As announced during Prime Minister Narendra Modi’s Independence Day speech this August, the government rolled out its ambitious financial inclusion programme, the Pradhan Mantri Jan Dhan Yojana (PMJDY).
Aimed at improving the lives of millions of India’s poor, both in rural and urban, by bringing them into the financial mainstream, the PMJDY’s target is to open 7.5 crore bank accounts by January 2015.
To achieve that goal, the programme will help people to open zero-balance accounts with any bank, either public or private, with far more simple Know-Your-Customer rules and minimal documentation. An Aadhaar card is just all required to open a Jan Dhan account, which also comes with accident insurance benefit of up to Rs 1 lakh with each account.
Further, accounts opened before January 26, 2015 will also get an additional life cover of Rs 30,000. Jan Dhan account holders will also get an overdraft facility subject to conditions.
The moot question, however, is why PMJDY? Will it help achieve government’s envisaged goals or become another lofty scheme waiting in files for its eventual death? The case for expanding the scope of organized banking to every nook and corner of the country is strong.
At present, only 58% of Indian households have access to banking services, which means more than 40% of households lack access to formal credit and finance system and therefore, are forced to depend on usurious money-lenders. Furthermore, potential investors among them have no option but to put money in shady Ponzi schemes.
A formal bank account becoming the norm will also help the government to directly pay all subsidies into the accounts of the poor and help plug the leaks. An efficient, transparent and sleek system of subsidy disbursal will help the government to better assess and implement its social welfare schemes.
Critics, however, ask: how is the scheme different from previous schemes to provide organized access to credit to the rural and urban poor?
How the government will finance insurance premium and viability of maintaining these bank accounts? At a time when banks are shifting to the concept of privileged access and priority services, will banks give good service to zero-balance account customers?
Whether the government or BFSI, the taxpayer will have to share the burden of yet another government scheme.
The initial response to the scheme has been quite encouraging with 1.5 crores account opened on the first day. Industry too has welcomed the scheme but expects sound and efficient implementation to create lasting impact on poverty eradication.
Following are the perceived pros and cons of PMJDY :
Pros
- Expand banking, financial & insurance sectors
- Allow direct cash transfer to targeted beneficiaries
- Plug the leaks in subsidy system
- Ensure transparency, weed out corruption
- Cut avenues for black money generation
- Remove the influence of money lenders & Ponzi schemes
- Better data collection & assessment
Cons
- Another social welfare scheme
- Questionable viability of banking, insurance accounts
- Priority versus freebies banking
- Burden on the taxpayer
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