Financial Inclusion and the Pradhan Mantri Jan Dhan Yojana (PMJDY)

Source-This post on Financial Inclusion and the Pradhan Mantri Jan Dhan Yojana (PMJDY) has been created based on the article “PM Jan Dhan Yojana has accelerated financial inclusion, reduced inequalities” published in “The Indian Express” on 28 August 2024.

UPSC Syllabus-GS Paper-3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context– The article highlights the success of PMJDY. Financial inclusion is a key strategy used globally to reduce economic inequality, improve livelihoods, and boost growth. Launched on August 28, 2014, PMJDY is an Indian government initiative designed to bring all unbanked households into the financial system.

Using the JAM trinity (Jan Dhan, Aadhaar, and Mobile), PMJDY aimed to cover 7.5 crore unbanked households. Today, over 80% of Indian adults have formal financial accounts, up from about 50% in 2011.

What are the Achievements and Current Status of PMJDY?

1) Expansion of PMJDY Accounts- Banks have opened about 53 crore PMJDY accounts with total deposits of Rs 2.31 lakh crore. This is a big rise from 14.7 crore accounts and Rs 15,670 crore in deposits in March 2015.

2) Public Sector Dominance: – Public sector banks hold about 78% of all PMJDY accounts. The average balance in these accounts has increased more than four times, reaching Rs 4,352 in August 2024, up from Rs 1,065 in March 2015.

3) Operational Accounts- Out of all PMJDY accounts, 81.2% are active. Of these, 55.6% are owned by women, and 66.6% are in rural and semi-urban areas.

4) Geographical Distribution- Uttar Pradesh has the most PMJDY accounts with 9.4 crore, followed by Bihar with 6 crores.

Read More- 7 years of PM Jan Dhan Yojana

What is the significance of PMJDY?

1) Benefits– It offers benefits such as insurance coverage, overdraft facilities, and has positively influenced saving habits.

2) Social Implications: Research shows that states with more PMJDY accounts have seen fewer thefts and reduced alcohol and tobacco use.

3) Direct Benefit Transfer (DBT) System- In the past decade, the Direct Benefit Transfer (DBT) system has transferred Rs 38.49 lakh crore and prevented leakages of Rs 3.48 lakh crore. It has also boosted digitalization and e-commerce.

What steps can be taken to strengthen the ecosystem for Financial Inclusion?

1) Promoting Private-Sector Involvement- Partnering with the private sector boosts innovation and expands financial services. There is a need to improve skills through incubation and financial literacy and ensure gender-inclusive financial services for fair access.

2) Increasing Access to Financial Products- Expanding access to affordable financial products like micro-insurance and credit is crucial. The new Unified Lending Interface will make lending more efficient, cost-effective, and quicker.

3) Strengthening Consumer Protection- To ensure trust in new digital products, there is a need to strengthen consumer protection. Creating regulations that balance consumer safety with innovation is essential.

4) Designing Customer-Centric Products– PMJDY account holders often have irregular incomes and different needs compared to regular consumers. Therefore, financial products must be tailored to their specific needs and financial stages.

Question for practice

What are the accomplishments and current state of PMJDY? What actions can be taken to enhance the financial inclusion ecosystem?