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PM Narendra Modi announced one of his ambitious projects, the Pradhan Mantri Jan-Dhan Yojana (PMJDY) on 15th August 2014.It is a sensible mission if the intentions and execution happen as stated.
It is a national financial mission supposedly aimed at every citizen of India. According to the project, every citizen in the country will need to have a bank account, irrespective of his or her income level. The task is mammoth and a national priority according to the BJP government.
Pradhan Mantri Jan Dhan Yojana
The mission aims at creating at least one bank account to a household in the country to reap the benefits of the banking facilities. According to the Prime Minister, including every citizen into the financial system is an important task to improve the overall economic situation. Moreover, the presence of the bank account will help the government to transfer the necessary funds under various schemes proposed from time to time.
The Pradhan Mantri Jan-Dhan Yojana is a successive system on the lines of development philosophy, “Sab Ka Sath Sab Ka Vikas”. In addition to the banking and credit facilities offered by the banks in India, possessing the account will also help people overcome money laundering by mediators and moneylenders.
The BPL section will now have detailed information on their finances. It will help them manage their monthly expenses according to their income. Apart from that, the opening of the account under the scheme allows an applicant to possess RuPay debit card along with Rs 1,00,000/- accident cover policy.
According to statistics, there are over 7.5 crore households in the country which require the services of the banking industry. The Pradhan Mantri Jan-Dhan Yojana aims at covering all these households within a prescribed time limit.
How Pradhan Mantri Jan-Dhan Yojana started
The previous government in India set up a financial committee headed by Dr. C. Rangarajan, which finalized a report in the year 2008. According to the report, inclusion of finances was a primary instrument in transforming the society and its operation.
Providing access to finances to the poor and vulnerable groups is a prerequisite for the government to improve the economic condition. Furthermore, providing the access to the finances is itself a form of empowerment to the vulnerable groups.
Offering the financial services at an affordable cost is important to bring aboard the vast sections of the disadvantaged and low-income groups.
The services include savings, credit, payments, insurance, and remittance facilities. The financial inclusion allows the government to extend their scope of activities to every individual belonging to the low-income group. The credit system will help the weak to lift from one level to another.
In India, one segment of the total population enjoys the benefits of banking services along with privileged banking services. However, the other half, the low-income and underprivileged group do not have access to the essential financial services.
Excluding half the population from banking services will affect the growth of the country’s economy as a whole. In western countries, such as Canada, Sweden and France, law requires the banks to open an account to anybody that approaches them.
In the United States of America, the Community Reinvestment Act (1977) encourages depository institutions to help the local society in which they function to provide credit needs to everyone, irrespective of income level.
Although the banking system in India has grown exponentially in all directions, it still lags behind in penetrating deep into the rural areas. Even after nationalizing many banks to focus from class banking to mass banking, there exist moneylenders in both urban slums and rural areas, exploiting the poor.
Pradhan Mantri Jan-Dhan Yojana Mission Mode Objectives
Pradhan Mantri Jan-Dhan Yojana follows a strategic implementation and mission mode to cover every household in the country. The mission mode objective aims at providing banking services to every citizen within a reasonable distance at an affordable cost. The mission objectives are:
1) Universal access to banking facilities
The first phase begins with mapping a district into the sub-service area (SSA) catering to around 1,000 – 1,500 households to provide access to every citizen.
The mapping will provide a chance to offer services to every habitation within a reasonable distance. The phase entitles to complete its action by 14th August 2015. Coverage of Jammu and Kashmir, Uttarakhand, Himachal Pradesh, North East and Left Wing Extremism affected districts will shift to the second stage of the operation (15th August 2015 to 15th August 2018).
2) Providing RuPay Debit Card
The essential priority is to cover every household in the country by August 2015 and have at least basic bank account. Account holders will receive RuPay Debit Card.
However, permission for overdraft lies with the operation and credit history of the account holder for a minimum of six months.
3) Financial Literacy
Apart from opening the account itself, offering literacy about finances is a major integral part of the mission. The literacy program will provide the beneficiaries to possess the necessary knowledge to use the financial services made available to them.
4) Credit Guarantee Fund
The creation of the credit guarantee fund will act as a separate entity that will assist in covering the defaults in overdraft accounts.
Micro-insurance will be available to every eligible and willing citizen by 14th August 2018 and carry forward the same.
6) Unorganized sector pension schemes
Launch and implementation of the pension schemes for unorganized sector by 14th August 2018 and on an ongoing basis.
However, currently the mission aims at implementing the first three pillars within the first year. Already, the government has initiated the action of opening bank accounts across the country.
Financial inclusion plan
The proposed financial inclusion of every citizen of India launched on 15th August 2014 has a deadline of 14th August 2018. The addition follows a two-phase process.
Phase I (15th Aug 2014 – 14th Aug 2015)
- Universal access to the minimum facilities offered by the banking system except the areas of North East, Himachal Pradesh, Uttarakhand, Jammu & Kashmir, and Left Wing Extremism districts.
- Provide RuPay Debit Card with an in-built accident cover policy worth Rs 1,00,000/-. Mating of Aadhaar number with the account improves the DBT payment.
- Improve the financial education to the low-income and underprivileged people through the literacy program.
Phase II (15th August 2015 – 14th August 2018)
- Overdraft facility of Rs 5,000/- after six months of satisfactory operation of the account.
- Creation of credit guarantee fund that fulfills the defaults of overdraft accounts with an overdraft limit of Rs 5,000/-.
- Unorganized sector pension schemes
Some parts of the second phase will move to the first stage. Moreover, the uncovered parts of the country, such as North East, Left Wing Extremism districts will fall under this phase.
The second phase will also concentrate on covering remaining adults and students in the household.
The massive program requires collaboration of private entities to cover every household in the country. Furthermore, the inter-department convergence will benefit in achieving the completion of the project. (All sound good to hear but only time will tell if it truly will happen )
Furthermore, the existing Gramin Dak Sewaks at the post offices will become Bank Mitr (Business Correspondent) of the banks. However, the principal objective is to deliver banking services to the customer doorstep by the Bank Mitr. Of the total 1.26 lakh Common Service Centers (CSC), only 12,000 are BCs.
The strategy offers the possibility for the Mitr to offer several banking services using technological features such as RuPay card and mobile banking. Banks will utilize the RBI’s plan for subsidy in establishing micro ATMs at the village level.
Role of Technology
Technology is an important aspect in promoting the financial inclusion in the country. Utilizing the options available will also help the banks to offer affordable services to the rural areas. One of the significant hurdles so far is the large numbers and small volume, which translates to increased costs.
The only way to leverage the cost is by using technology that will reduce the operational cost and help the banking industry to penetrate deep into the rural areas.
The latest products such as e-KYC, AEPS, and IMPS, mobile banking and electronic wallet will help tap the potential of the left out population across the country.
It is vital for the banking industry, telecom and stakeholders to participate as a single unit to deliver promised results without elevating the operational costs.
Furthermore, National Payments Corporation of India (NPCI) and Institute for Development & Research in Banking Technology (IDRBT) are contributing continuously by offering new technology products meant for the banking industry.
Reserve Bank of India, therefore, is harnessing the new technology available to develop and utilize the same for the Indian banking sector over the years.
A significant development is the Core Banking Solution (CBS). Under it, the solution offers anywhere and anytime banking to customers so far.
It has become necessary to seek solutions beyond CBS to bridge the gap, offer quality yet efficient services to customers, and manage the information effectively.
The Core Banking Solution led to the development of NEFT, RTGS, Internet Banking, Mobile Banking and ATMs. The adoption of the CBS changed the way the Indian Banking Sector performed operations and transactions. Critical changes include:
- Adoption of the CBS by Banks including Regional Rural Banks.
- Multi-channel branchless transactions using handheld devices, micro-ATMs, mobiles, cards and kiosks.
- Implementation of RTGS (Real Time Gross Settlement).
- Electronic Clearing System (ECS).
- Electronic Funds Transfer (NEFT).
- Cheque Truncation System (CTS).
- Transactions using Mobile Phones.
The Pradhan Mantri Jan-Dhan Yojana proposes to use technology as a solution to achieve the set goals within the prescribed timeframe and cost. The primary products are:
- Electronically Know Your Customer (e-KYC)
RBI permitted e-KYC in the year 2013 under Prevention of Money Laundering Rules, 2005. The system helps the banks to identify their customers, which in turn prevents money laundering and documentary forgery.
Almost all the banks in India have adopted a system to maintain records of the customers. The action prevents misuse of funds and helps in tracking the transactions at every moment.
2. Mobile Phone Transactions
The mobile phone revolution has altered the way a person communicates and manages daily activity. As per the government, the same principle will help transform the banking sector into a greater revolution. The reach of mobile phones into the rural areas will help the banking sector to penetrate the unexplored regions of the country.
The coverage and use of the instruments will help in expanding the financial inclusion services to every citizen of the country. The solution will offer the customer to manage their operations independently irrespective of time and place.
The transaction through the mobile uses SMS messages. Prior to sending the messages, the customer has to approach their bank to activate withdrawal/deposit of money through mobile platform.
3. Immediate Payment System (IMPS)
Launched by NPCI in the year 2010, the Immediate Payment System (IMPS) offers 24×7 interbank electronic fund transfers using mobile phones, ATMs and internet banking.
In order to carry out the transactions, both the sender and the receiver should register with their bank and obtain Mobile Money Identifier (MMID) and Mobile Banking PIN (MPIN).
Upon registration, the sender can send the required amount to the receiver using their mobile phone. The bank records the MMID and transfers the money to the receivers account. The receiver will get SMS notification on credit of the funds.
Micro-ATMs are handheld devices with biometric recognition. These will be available with the Bank Mitr across the country to help rural and semi-urban citizens to withdraw or deposit money instantly.
Customers have to authenticate themselves to proceed with credit or debit transactions. The ATMs use a mobile phone to complete the transaction. It is an instant procedure and functions efficiently in the rural areas.
5. National Unified USSD Platform (NUUP)
Mobile banking is a compelling procedure that will increase the reach of banking services to the masses. Initiation of the mobile banking is through SMS.
Although mobile apps are available, only 40% of the total mobile users have J2ME handsets with GPRS enabled. Therefore, to overcome the hurdle, NPCI proposed the NUUP system to promote mobile banking across the country.
USSD does not require the download of mobile app. Moreover, the functioning is simple and makes it easy for any customer to understand the transaction process. Furthermore, the USSD is a more secure payment channel than the SMS system.
6. RuPay Debit Card
RuPay Debit Card is a new payment procedure launched by NPCI to offer multilateral system for domestic use. The payment system allows banks in India and financial institutions to participate together in the electronic payments channel.
The benefits of the card include flexibility of the product platform, acceptance across the country, and increase branding that contributes to the product increase.
The essential elements are its affordability, customized product offering, information protection, and electronic product options to unexplored consumer segment.
7. Aadhaar Enabled Payment System (AEPS)
AEPS allows banking services to authenticate a transaction of PoS (Micro-ATM), Kiosk Banking through Business Correspondent across the country. At present, four types of AEPS are available – (i) Balance Enquiry, (ii) Cash Withdrawal, (iii) Cash Deposit, and (iv) Aadhaar to Aadhaar Funds Transfer.
8.Aadhaar Payments Bridge System (APBS)
The APBS allows Government and Government Institutions to transfer funds to Aadhaar enabled accounts of the beneficiaries to post offices and banks. The institutions and Government Organizations have to send a file containing the Aadhaar number of the recipient along with the stated amount.
The bank will process the file under the APBS and credits the amount to the beneficiary. The bank will notify the customer through SMS or any other channel as established between the bank and the customer, upon crediting the amount.
The Pradhan Mantri Jan-Dhan Yojana is a fascinating approach to improving the banking services in the country. Creation of accounts to every individual prevents money laundering and helps the government to transfer the needed funds under various schemes to the beneficiaries directly.
It prevents the role of mediators who often exploit the poor and underprivileged people. Various financial institutions and banks are working in-line with RBI to promote the program. 15th August 2018 is the end for the program implementation, and the Hon’ble Prime Minister is clubbing every available resource to fulfill and taste the success.
Let us hope every Indian is benefited from the program. You can get more details about the program from official website http://www.pmdjy.gov.in