f i nanc i a l i nc lu s i on i n i nd i a
39
without recognizing that the poor required directed
credit arrangements in view of the oppressive nature
of markets.
25
The objective of the PMJDY in providing two bank
accounts to each of 75 million poor families with
overdraft facility, accident insurance and life cover has
come in for criticism by certain columnists who see it as
creating operational problems for the banks by having to
provide overdraft facilities to the extent of Rs. 750 billion
within the next four years or so.
26
For this, banks will
have to set up a large number of branches in unbanked
areas and recruit large number of rural cadre. Some com-
mentators
27
are skeptical of the overdraft facility and sug-
gest that politicians will advise the poor not to repay, and
banks will try to keep the poorest and weakest out of the
scheme. A guarantee fund to backstop defaults under the
scheme has at present only Rs. 10 billion. Aiyar (2014)
asserts that serious financial inclusion requires sustained
efforts for several years, with an emphasis on quality
rather than speed. By shifting the focus to cash transfers,
the massive dormant accounts could also be activated
over time. Accordingly, the design of the scheme needs a
shift of focus in order to deliver on the objectives.
Singh and Naik (2014) assert that the most important
factor for the success of financial inclusion would be
changing the mindset of the financial institutions. The
challenges identified by them include:
(i) In the absence of coverage by Aadhar, the imple-
mentation of some components would have to be
phased over a few years and would require sustained
monitoring.
(ii) To be successful, the Financial Inclusion Mission
would require a bottom-up approach, with the sup-
port of panchayati raj institutions and local govern-
ments who could help with the stationing of BCs at
gram panchayat and integrate them with common
service centres and government schemes.
(iii) The need for financial literacy and training not only
of unbanked people but also of bank officials.
(iv) Commercially, banks needed to be convinced that
financial inclusion is a viable business proposi-
tion for which there is scope through providing
appropriate instruments to unbanked households
especially in rural areas.
Chopra (2014) is of the view that the new financial
inclusion programme has the right intentions and
addresses several design issues. However, certain gaps need
attention. According to studies by Microsave and others,
less than 0.5 per cent of the BC agents are in a state of
readiness and earn more than Rs. 5,000 a month—the
minimum compensation under the programme. How
will the Rs. 5,000 overdraft per account be delivered and
who will collect the repayments of up to Rs. 1,000 billion
of overdrafts from 200 million accounts?
He estimates that for management and disbursal
of government payments, banks need to be paid 3.0
per cent, of which at least 1.25 per cent to 1.5 per cent
should go directly into the accounts of active BCs, to
prevent pilferage by intermediaries, including corporate
BCs. Also, consumers will need to be well educated about
the power of bank accounts and their rights to overdraft
facilities, insurance, etc., otherwise intermediaries will
take advantage of the money intended for them. There
will also be a need to be wary of consumer fraud that is
starting to gain momentum amongst the newly banked
illiterate population in India.
In a similar vein, Tewari (2014) points out three basic
concerns regarding the Rupay debit cards—a critical
component of the scheme. These are characterized by
slow rollout, logistical issues and possibility of misuse.
According to Finance Ministry sources, a greater depen-
dence on online biometric-based transactions through
the BC model would be preferable. Since the logistics of
setting up ATM machines across the country would be
huge, powerful vested interests in villages could appropri-
ate and misuse debit cards of poor clients. The case for
the debit card, however, is defended on the grounds that
it is required for the accident insurance cover.
On the plus side, some observers see the chief merit in
the Financial Inclusion programme as the one related to
an understated goal, which holds real transformational
promise viz. the infrastructure to institute a universal
basic income transfer for all citizens, and reconfigure the
country’s dysfunctional welfare system (Livemint 2014).
The absence of a bank account has held back a welfare
solution in the form of income transfers. By addressing
this through mandating universal access to the banking
system, the PMJDY can help to replace and reconfigure
the country’s dysfunctional welfare system.
