i nc lu s i ve f i nanc e i nd i a re port 2014
14
in 2006–07, when it was first envisioned. As pointed out
by Nanda (2013), this is because the low value of transac-
tions in the case of low-income clients, whether rural or
urban, farm or non-farm, has implications for the profit-
ability of banks. The inability of banks to recover their
transaction cost is an issue which the system continues
to struggle with. At the same time, the existing rules
and regulations and the nature of the market and social
environment make it difficult to recover costs through
users even though the latter may not be unwilling to pay.
Nevertheless, both the use of greater technology to reduce
cost of delivery and the establishment of a nation-wide
micro payment system accompanied by investment in
financial literacy would be needed for effective financial
inclusion.
1.6.1 Jan-Dhan Yojana
The recently launched Pradhan Mantri Jan-Dhan Yojana
(PMJDY) appears to address most of the concerns related
to a more concrete and substantial engagement with
the poor as part of a financial inclusion strategy to be
undertaken in a mission mode.
29
The laudable objective
of opening savings bank accounts for all households by
15 August 2015 (target date since brought forward to
26 January 2015) is supplemented by (i) overdraft facil-
ity; (ii) credit card; and (iii) accident and life insurance
and other facilities, which hold promise of providing the
kind of safety net based upon a diverse set of financial
products that has been sought by development practitio-
ners in support of poor households. (See Box 1.3 for the
highlights of the programme.)
The objective of PMJDY is to ensure ‘access to various
financial services like availability of basic savings bank
account, access to need based credit, remittances facility,
insurance and pension to the excluded sections, i.e.,
weaker sections and low income groups’. It is indicated
that this deep penetration at affordable cost is possible
only with effective use of technology. While there is no
real change in the overall objectives and strategy several
changes in approach are planned in view of the limited
success achieved under the financial inclusion plans since
2010. However, achievement of the objectives of the
mission will depend on its successful implementation,
a factor that has proved to be a hurdle for many well-
intentioned programmes. A more detailed and critical
examination of the provisions of the mission document
is taken up in Chapter 2.
B
OX
1.2
Five Ps of Financial Inclusion
Financial inclusion is about getting five things right: Product, Place, Price, Protection, and Profit.
A basic suite of
Products
is required to address financial needs. These include a safe place to save, a reliable way to send and
receive money, a quick way to borrow in times of need or to escape the clutches of the moneylender, easy-to-understand accident,
life and health insurance, and an avenue to engage in saving for old age. Simplicity, transparency and reliability are necessary.
For ease of access,
Place
of delivery is also important. ‘Place’ today need not mean physical proximity—it can mean electronic
proximity, or proximity via correspondents. Towards this end, regulations have been liberalized on bank business correspondents,
banks and mobile companies have been encouraged to form alliances and the process of licensing payment banks started.
The transactions costs of obtaining the product, including the
Price
and the intermediary charges, should be low. Automation of
transactions and use of local employees that are commensurately paid can help to reduce costs. Furthermore, any regulatory burden
should be minimal. Licensing small local banks and simplifying KYC norms are steps in this direction.
New and inexperienced customers will require
Protection
. The RBI is beefing up the Consumer Protection Code and
strengthening the customer grievance redressal mechanism and curtailing the activities of fly-by-night operators. Expansion of
financial literacy through camps and schools, and business management education for entrepreneurs through NGOs and NABARD
are planned.
Financial inclusion cannot be achieved without it being
Profitable
. There should be profits at the bottom of the pyramid.
Government should pay reasonable commissions punctually for benefits transfers, and bankers will need to charge reasonable and
transparent interest rates and fees for offering services to the poor.
To avoid oligarchies being created by crony capitalism, public services, especially those targeted at the poor, have to improve for
which a key mechanism is through financial inclusion.
Source
: Rajan (2014b).
