Thursday, 29 October 2015

Jana Dhan Yojana

Background - Only 59% of Indian have bank accounts


Each household will have a banking outlet within 5km
Each household will have at least one bank account along with INR 100,000 accident cover. Households will also be provided with Rupay debit card.
Financial literacy programmes to make public aware of benefits of saving and investing money properly.
Credit guarantee fund- to cover losses in overdrafts.
Account holders can buy micro insurance products
Scheme will be leveraged for DBT 

Positives - Aid financial inclusion + Boost household savings rates + DBT can reduce corruption/leakage + Increase insurance penetration + protection from predatory lenders. Financial literacy programmes will enable public to make more informed decisions. 

# Negatives

To get large insurance or overdraft facility, same person might open multiple accounts in multiple banks- one with Aadhar card, one with PAN card, one with voters card (Banks should establish a single information sharing system to weed out such multiple accounts)
It could be used for money laundering and hawala operations
Jan Dhan gives free accident insurance cover worth Rs.1 lakh but RuPay debit card must be used atleast once every 45 days. This is not be possible for poor families in remote tribal areas. So, they’ll lose the benefit due to inactivity.
Jana Dhan relies on BCs - RBI has recently highlighted several problems with this model. 
3/4th of accounts have no 0 deposit

# Maintaining momentum of Jana Dhan
First, it is crucial to structure incentives so that all those involved in implementing the PMJDY, right down the chain of command, are motivated to achieve universal financial inclusion.
Second, it is essential to provide financial education — and the right kind — to recipients of the new programme. Vast numbers of India’s unbanked live in rural areas, are financially and functionally illiterate, and have little experience with technology.
Third, in rolling out its national plan, the government must anticipate technical breakdowns.
India should explore and evaluate the best ways to utilise mobile phone service providers to grant users access to payments and account information.

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