Providing efficient banking services in a country like India with vast socio-economic disparities and geographic diversity is a challenge. The first step to inclusion is providing access to basic banking; over the past decade, while the government has undertaken many measures and missions to expand the coverage of banks, it is the Pradhan Mantri Jan-Dhan Yojana (PMJDY) that has caught the attention of the average Indian. The programme tops the charts on recent opinion polls on the government’s first-year performance, showing that the blitzkrieg in getting accounts to each and every household in the country has worked well. There are, of course, questions that arise—the number of dormant accounts, duplicate accounts, true first-time entrants to the banking system, etc. Yet if we look at the objective of universal financial inclusion, the hallmark of PMJDY lies not in its achievements in numbers, but in the way the Department of Financial Services (DFS) has gone about implementing it.

While there was the massive in-your-face media splash and also camps to generate awareness, behind the scenes DFS met with bankers every Wednesday, ensuring that the mandate was being met through a consultative approach. Progress was monitored on a weekly basis and, most importantly, bank-wise numbers put on the website, giving full visibility to the programme. Once the January 26 deadline was over, the ministry moved on, recognising that the next step is to ensure account usage—here lies the next big challenge. The focus is on getting money to flow through the accounts to the poor—the Direct Benefits Transfer (DBT) and Jan Suraksha plans together make a powerful combination. DFS is monitoring crucial indicators to gauge the success of the programme as it moves along, such as the number of zero balance accounts, active business correspondent agents, and also the number of agents receiving the minimum remuneration of R5,000 a month as per PMJDY guidelines.

The DBT mission of the previous government has been taken forward and coverage expanded for more schemes across the country. All central sector and centrally sponsored schemes under DBT have to ensure payments are made directly into the beneficiary’s account only by electronic transfers now; the targets set are to complete digitisation of their beneficiary lists by March-end and populate the list with Aadhaar numbers by June 30. While Aadhaar was made optional for LPG subsidy, MGNREGA is now being added in 300 districts. The notifications for the payouts in MGNREGA show the changes in operational details needed to make the process more efficient. An excellent improvement in the current scheme over the previous dispensation is that the commission charges are being paid to the bank on credit of the amount to the beneficiary account—earlier the commission was to be paid only on withdrawal of the benefit by the beneficiary. This was a huge pain point for banks, which had been insisting that their part of delivery of services should be rewarded when the credit was made to the beneficiary’s bank account. In fact, tying commission to withdrawal defeated the purpose of encouraging savings in banks and pushed a cash economy instead. While this may seem a small change to outsiders, it is a big plus point for banks, which can now use money from the commission as soon as they deliver to the account, to invest in their network at the last-mile.

Yet, in all the positive moves, one critical issue remains to be fixed—it is the commercial viability of the business correspondent agent network. Many surveys have revealed a high level of dormancy and attrition of agents, as low account usage has led to insufficient incomes. While the Nandan Nilekani task force recommended a 3.14% commission, governments at the Centre and state level have given out 1-2% only. This January, the Centre notified a 1% commission to banks for delivery of DBT payments in rural areas. This is too low, as a recent MicroSave costing study shows the break-even charge to cover the costs of the bank and the agents is 2.36%.

What is surprising is that the government has clearly understood the need for higher payouts to banks and business correspondents, the split of the R330 annual premium is also mentioned in the Jan Suraksha plans—R30 to the business correspondent or micro or corporate agent; R11 to the participating bank; and the remainder R289 to LIC or concerned insurance company, making for approximately 10% commission to the agents.

It is for the finance ministry now to (1) recognise this principle of greater commissions in DBT as well, and increase the commission in rural areas to at least 2.5%; (2) work out with the Indian Banks’ Association and Business Correspondent Federation of India on specific guidelines of revenue sharing between banks and business correspondent agents. The aim is to ensure that the last-mile remains commercially viable so that banks and agents stay invested. The government can stipulate higher rates for difficult to access areas. Given India’s diversity and disparities, a more granular approach will ensure better targeting and efficiency. As transactions increase over time, rates can be lowered, but for now it is key to ensure that the pipeline to the last-mile does not break.

The ultimate goal of financial inclusion goes beyond bringing access to financial services to over 6 lakh villages, it is to get almost a billion adults to use these services and move towards a less-cash economy eventually. Big bang programmes and schemes in mission mode can fizzle out on the ground; sometimes just getting the operational details right is the challenge that can give the big impact. Given the enormity of the task at hand, there will always be many holes to pick in what is happening at the ground level, yet the willingness of the government to take constructive feedback on board and address all the existing glitches in the system is a big positive to look forward to in the year ahead.

The author is with the Indicus Centre for Financial Inclusion.

sumita@indicus.net

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