BRIEF India’s Push for Financial Inclusion: The Story Two Years On Rani is a domestic worker who lives in a New Delhi suburb with her husband, an electrician. Her three children (ages 18, 11, and 8) live with her in-laws in a village in a neighboring state about 200 kilometers away. She has never seen the need to participate in the formal financial services system: Her employers pay her in cash, she pays for all her expenses in cash, and she sends money to her in-laws every month through an agent who ensures the cash is deposited in her father-in-law’s bank account. In 2014 after a new Indian parliament was installed, her Rani’s bank account experience is a result of an ambitious neighbor excitedly told her about a program she heard plan for comprehensive financial inclusion whose goal is newly elected Prime Minister Narendra Modi talk about to bank every household in India. The effort, dubbed on TV. He talked about how Jan Dhan Yojana (translates the Prime Minister’s Jan Dhan Yojana (PMJDY), was to Scheme for People’s Wealth) could help her receive a launched in August 2014. India has a long history of cooking gas subsidy directly into a bank account. Intrigued government efforts to promote financial inclusion and, and encouraged by the hype, Rani went with her neighbors while some progress has been made, only about half of to an account opening camp near her house. Although adults had bank accounts before PMJDY was launched the entire process took two hours because of long lines, (InterMedia 2016). the process itself was simple. She presented her national identity number, filled out one form, and handed over Under this program, account holders two passport-sized photographs. She was told to return • Can receive subsidy payments directly into their three days later to collect her passbook. After providing account. the cooking gas dealer with her bank account details, • Can transfer funds and check balances through a which were linked to her national identification number, feature phone. she was all set and would receive any subsequent cooking • Receive a RuPay (domestic alternative to Visa and gas subsidies directly into her new account. MasterCard) debit card. Although she is not aware of any other products or • Are not required to maintain a balance. services available to her through this account, an • Are eligible to enroll in an accidental insurance plan at unintended consequence of having this account is $0.20 a year for coverage of $3,000. an accumulation of some savings. She leaves the • Are eligible to enroll in a life insurance plan at $5 a $2.50 cooking gas subsidy that she receives from the year for coverage of $3,000. government every two to three months in her account • Are eligible to enroll in a pension plan with a monthly and adds any remaining money she has after paying payout of $15–75. all her monthly expenses. A few months ago, she took • Are eligible to receive a $75 loan from the bank after out money to pay for a hospital bill when she got burnt six months, depending on use. cooking at home. She hopes to be able to save enough to pay for her children’s weddings and build additional Building on what was already a large base of 53 percent rooms to a house they own in the village. of people over the age of 15 having a bank account Figure 1. PMJDY Account Openings, by Type of Bank, as of December 2016 (millions) 300 260 250 207 204 200 163 150 143 118 100 50 44 33 21 9 8 4 0 Number of accounts Number of RuPay Number of accounts opened cards issued seeded with Aadhaar Public Sector Regional Rural Private Sector Total February 2017 Source: PMJDY 2 (469 million) (World Bank 2014), this program led to The public-sector banks’ extensive branch network the opening of 260 million accounts in just over two and scale facilitated account opening nationwide. years. While there is some uncertainty around how many Consumer trust in public-sector banks is also an important of these accounts were for first-time account holders, contributing factor. a survey conducted in mid-2015 indicates adult bank account ownership increased to 63 percent (InterMedia A well-established biometric-based, online, digitally 2016). According to PMJDY, in 19 of 28 states all verifiable national identification system. By the households have a bank account and in the remaining time PMJDY launched, about 700 million Indians had nine states over 99 percent of households have a bank biometric national identification—called Aadhaar account. This is consistent with an independent, large- (Kumar 2016). Those with Aadhaar numbers are scale, and nationally representative survey that shows able to open PMJDY accounts quickly. To expedite 99 percent of households have at least one member account opening, the government accelerated Aadhaar with a bank account (Bhattacharya 2016). enrollment along with PMJDY account opening and issued 210 million Aadhaar numbers in 2015 at a rate While earlier financial inclusion efforts in India of more than 4 million a week (Government of India resulted in accounts not being serviced well and 2016e). About 1.075 billion Aadhaar numbers have customers losing interest, PMJDY could be different. been issued as of December 2016 (UIDAI 2016). One early sign of this is that 76 percent (up from 55 percent in August 2015) of accounts have a balance greater than zero, and deposits totaled Drawing on Lessons Learned $6.74 billion in mid-October 2016. This received a from Previous Efforts massive push following Prime Minister Modi’s move PMJDY’s design builds on lessons learned from on 8 November 2016 to withdraw the majority of earlier government efforts, especially lessons learned currency notes in a move dubbed “demonetization.” to minimize the high level of account dormancy Within a month of that move and as a result of experienced in earlier efforts. people shifting cash into their accounts, deposits in PMJDY accounts surged to over $11 billion. While Targeting the household instead of villages. The most the sources of these deposits are unclear and the ambitious previous financial inclusion program launched longer term implications unknown, the shift to date in 2012 and focused on providing banking services is notable (Shashidhar 2016). to villages with populations over 2,000 (Government of India 2012). That program has been credited with Key Enablers providing banking services to 74,000 villages, but it was not enough to reach those in smaller villages. PMJDY PMJDY did not come out of thin air; it is made possible shifts the focus from geographical coverage of villages by a number of key enablers in the Indian system. to a goal of providing each household at least one account. High level of government involvement in implementation/execution. Prime Minister Modi Going beyond account opening. Previous programs announced the plan in his first major national speech suffered from account dormancy. PMJDY has tried to and has since demonstrated sustained commitment to encourage use by routing subsidy payments into these its success. As the owner of the program and primary accounts. Increasing proportions of the $700 million in shareholder in India’s large public-sector banks, the wages and subsidies that are disbursed to 300 million government has been able to stay close to PMJDY individuals every month are pushed through PMJDY implementation and execution. The prime minister’s accounts (Government of India 2016a). Sixty-two office has remained active in monitoring its progress. percent of beneficiary bank accounts are linked to The program’s senior bureaucrat overseeing the Aadhaar numbers, which makes it easier to verify program organized weekly video conference meetings the identity of the beneficiary, thereby also helping in which all banks were required to participate. During to eliminate ghosts and duplicates. The monthly these meetings, they were expected to report on payment of wages to workers under the National Rural numbers, raise issues they were facing, and present Employment Guarantee Act (NREGA) of $350 million possible solutions. to 100 million people makes up the largest program under the government’s digitized payment program Credibility/strength of public-sector banks. The followed by the $285 million disbursed to 165 million Indian banking system is made up of 26 public-sector households for liquid petroleum gas subsidies every banks, 25 private-sector banks, 43 foreign banks, 56 month (Government of India 2016a). There are 57 regional rural banks, and several thousand smaller national programs across 14 ministries and departments cooperative banks, according to India Brand Equity that are routing their subsidy payments through these Foundation (IBEF). While private-sector banks gain accounts, and this number is expected to go up. more market share each year, public-sector banks hold about 70 percent of banking assets (IBEF 2016). While there is a big push to ensure full use of these Public-sector banks accounted for almost 80 percent of accounts, and balances are increasing, there are PMJDY accounts and hold the same share of PMJDY challenges. There is anecdotal evidence that many deposits. beneficiaries withdraw the subsidy soon after it enters 3 into their accounts. Also, consumers have shown only Government of India. 2016a. Direct Benefit Transfer reports. modest enthusiasm in the products offered through New Delhi: Government of India. http://cabsec.nic.in/dbt/ the program with only 38 percent of account holders dbtrfeb.html, accessed 18 October. signing up for accident insurance, 12 percent for life . 2016b. PMJDY website. http://www.pmjdy.gov.in/ insurance, and 1.3 percent for pension plans. There is statewise-statistics, accessed 18 October. still a long way to go to make associated services more attractive to consumers. . 2016c. PMJDY Claims reports. New Delhi: Government of India. http://www.jansuraksha.gov.in/claims-reported.aspx, Increasing availability of agents. In earlier efforts, accessed 14 December. roving agents would occasionally visit villages. Under PMJDY, agents are required to be at fixed points . 2016d. PMJDY Progress Report. http://www.pmjdy. in each service area, readily accessible as and when gov.in/account, accessed 24 December. needed. Surveys conducted between December 2014 . 2016e. “Spreading JAM across India’s Economy.” In and December 2015 show that the proportion of agents Economic Survey, 2015–2016, Vol. I. New Delhi: Government ready to transact rose from 48 percent to 79 percent of India. http://indiabudget.nic.in/es2015-16/echapvol1-03.pdf (MicroSave 2016). . 2012. “Swabhimaan—Transforming Rural India Simplifying account opening. Those with a unique through Financial Inclusion.” New Delhi: Government of India, identification number need only complete a single Press Information Bureau, 21 May. http://pib.nic.in/newsite/ simple form to open an account. Those without a efeatures.aspx?relid=84236 unique identification number can provide alternative GSMA. 2016. “The Mobile Economy India 2016.” https://www forms of identification. If an individual has no form of .gsmaintelligence.com/research/?file=134a1688cdaf49cfc7343 identification, he or she is still able to open an account 2e2f52b2dbe&download that has limits on credit, withdrawal, and deposit sizes. InterMedia. 2016. “India WAVE Report: FII Tracker Survey Making accounts more user friendly. With 616 million Conducted June-October 2015.” http://finclusion.org/uploads/ unique mobile subscriptions as of June 2016 the majority file/reports/InterMedia%20FII%20Wave%203%202015%20 of the population has access to a mobile phone, and the India.pdf hypothesis is that almost everyone now uses one (GSMA 2016). Keeping this in mind, PMJDY has focused on IBEF (India Brand Equity Foundation). 2016. “Indian Banking Industry Analysis.” IBEF, December. http://www.ibef.org/ mobile banking whereby account holders are able to industry/banking-presentation transfer funds and check balances. Kumar, Ashok. 2016. “Aadhaar Enrolment to Be Completed The Story So Far by June 2015.” The Hindu, 23 May. http://www.thehindu. com/news/national/aadhaar-enrolment-to-be-completed-by- PMJDY offers a new approach to government-promoted june-2015/article6547319.ece financial inclusion that leverages new infrastructure and capabilities and aims to learn from earlier low use of MicroSave. 2016. “Assessment of Bank Mitrs (BMs) Under Pradhan Mantri Jan Dhan Yojana (PMJDY)—Wave III.” New accounts. Delhi: MicroSave, January. http://www.microsave.net/files/pdf/ As a result of the prime minister’s decision to remove Assessment_of_Bank_Mitrs_under_PMJDY_Wave_III.pdf most of the currency notes in circulation and promote Sharma, Manoj, Anurodh Giri, and Sakshi Chadha. n.d. digital payments, consumers have been strongly pushed “Pradhan Mantri Jan Dhan Yojana: WAVE III Assessment.” to deposit old notes into their accounts, which in turn MicroSave. http://www.microsave.net/files/pdf/PMJDY_Wave_ has given the PMJDY effort a major boost. This recent III_Assessment_MicroSave.pdf change on top of all the other efforts under PMJDY since August 2014 are creating a lot of new banking activity. It Shashidhar, Karthik. 2016. “Are Jan Dhan accounts being is unclear whether this can or will be sustained. It will be misused? Unlikely, shows data.” live mint, 1 December. http:// www.livemint.com/Industry/TILnOGbdFKDUw2qE5GsMZN/ important to watch and learn from how these accounts Are-Jan-Dhan-accounts-being-misused-Unlikely.html fare in the months and years ahead. UIDAI (Unique Identification Authority of India). 2016. References Dashboard. https://portal.uidai.gov.in/uidwebportal/ dashboard.do, accessed 30 September. Bhattacharya, Pramit. 2016. “99% Indian households are covered by a bank account.” live mint, 15 December. http:// World Bank. 2014. Global Financial Inclusion (Global Findex) www.livemint.com/Specials/vVKbQ0cMmiNbdwOlfd0Z4N/99- database. Washington, D.C.: World Bank. http://www Indian-households-are-covered-by-a-bank-account.html .worldbank.org/en/programs/globalfindex February 2017 All CGAP publications are available on the CGAP Web site at www.cgap.org. CGAP 1818 H Street, NW MSN IS7-700 Washington, DC 20433 USA Tel: 202-473-9594 Fax: 202-522-3744 Email: cgap@worldbank.org © CGAP, 2017 AUTHOR: Leena Datwani