Pradhan Mantri Jan Dhan Yojana

Pradhan Mantri Jan Dhan Yojana (Hindi: , English: Prime Minister's People
Money Scheme) is a scheme for comprehensive financial inclusion launched by the Prime Minister of
India, Narendra Modi on 28 August 2014[1] He had announced this scheme on his first Independence
Day speech on 15 August 2014
Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore (15
million) bank accounts were opened under this scheme.[2][3] By 28 January 2015, 12.58 crore accounts
were opened, with around 10590 crore (US$1.7 billion) were deposited under the scheme,[4] which
also has an option for opening new bank accounts with zero balance.

Purpose[edit]
In a run up to the formal launch of this scheme, the Prime Minister personally mailed to Chairmans of
all PSU banks to gear up for the gigantic task of enrolling over 7.5 crore (75 million) households and
to open their accounts.[5] In this email he categorically declared that a bank account for each household
was a "national priority".

The scheme has been started with a target to provide 'universal access to banking facilities' starting
with "Basic Banking Accounts" with overdraft facility of Rs.5000 [6] after six months and RuPay Debit
card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan Card. In next phase, micro
insurance & pension etc. will also be added.[1]
Under the scheme:
1. Account holders will be provided zero-balance bank account with RuPay debit card, in addition to
accidental insurance cover of Rs 1 lakh(to be given by 'HDFC Ergo').
2. Those who open accounts by January 26, 2015 over and above the 1 lakh accident, they will be
given life insurance cover of 30,000(to be given by LIC).
3. After Six months of opening of the bank account, holders can avail 5,000 overdraft from the bank.
4. With the introduction of new technology introduced by National Payments Corporation of India
(NPCI), a person can transfer funds, check balance through a normal phone which was earlier limited
only to smart phones so far.
5. Mobile banking for the poor would be available through National Unified USSD Platform (NUUP)
for which all banks and mobile companies have come together[7]
Performance[edit]
Due to the preparations done in the run-up, as mentioned above, on the inauguration day, 1.5 Crore (15
million) bank accounts were opened.[2] The Prime Minister said on this occasion- "Let us celebrate
today as the day of financial freedom." By September 2014, 3.02 crore accounts were opened under the
scheme, amongst Public sector banks, SBI had opened 30 lakh (3 million) accounts, followed by
Punjab National Bank with 20.24 lakh (2 million) accounts, Canara Bank 16.21 lakh (1.62 million)
accounts, Central Bank of India 15.98 lakh (1.59 million) accounts and Bank of Baroda with 14.22
lakh (1.42 million) accounts.[8] It was reported that total of 7 Crore (70 million) bank accounts have
been opened with deposits totaling more than 5000 crore Rupees (approx 1 billion USD) as of
November 6, 2014. As the government met the target, Union Finance Minister Arun Jaitley has revised
the target for opening of bank accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY), the
ambitious financial inclusion scheme launched by the government, from 7.5 crore to 10 crore by

January 26, 2015.[9] [10] On 20th January 2015, the scheme entered into Guinness book of world records
setting new record for 'The most bank accounts opened in one week'.[11]
Criticism[edit]
The scheme has been criticized by many experts from the banking sector as an effort to please voters
that has created unnecessary work-burden on the public-sector banks.[12][13] The opposition party
Congress alleged that Mr Modi was trying to take credit of the financial inclusion scheme started by
UPA government and the new yojana had got nothing new.[14][15]According to the experts, temptations
presented by the Prime Minister like zero balance, free insurance and overdraft facility would result in
duplication. Many individuals who already have bank accounts may have had accounts created for
themselves, lured by the insurance covers and overdraft facilities. [16] As per the scheme, a very few
people are eligible to get the life insurance worth 30,000 with a validity of just five years. [17]
However, these 'secret' conditions were not shown in the TV advertisements of the scheme. [18] The
claimed overdraft facility has been completely left upon the banks. As per the government notice, only
those people would get the overdraft facility whose transaction record is satisfactory as per the banks.
[19]

It is quite unlikely that many people would get this facility as the banks would avoid potential

NPAs.[16] The claimed accidental insurance has also proved to be a non-existing scheme as the Rupay
card holders have got no legal paper for any such accidental insurance.[16][20]

PRADHAN MANTRI JAN-DHAN YOJANA LAUNCHED BY THE PRIME MINISTER;

ABOUT 1.5 CRORE ACCOUNTS ARE EXPECTED TO BE OPENED ON THE DAY OF THE
LAUNCH ; OVER 77,000 CAMPS BEING ORGANIZED FOR THIS PURPOSE
New Delhi, August 28, 2014
Bhadrapada 6, 1936

Financial Inclusion is one of the top most priorities of the Government. Exclusion of a large number of
people from any access to financial services inhibits the growth of our country. There is evidence that
financial inclusion is crucial to poverty reduction.
The earlier campaign on financial inclusion started in 2011 had a limited objective. The focus was on
the coverage of villages with population of 2000 or more with banking services. Coverage of
individual households with bank accounts was not the focus. Out of the 5.92 lakh villages in the
country, only 74000 villages could be covered.
The Prime Minister launched the Pradhan Mantri Jan DhanYojana at a National level function here
today. Besides the launch function at Delhi, simultaneous launch functions of the Yojana were also
held in the Capital and other major centres of the State and at all district Headquarters.
The Finance Minister Shri Arun Jaitley, Minister of State for Finance Ms Nirmala Sitharaman,
Principal Secretary to Prime Minister Shri Nripendra Misra, Cabinet Secretary Shri Ajit Seth,
Governor, RBI Dr Raghuram Rajan and other senior dignitaries were present on the occasion.
The Prime Minister said that the target to cover 7.50 crore households with at least one account under
the Yojana will be achieved by 26th January, 2015. Elaborating the benefits under PMJDY, the Prime
Minister said this was not a mere bank account, but had other benefits including an RuPay debit card,
Rs 1 lakh accident insurance cover, and an additional Rs. 30,000/- life insurance cover for those
opening bank accounts before January 26th, 2015. Speaking on the occasion, the Finance Minister said
that efforts will be made to ensure that no household is left without a bank account.
A competition was also held earlier through the MyGov Platform for suggesting the name, logo and
tagline for the Comprehensive Financial Inclusion Programme. More than 6000 entries were received.
The following has since been finalised:
a) Name: Pradhan Mantri Jan-Dhan Yojana
b) Tagline: Mera Khata Bhagya Vidhata

While the logo and name finalised are based on entries received the tag line was not suggested by any
participant. Since the final design was not based on a single entry, it was

decided to split the prize money in half, with one half going for the Logo and the other half for the
name of the scheme. The final result of the competition is as follows:
(i) Ms. Priya Sharma based on whose entry the logo was finalised would be awarded Rs. 25,000
(ii) The following participants who proposed Jan Dhan would share the other half of the prize
rounded up to Rs. 10,000 each:
Introduction
In a laudable move, the new government of India has made financial inclusion a key objective for the
country. The Finance Minister, in his budget speech for 2014-15, laid out a specific set of targets to
provide for financial accounts to every household by August 2015. This ambitious target set the tone as
well as highlighted the importance of attaining it within a specified timeframe. Taking the ambition
further, in his maiden Independence Day speech, the Prime Minister announced the Pradhan Mantri
JanDhan Yojana (PMJDY) with an objective of opening no-frills bank accounts. The PMJDY was
launched immediately after this announcement on August 28. On the inauguration day itself, 1.5 crore
bank accounts were opened. Within three months, the figure multiplied to 7.5 crore across India. This
must be recognised as a remarkable achievement. The focus of financial inclusion in India thus far has
overwhelmingly been on delivering credit through microfinance channels, state-owned banks and
through state-promoted self help groups. The PMJDY has complemented these efforts by forcefully
accelerating the previous efforts of the Reserve Bank of India (RBI) of promoting financial inclusion
through facilitating opening of bank accounts. The PMJDY provides basic zero-balance bank accounts
with accident insurance cover of 1 lakh, along with an overdraft facility of Rs 5,000 available for
account holders. The scheme would also facilitate the use of mobile banking among the poor through
the National Unified USSD Platform (NUUP).
The NUUP would allow customers to access banking services using a single number across all banks,
irrespective of the telecom provider or mobile handset being used (National Payments Corporation of
India, 2014). The launch of this scheme received strong support from public sector and private sector
commercial banks, resulting in significant uptake. With the provision of insurance and transfer

facilities along with the overdraft facilities under PMJDY, there is a clear focus on expanding the
portfolio of financial instruments available to all households in the country (Pradhan Mantri JanDhan
Yojana, 2014).
Just about a year ago, the RBI renewed its financial inclusion mandate with the formation of the Mor
Committee on Comprehensive Financial Services for Small Businesses and Low Income Households
in September 2013. The committee, whose objective was to provide a clear vision for financial
inclusion, prepared a report highlighting key areas of concern. The recommendations of the committee
included provision of bank accounts to all citizens, setting up state finance regulatory commissions and
creation of a new entity in the financial system - payment banks.
4 Advancing Financial Inclusion in India beyond the Jan-Dhan Yojana Since then the RBI has issued
two new full bank licenses and, in November 2014, released final rules for setting up small banks and
payment banks. Small banks will provide both deposits and loans, but geared towards un-served and
underserved segments such as small businesses and marginal farmers. Payment banks will offer a
limited set of products, mainly demand deposits and remittances and transfers, and will not provide
lending services. The recent policy measures undertaken by the Government and RBI have provided a
much needed push for financial inclusion in the country. However, there remain some key gaps and
concerns that must be addressed for attaining sustained comprehensive financial inclusion, especially
of the lowincome population. We highlight these and discuss them in some detail in this paper.
A Brief Background of Financial Inclusion in India
After the World Wars, most developed nations vigorously implemented rural finance policies, which
focused primarily on the provision of subsidised credit to the rural population, through statecontrolled
or directed institutions. Indian policies on rural finance have mirrored the worldwide pattern since the
1950s with the implementation of various forms of subsidised credit schemes, including the mammoth
Integrated Rural Development Programme (IRDP). The basis of extending subsidised credit is the
theory in development economics which claims that access to capital can lead to increased income and
reduced poverty. The critical assumption of that model is that all households have a project to invest in

and it is only the lack of collateral that prevents banks from lending to the poor. It was exactly this
fundamental logic which led to the innovation of different kinds of collateral substitutes like joint
liability which formed the basis for the microcredit revolution worldwide, particularly in South Asia.
However, it is now well recognized that financial needs of the excluded segments of the economy go
beyond access to credit. Improved access to various formal financial services includes safe instruments
for savings, easy-to-understand insurance instruments, and pension and transfer facilities, among
others. These can enable consumption smoothing, building an asset base which can facilitate future
access to credit and risk management and be used for self-investment in micro enterprises. The main
demand-side barriers to the provision of financial services to the poor are the lack of awareness,
limited financial literacy, and limited access. Most products offered by banks are unsuitable for the
poor and come attached with terms and conditions which prove to be burdensome, further dampening
the demand for these services. At the same time, as recent events (for example, the Saradha scam) have
shown, lack of financial literacy can result in people making wrong choices, and becoming vulnerable
to excessive financial risks. From the supply side, the main barrier to the provision of formal financial
services is transaction cost. Data reveals that a large number of bank accounts are underused, which
makes creating and maintaining such accounts cost-ineffective for the banks. From the credit
perspective, the lack of collateral makes lending to small borrowers costly for banks and other formal
financial institutions. Small ticket sizes add to the per instrument transaction costs. Furthermore,
lacunae in physical and legal infrastructure make it difficult to extend and enforce contracts.
What do the poor want?
Most of the poor, urban and rural, lack access to basic financial services and address their need for
financial products through informal means which are costly and unsecure. Financial inclusion aims to
reduce such risks, and provide safer options to them, but over the years the various policies adopted by
the government to increase the presence of banks in remote rural areas have still not been able to cover
the majority of the population. Those who have been provided with no-frills bank accounts lack the
incentive to utilize these accounts to save money. Most of the strategies of the government in

promoting financial inclusion have been centred on the provision of bank accounts in order to facilitate
credit to the poor. The provision of credit, though important, is not the only means through which the
poor can be included in the economy through financial services.
Understanding how the poor earn and manage their money can help in designing better instruments and
institutions to address their financial needs. In Portfolios of the Poor, Collins et al. (2009) aim to do
this through the use of financial diaries. The authors interviewed poor households in Bangladesh,
India, and South Africa twice a month for a year, asking a series of questions which were then
constructed into financial diaries to understand how the poor spent their money. The poor in
developing countries like India, face three main issues or a triple whammy low incomes, lack of
appropriate financial tools, and unpredictable outcomes. It is these challenges which financial 6
Advancing Financial Inclusion in India beyond the Jan-Dhan Yojana inclusion initiatives must address.
This research found three main areas where poor households would frequently find the need to
generate resources through financial tools.
Lump sums of cash: In order to invest in microenterprises and agricultural activities, the poor need to
generate large sums of money to purchase fertilizers or invest in human capital such as healthcare,
school fees and weddings. However, there are constraints on the ability to generate such large sums.
Hence, they require financial instruments that meet these needs by helping them save up to a lump
sum amount.
Daily expenditure: Funding for day-to-day expenditure is a need that the poor face, and is often
unaddressed by the financial institutions, unlike the provision of lump sum of money. This need is most
acute for those farmers who receive a few lump sums over the year. However, these sums of money are
almost immediately used up. There is a need to set some money aside in the months of no income and
also for future expenditure. This need is also important for other categories of workers who receive
intermittent income, like daily labourers, in order to bridge gaps in earnings. Therefore, the provision
of financial services, such as savings bank accounts, can be instrumental in cash flow management for

households. Having secure and accessible savings accounts can help them in consumption smoothing
to a great extent.
Unexpected circumstances: A situation in which the poor often find themselves unable to provide are
unavoidable crises like adverse weather conditions and health emergencies. These negative shocks
drive the marginal poor back into poverty by forcing them to resort to borrowing from informal
sources such as moneylenders or to sell assets. Risk exposure can also dis-incentivise them from
investing in activities which could yield higher productivity. Access to insurance instruments as well as
savings can provide a buffer in times of extreme shocks such that they dont resort to costly income
smoothing activities.
Advancing Financial Inclusion in India beyond JanDhan Yojana
With most financial inclusion policies in India solely focused on the provision of bank accounts and
credit to the poor, there is a need to include more financial services in the portfolio of national financial
inclusions strategies to account for the needs of this segment. We highlight some of these below and
emphasize that they be prioritized.
1. Innovation in savings instruments
The financial portfolios of poor households are as diverse as those of their richest peers, with an
average of 10 financial instruments per household (Collins et al., 2009). However, the diversity of
financial instruments offered in India today by commercial finance companies as well as the
government is limited in scope and scale, particularly to the poorer sections of society. Product design
is critically important when it comes to developing savings instruments for low-income households.
The instruments provided and facilitated by the financial sector, from the government to the banks to
local state authorities must be designed according to the needs of the specific market segment.
Internationally, the success of Bank Rakyat Indonesia (BRI) in providing commercially viable financial
services loans and savings, along with other financial products to the low-income households has
several lessons for India. BRI built a customer base of over 30 million depositors through tailoring
their products and services offered to the needs of the clients, thereby incentivizing them to better

utilize their savings accounts. BRI accounts are structured in a way which encourages more savings
than loans. The management practices at the BRI have also been innovative such that each bank unit
(branch) functions as an independent entity with its own targets and employee reward policies. These
innovations in product and management practices have collectively made the BRI a long term
profitable bank with the distinction of being one of the few large banks in the region which survived
the East Asian financial crisis. Thailands largest state owned bank- Bank of Agriculture and
Agricultural Cooperatives (BAAC) -followed BRIs lead and there are discussions of bank reforms in
China along the BRI model.
Another savings product that received tremendous attention was developed to incentivize the poor and
is called the SEED (Save, Earn, and Enjoy Deposits) account, implemented by the Green Bank of
Caraga in the Philippines (Ashraf et al., 2006). The SEED account provides individuals with a
commitment which restricts their savings. The individual sets a goal, either a date or amount he/she
wants to save, and is subsequently unable to withdraw money from the account until that goal is
reached. Such measures give people the option to force themselves into saving and it also stresses the
importance of longer term financial goals and discipline for households. These are critical for the
development of viable financial markets at the bottom of the pyramid.
Extending products from the mainstream financial sector into the financially excluded segment can be
risky. Financial institutions must be encouraged to develop innovative products and services, and 8
Advancing Financial Inclusion in India beyond the Jan-Dhan Yojana move away from the one-sizefits-all recipe. This can be achieved through encouraging innovation and ensuring competition amongst
the financial service providers in India.
2. Indigenous institutions of financial inclusion
Research has shown that Chit Funds are widespread in India and have the appeal of a bottom-up
approach to financial inclusion, aimed at providing low-income households the means through which
they can meet their financial needs. However, these institutions have so far been excluded from the
formal financial sector, largely due to ignorance. In most parts of India, very large groups of people

participate in different forms of informal regular savings-credit arrangements with each other. Under a
chit fund scheme, a group of individuals comes together and pool in money, and at the end of each
month (or a specified period), the pool of money is loaned out to individuals from among that group. In
this aspect, it acts as an efficient circulation of money between those who want to save and others who
want to borrow. It also serves as an accessible option of insurance during financial duress.
Chit Funds in India have been in operation for thousands of years they were first established as
informal associations of traders and households within communities. They work in a similar way to the
Rotating Savings and Credit Associations (ROSCA) which are prevalent in most countries of the
world, in some form or the other, allowing people to save and borrow simultaneously. India has
formally institutionalized Chit Funds through the Chit Fund Act, 1982, enabling legally recognized
institutions the means to provide a variety of chit schemes. The industry under the Act is highly
regulated with stringent rules in place.
According to a report by the Institute for Financial Management and Research (IFMR) (Kapoor et al.,
2011), more than 90% of the population surveyed held bank accounts. To be able to participate in chit
funds, a person should hold a savings account wherein cheques can be deposited almost everyone in
the states surveyed have savings accounts. However, according to an RBI study, 87% of these accounts
in a particular district were inactive. Banks have little incentives to promote the use of such savings
accounts. The RBI had promoted the use of no-frills bank accounts which require a low minimum
balance, and banks perceive such accounts to be less than desirable. It was also found that Chit Funds
are the preferred mode of savings for over 40% of members, with 11% of the overall population
preferring them for loans due to lower interest rates compared to banks.
The most common reason for participating in Chit Fund schemes was to save, with consumption and/or
business requirements a close second. The requirements change with the income levels of the
individual. As the income level of members increase, the proportion of people bidding in these chit
schemes for business investment increases, though the opposite holds true when it comes to

consumption needs. The results from the research study show strong positive implications for Chit
Funds as a source of savings and borrowing for poor households in India.
It is now well established that Chit Funds are catering to those segments of the economy which are yet
to be satisfactorily catered by Microfinance Institutions and Banks. They have tremendous potential to
complement economic policies aimed at promoting entrepreneurship at low income levels and
facilitating growth. They must, therefore, be part of the national financial inclusion strategies of the
government.
The policy recommendation is to recognize the importance of Chit Funds and to galvanize financial
literacy among the investing public, media and financial regulators with an aim to educate them
about the difference between Chit Funds and other deposit taking companies like Collective
Investment Schemes, Multilevel Marketing Companies and Prize Chits. A critical first move in this
direction would be to initiate the Amendment of the Chit Fund Act 1982, making it more user friendly
and thereby encouraging the unregistered sector to fall in line with the organised sector. Our analysis of
a recently conducted geo-spatial survey of financial service providers1 in Uttar Pradesh and Bihar
shows that households have the best access to post offices, measured in physical distance. On an
average households are 2 kilometres from the nearest post office while the distance to the nearest bank
customer service point is 1.5 times as much; the distance to ATMs is 3 times as much while the nearest
MFI is more than 10 times farther. This would suggest that financial inclusion strategies of the
government should ideally leverage the already existing and extensive postal network in the country.
Post offices offer few financial services currently but these must be augmented. Particularly because
the original mandate of postal department has weakened with improved digital and telecom footprint
across India.
3. Insurance instruments
Insurance is a critical component for financial inclusion of the poor, vulnerable sections of the
population. It has not enjoyed the same prominence in policy measures as credit and bank accounts

1 Survey conducted by Brand Fusion and supported by Bill and Melinda Gates Foundation 10
Advancing Financial Inclusion in India beyond the Jan-Dhan Yojana in India. As mentioned
previously, the main needs for the poor are to have safety nets in order to provide for any unexpected
circumstances, to hold lump sum money, and to provide day-to-day expenses. Besides tapping into
savings, these needs can only be met through well-designed and easyto- understand insurance products,
including health, life, property, crop and myriads of other insurance instruments meant to mitigate
different forms of shocks.
Our previous research indicates that though the access to credit and savings instruments can serve as
insurance mechanisms along with societal arrangements of reciprocity, these are expensive in
comparison to access to insurance instruments (Ravi, 2006). The new PMJDY provides some forms of
insurance but is limited to accident and life. Launched in 2008, Rashtriya Swasthya Bima Yojana
(RSBY) aims to provide health insurance coverage to all below poverty line (BPL) families in India.
Till date more than 37 million BPL families have been enrolled in this health insurance scheme but it
remains to be seen whether it is an effective tool to protect poor households from health shocks.
Previous research has shown that limited understanding of health insurance results in a significantly
lower claims to coverage ratio for the low income segment (Ravi & Rai, 2011).
The Agriculture Insurance Company was set up in 2002 with the sole motive of promoting insurance
cover to farmers in India. They have since rolled out three main schemes yield based national
agriculture insurance scheme, national crop insurance program and the weather based crop insurance
scheme. Given that crop insurance has suffered financially at the global level, it might be worthwhile
to take stock of Indias performance. Also, insurance cover to the rural poor has to extend beyond crops
to livestock, property and weather insurance because a significant part of the rural population is
employed in microenterprises and face income shocks. Government effort should be extended towards
pilot testing these products and scaling up those financial instruments that have proven to be
successful.

Some sophisticated insurance products like the weather insurance (rainfall insurance) have fallen far
short of the intended take up levels, despite being well designed. The common belief is that lack of
financial literacy and awareness makes selling insurance instruments a tricky business and often a
prohibitively expensive one, particularly to the poor. People are often confused between savings and
insurance instruments and there have been several reported instances of poor households wanting to
withdraw their insurance premiums.
4. Technology
Technology has been the key in reducing the problem of access to banking services, and with schemes
such as the PMJDY, providing access should not be among the major challenges. The technological
options are now wide ranging, and with Indias booming telecom sector, the option of using mobile
payments as a means for financial inclusion is feasible. According to the latest data released by the
Telecom Regulatory Authority of India, the total number of mobile subscribers in India is around 900
million. Therefore, telecom companies have emerged as a viable tool to achieve financial inclusion. In
Kenya, M-Pesa is one example of how mobile technology is used to complete banking transactions.
The core idea of businesses such as M-Pesa rests solely on the facilitation of financial transactions via
mobile phones. Under this system, customers can transfer money directly between accounts as well as
between other customers as well, as long as both parties have M-Pesa (Kapoor et al., 2007).
Financial Inclusion is delivery of banking services at an affordable cost to the vast sections of
disadvantaged and low income groups. The Financial Inclusion Plan aims at providing easy access to
financial services to those sections of the society who are deprived of it so far at affordable cost
thereby bringing them into the mainstream financial sector. Implementation of Financial Inclusion is
not a new concept for your Bank. Financial Inclusion activities are being implemented by your Bank
since inception through various government-sponsored programmes, lending to the poorest of the poor,
lending to the minority communities, lending to SC/ST, lending to priority sectors, etc. However, the
RBI formalized the concept of Financial Inclusion in 2005, when it permitted rendering of banking
services through Business Correspondent (BC) channel. It then advised all commercial banks in the

year 2010 to submit Board-approved Plan for providing banking services in rural unbanked areas under
Financial Inclusion.
Review of Literature
According to Indian institute of banking and finance, financial inclusion is delivery of banking
services at an affordable cost ('no frills' accounts,) to the vast sections of disadvantaged and low
income group. Unrestrained access to public goods and services is the sine qua non of an open and
efficient society. As banking services are in the nature of public good, it is essential that availability of
banking and payment services to the entire population without discrimination is the prime objective of
the public policy." According to Dr. K.C.Chakrabarty, Deputy Governor, Reserve Bank of India,
financial Inclusions the process of ensuring access to appropriate financial products and services
needed by all sections of the society in general and vulnerable groups such as weaker sections and low
income groups in particular at an affordable cost in a fair and transparent manner by main stream
institutional players.
Need for Financial Inclusion Creating a platform for inculcating the habit to save money The lower
income category has been living under the constant shadow of financial duress mainly because of the
absence of savings. The absence of savings makes them a vulnerable lot. Presence of banking services
and products aims to provide a critical tool to inculcate the habit to save.
Capital formation in the country is also expected to be boosted once financial inclusion measures
materialize, as people move away from traditional modes of parking their savings in land, buildings,
bullion, etc. Providing formal credit avenues So far the unbanked population has been vulnerably
dependent of informal channels of credit like family, friends and moneylenders. Availability of
adequate and transparent credit from formal banking channels shall allow the entrepreneurial spirit of
the masses to increase outputs and prosperity in the countryside. A classic example of what easy and
affordable availability of credit can do for the poor is the micro-finance sector.
Plug gaps and leaks in public subsidies and welfare programmes A considerable sum of money that is
meant for the poorest of poor does not actually reach them. While this money meanders through large

system of government bureaucracy much of it is widely believed to leak and is unable to reach the
intended parties. Government is therefore, pushing for direct cash transfers to beneficiaries through
their bank accounts rather than subsidizing products and making cash payments. This laudable effort is
expected to reduce governments subsidy bill (as it shall save that part of the subsidy that is leaked)
and provide relief only to the real beneficiaries. All these efforts require an efficient and affordable
banking system that can reach out to all. Therefore, there has been a push for financial inclusion.
Support from RBI for Financial Inclusion
RBI set up the Khan Commission in 2004 to look into financial inclusion and the recommendations of
the commission were incorporated into the mid-term review of the policy (200506) and urged banks
to review their existing practices to align them with the objective of financial inclusion. RBI also
exhorted the banks and stressed the need to make available a basic banking 'no frills' account either
with 'NIL' or very minimum balances as well as charges that would make such accounts accessible to
vast sections of the population
Of the many schemes and programmes pushed forward by RBI the following need special mention.
Initiation of no-frills account These accounts provide basic facilities of deposit and withdrawal to
accountholders makes banking affordable by cutting down on extra frills that are no use for the lower
section of the society. These accounts are expected to provide alow-cost mode to access bank accounts.
RBI also eased KYC (Know Your customer) norms for opening of such accounts.
Banking service reaches homes through business correspondents The banking systems have started to
adopt the business correspondent mechanism to facilitate banking services in those areas where banks
are unable to open brick and mortar branches for cost considerations. Business Correspondents provide
affordability and easy accessibility to this unbanked population. Armed with suitable technology, the
business correspondents help in taking the banks to the doorsteps of rural households.
EBT Electronic Benefits Transfer To plug the leakages that are present in transfer of payments
through the various levels of bureaucracy, government has begun the procedure of transferring
payment directly to accounts of the beneficiaries. This human-less transfer of payment is expected to

provide better benefits and relief to the beneficiaries while reducing governments cost of transfer and
monitoring. Once the benefits starts to accrue to the masses, those who remain unbanked shall start
looking to enter the formal financial sector.
Financial Inclusion status of Bank of Baroda as of now Models used by Bank of Baroda for FI Your
Bank has adopted various models for providing banking services under financial inclusion such as:
ICT (Information & Communication Technology) based BC model and POS
(Point of Sale/Service)
Kiosk
Mobile Van
Brick & Mortar Branches
Information and Communication Technology (ICT) based Business Correspondent (BC) model: POS
based BC Model
This solution is based on Application Service Provider (ASP) model with smart cards based technology
for financial inclusion. Under this model, Business Correspondents are appointed by banks through
service providers who are provided with point-of-service (POS) devices, using which, they carry out
transactions for the smart card holders at their doorsteps. Thecustomers can operate their accounts
using their smart cards through biometric authentication. In this system, all transactions processed by
the BC are online real time basis in CBS of the bank.
Kiosk Bc Model It is a web-based application that can be accessed through internet connectivity on
laptop or desktop by authorized individuals. The CSC e-governance Service India Ltd, FIA
Technology Services Pvt Ltd and Geosansar are appointed as BCs for providing banking services in the
villages allocated to the Bank as well as for implementation of Urban Financial Inclusion. This is a
card less solution; account holder can operate the account on the basis of account number as well as
Aadhaar number. The Kiosks are connected with your Banks CBS through web-based connectivity
from authentication on online real time basis. As on 31st March, 2014, your Bank covered 7,525
villages through 2,780 Kiosk centers and also established 1034 urban kiosk centers across the country

the computer system/laptop of the kiosk operator. The transactions are processed through biometric
Mobile Van The customized vehicle (van) is specifically designed for the purpose of banking activity.
The exterior of the van is covered with the Bank advertisements and information about products
offered by the Bank in rural areas. Thereby, it is also an advertising media for the Bank in rural
segment. The van is equipped with computer hardware and connectivity to access the CBS. The Bank
staff is deployed on the van to provide banking services in the villages. The van is moving into the
cluster of villages on predetermined days and time which are in proximity to the existing branches, for
providing online banking services. The banking services are being provided during fixed days in a
week. At present, 15 mobile vans have been deployed for catering financial services to 211 villages in
the states of Uttar Pradesh, Rajasthan, Gujarat, Uttarakhand, Bihar and Goa.
Brick and Mortar Branch
The brick and mortar branches are opened in a comparatively bigger village having the potential and
viability. Such centers are identified during the course of finalization of the Banks branch expansion
plan. As per the Banks FIP, 1,772 rural branches have been opened as against a target of 1,554 for the
current financial year. Your Bank had annualtarget for opening 334 branches in un-banked rural area as
per the disintegrated FIP submitted to the RBI, which is comfortably achieved by opening of 430
branches in FY14.
New Initiatives of Bank of Baroda under Financial Inclusion Kiosk banking Model
The Kiosk banking model was launched by Shri S.S.Mundra, Chairman & Managing Director, by
virtually inaugurating 1,000 Kiosks on the 106th foundation day of Bank i.e. 20th July 2013. The Bank
has arrangements with Common Service Centers (CSCs) to avail their services as Business
Correspondent of your Bank for running the Kiosk centers. The common service centers are ICT
enabled front end service delivery points at the village level and urban centers for delivery of
government, financial, social & private sector services in the areas of agriculture, health, education,
entertainment, banking, insurance, pension, utility payments, etc. Bank of Baroda has also engaged
other service providers for similar banking Kiosks in urban/rural centers. These Kiosks would be

connected with the CBS of your Bank through web-based connectivity from the computer
system/laptop of the kiosk operator.
Urban Financial Inclusion
The rural inhabitants have largely remained the focus of the financial inclusion efforts since, a large
proportion of the villages are still unbanked. Besides people living in rural and far flung areas, urban
poor still have no access to formal financial products and services like savings, credit, remittance and
insurance, forcing them to depend on usurious informal sources to meet their personal, health, and
livelihood-related needs. Many of those are normally migrant labours, hawkers, slum dwellers from
rural areas that generally leave their villages for livelihood. In order to cover them under financial
inclusion, the Government of India has started campaign in all states through SLBC for a to bring these
vulnerable groups under mainstream financial system. Bank of Baroda has introduced urban kiosks at
various locations across the country. Shri S.S. Mundra, Chairman & Managing Director launched
urban kiosk at Abgaonkala in Harda district of Madhya Pradesh on 19th January 2014.
As on 31st March 2014, Bank of Baroda set up more than 1,000 urban kiosk at various locations across
the country. Products Offered under Financial Inclusion Basic Savings Bank Deposit Account with inbuilt OD Facility. This product is specially devised for individuals from Financial Inclusion villages as
per the RBI guidelines. The account can be openedwithout depositing any amount which doesnt
attract any penalty and will be opened through BC. These accounts can be operated through business
correspondents as well as at the branches. Inbuilt overdraft facility up to Rs 10,000 is available under
the scheme. Overdraft of Rs 250 can be availed immediately on opening of the account by the
customer and availability of higher amount of overdraft up to Rs 10,000 is performance linked.
Recurring Deposit (RD) Account This is money back RD facility duly designed for financial inclusion
account holders to provide liquidity. The product offers money back facility, at the end of six months,
an amount equivalent to 50.0% of the outstanding credit balance in the account can be paid back as per
the requirement of depositor.
Baroda Kisan Credit Card (BKCC)

This product is for farmers which cover their needs like production credit, investment credit, personal
loan needs as well as consumption needs. It is flexible in utilization of the limit as he can utilize the
limits as per his requirements during the year.
Baroda General Credit Card (BGCC)
The BGCC is implemented through all the branches of Baroda Bank. The credit facility offered under
the scheme would include working capital and term loan requirements of the entrepreneurs.
Baroda Swabhimaan Suraksha (Low Premium Insurance)
Bank of Baroda has introduced life insurance product with low premium for financial inclusion
customers in coordination with India-first Life Insurance Company. An insurance cover of Rs 5,000 to
Rs 50,000 is available at premium of Rs 20.88 per thousand for five years.
Financial Literacy Key to Successful Inclusion The desired objective of Financial Inclusion can be
achieved only when we are able to generate equal responses from the villages. In order to invoke
responses amongst villagers, there is a need to educate them on various banking facilities and its
benefits to them. In other words, financial literacy would be the key for success of financial inclusion
initiatives of the bank. Therefore, all constituents of FI need to develop a bond with each other for not
only to provide banking facilities, but also to create a massive awareness of banking and banking
products amongst the population through Financial Literacy, wherever implementing Financial
Inclusion programme. The Banks link branches are arranging Financial Literacy campaign by
conducting meetings and addressing the habitants in different forums. _ Baroda Swarojgar Vikas
Sansthan (Baroda RSETI) is a trust formed by the Bank way back in 2003 for undertaking skill
building activities for unemployed rural youth and providing hand holding support to them till their
settlement in their venture. _ Around Forty six Financial Literacy & Credit Counseling Centres
(FLCCs) SAARTHEE are operational across the country. Since inception, around 19,731 individuals
visited FLCCs of which in 10,460 cases, the issues were resolved. _ Around Fifty two Baroda Grameen
Paramarsh Kendrasfacilitate financial education, credit counseling, information sharing and problem
solving on technical issues, synergy & liaison with otherorganizations for value added services and

development activities in rural areas. _ BYST-BoB Entrepreneurship Development Programme

(BYST) provides end-to-end support to disadvantaged young dynamic micro-entrepreneurs in the form
of Loans, Business Mentors, Training, Networking and Marketing.
Highlights of the Banks Performance under Financial Inclusion in FY14
Bank of Baroda covered 14,161 villages against a target of 11,124.
It opened 74.66 lakh Basic Savings Bank Deposit Account against target of 63.74 lakh, out of
which 18.71 lakhs accounts were opened through the Business Correspondents.
The balance outstanding in the Basic Savings Bank Deposit Account of Baroda Bank is around Rs
1,918 crore.
Baroda Bank has sanctioned overdraft of Rs 11.31 crore as against a target of Rs. 6.22 crore in Basic
Saving Bank Deposit Account.
Bank of Baroda opened 2,584 Ultra Small Branches (in villages with population above 2,000) to
strengthen functioning of BC model.
Bank of Baroda approved a disaggregation plan up to the branch level to implement its FIP for
21,526 villages by March 2016. This Bank has launched its Urban Financial Inclusion drive by
opening more than 1,000
Kiosk at various locations in metro and urban centers across the country. Also, it surpassed all targets
set under disaggregated FIP for FY14.
Latest Trend -Pradhan Mantra Jan Dhan Yojana
Pradhan Mantri Jan Dhan Yojana is an ambitious scheme for comprehensive financial inclusion
launched by the Prime Minister of India, Narendra Modi on 28 August 2014. He had announced this
scheme on his first Independence Day speech on 15 August 2014. In a run up to the formal launch of
this scheme, the Prime Minister personally mailed to CEOs of all banks to gear up for the gigantic task
of enrolling over 6.0 crore (75 million) households and to open their accounts. In this email he
categorically declared that a bank account for each household was a "national priority".

The scheme has been started with a target to provide 'universal access to banking facilities' starting
with Basic Banking Accounts with overdraft facility of Rs.5000 after six months and RuPay Debit card
with inbuilt accident insurance cover of Rs.1 lakh and RuPay Kisan Card. In next phase, micro
insurance & pension etc. will also be added.
Reports said on August 28, more than 1.5 crore bank accounts were opened in a single day. Within a
few days of the PM's address on Independence Day, this bank had received a directive on the scheme.
On August 28, the bank's branches in Ghaziabad, Noida and Greater Noida, had been given a target to
open more than 10 lakh accounts under the scheme.
The Prime Minister said that though the initial target of PMJDY was to open bank accounts for 7.5
crore families in one year, he had exhorted the concerned officials to complete the task before the next
Republic Day. On the inauguration day of the scheme, 1.5 Crore (15 million) bank accounts were
opened. Banks Board had approved a Financial Inclusion Plan (FIP) for implementation by your Bank
within a period of three years commencing from 2010-11. The plan had envisaged covering 20,000
villages in a span of three years under Financial Inclusion utilizing various technology based
initiatives. Thereafter, Ministry of Finance and RBI advised your Bank to cover the villages having
population above 2,000 by March 2012. Accordingly, your Bank was allotted 2,855 villages which are
covered well within the timelines.
Abstract
The banking industry has shown tremendous growth in volume of operations, efficiency and use
of technology to

provide financial services during the

last few decades. Despite making

significant improvements in all the areas relating to financial viability, profitability and
competitiveness, there are concerns that banks have not been able to include vast segment
of the population, especially the underprivileged sections of the society, into the fold of basic
banking services. Financial Inclusion is considered to be the core objective of many developing
nations from last decade as many research findings correlate the direct link between the financial
exclusion and the poverty prevailing in developing nations. . There have been many formidable

challenges in financial inclusion area such as bridging the gap between the sections of society that
are financially excluded within the ambit of the formal financial system, providing financial
literacy and strengthening credit delivery mechanisms so as to improvise the financial economic
growth. The Central Bank of the country, Reserve Bank of India (RBI) and Government of India
are working towards improving Financial Inclusion (FI), in India since 1969. As compared to
other developing countries (considering, the financial inclusion indicators), India ranks second
after China in financial exclusion. The paper highlights the need and importance of financial
inclusion for the social and economic development of India. The paper will also review the current
scenario as well as current and future plans of RBI for Financial Inclusion. After analyzing the
facts and figures it is concluded the, though, various steps are taken by RBI and Government of
India to improve financial inclusion there is a
long way to achieve the total financial inclusion.
Introduction
Normally, the weaker sections of the society are completely ignored by the formal financial
institutions in the race of making chunks of profits or the complexities involved in providing
finance to the weaker section. Financial inclusion or inclusive financing is the delivery of financial
services, at affordable costs, to sections of disadvantaged and low income segments of society.
There have been many formidable challenges in financial inclusion area such as bridging the gap
between the sections of society that are financially excluded within the ambit of the formal
financial system, providing financial literacy and strengthening credit delivery mechanisms
so as to improvise the financial economic growth. Unrestrained access to public goods and
services is the sine qua non of an open and efficient society. It is argued that as banking services
are in the nature of public good; the availability of banking and payment services to the entire
population without discrimination is the prime objective of the public policy. Thus, the term
Financial Inclusion can be defined as the process of ensuring access to financial services and
timely and adequate credit where needed by vulnerable groups such as weaker sections and low

income groups at an affordable cost.

Concept of Financial Inclusion
Financial inclusion (FI) may be defined as the process of ensuring access to financial services and
timely and adequate credit where needed by vulnerable groups such as weaker

International Conference on Issues in Emerging Economies (ICIEE), 29-30th

January 2015

sections and low income groups at an affordable cost (The Committee on Financial Inclusion,
Chairman: Dr. C. Rangarajan). Financial Inclusion, broadly defined, refers to universal access to a
wide range of financial services at a reasonable cost. These include not only banking products but
also other financial services such as insurance and equity products (The Committee on Financial
Sector Reforms, Chairman Raghuram G. Rajan).
The above two definitions of FI, as explained in the RBI report, tells us about the changing
approach of FI. Earlier, there was quite narrow approach towards FI as it was about to provide
only banking services to weaker sections and low income groups of our country, but as per second
definition wider approach was taken and it also includes providing other financial services such as
insurance and equity products.
Financial Inclusion is considered to be the core objective of many developing nations from last
decade as many research findings correlate the direct link between the financial exclusion and the
poverty prevailing in developing nations. According to World Bank report Financial inclusion, or
broad access to financial services, is defined as an absence of price or non price barriers in the use
of financial services. The term Financial Inclusion needs to be interpreted in a relative
dimension. Depending on the stage of development, the degree of Financial Inclusion differs
among countries. Its been surprising fact that India ranks second in the world in terms of
financially excluded households after China.
Financial Indicators of Financial Inclusion in Different Countries (2011)
Sr.
No.

Country

No. of Bank
PerBranches

No. of

No. of Bank No. of

ATMs

ATMs
omBranches
Per 0.1 Million

10

ete

00

rs

Kil

Bank

Bank

Deposits
As %Credits
of GDP

1.
2.
China
3.
Brazil
4.
Indonesia
5.

India

30.43

25.43

10.64

8.9

68.43

1428.98

2975.05

23.81

49.56

433.96

287.89

7.93

20.55

46.15

119.63

53.26

40.28

8.23
South

15.91
3.08

43.36
60.01

34.25
45.86

8.52
17.26

16.47
10.71

51.75

74.45

Africa
Source- Financial Access Survey, IMF.
The above table shows that amongst the developing countries in Asia like China, Brazil, Indonesia
and South Africa, the China ranks first considering the financial indicators chosen for study, and
India ranks second after China in financial inclusion.
In our country the Government of India and the Reserve Bank of India have been making
concerted efforts to promote financial inclusion as one of the important national objectives of the
country. Some of the major efforts made in the last five decades include - nationalization of
banks, building up of robust branch network of scheduled commercial banks, co-operatives and
regional rural banks, introduction of mandated priority sector lending targets, lead bank
scheme, formation of self-help groups, permitting Business Correspondents (BCs) to be
appointed by banks to provide door step delivery of banking services, zero balance Basic Saving
Bank Deposits ( BSBD) accounts, etc. The fundamental objective of all these initiatives is to reach
the large sections of the hitherto financially excluded Indian population.
Structure of financial integration strategy
Financial education, financial inclusion and financial stability are three elements of an integral
strategy, as mentioned below. While financial inclusion works from supply side of providing
access to various financial services, financial education feeds the demand side by promoting
awareness among the people regarding the needs and benefits of financial services offered by
banks and other institutions. The Three tier system as mentioned below helps to improve the
financial stability of the country.

Financial Education---leads to----Financial Inclusion-----leads to---- Financial Stability

The essence of financial inclusion is to ensure delivery of financial services which include
-

bank accounts for savings and transactional purposes, low cost credit for productive,
personal and other purposes, financial advisory services, insurance facilities (life and nonlife) etc.

Need of Financial Inclusion

Financial inclusion broadens the resource base of the financial system by developing a culture of
savings among large segment of rural population and plays its own role in the process of economic
development. Further, by bringing low income groups within the perimeter of formal banking
sector; financial inclusion protects their financial wealth and other resources in exigent
circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the
usurious money lenders by facilitating easy access to formal credit.
Recent Scenario Financial Inclusion
In this section, the extent of financial exclusion from different perspectives / angularities is
presented

based

on

five

different

data

sources

viz.:(a)

National

Sample

Survey

Organisation(NSSO) 59th Round Survey Results,(b) Government of India Population Census

2011,(c) CRISIL- Financial Inclusion Index. (Inclusix). (d) RBI Working Paper Series Study on
Financial Inclusion in India and(e) World Bank Financial Access Survey Results.( Data shown
above in table 1)
(a)NSSO 59th Round Survey Results
1

51.4% of farmer households are financially excluded from both formal/ informal sources.

Of the total farmer households, only 27% access formal sources of credit; one third of this

group also borrowed from non-formal sources.

3

Overall, 73% of farmer households have no access to formal sources of credit.

Across regions, financial exclusion is more acute in Central, Eastern and North-Eastern

regions. All three regions together accounted for 64% of all financially excluded farmer
households in the country. Overall indebtedness to formal sources of finance of these three
regions accounted for only 19.66%.However, over the period of five decades, there has been
overall improvement in access to formal sourcesof credit by the rural households as
mentioned below.
Access to Formal and Informal Sources of Credit by Rural Households
Year
Formal Sources (%)
1961
9.5
60.8
1971
22.3
36.9
1981
56.6
16.9
1991
47.6
15.7
2002
51.8
29.6
Source: RBI working paper 2013
(b) Report of Government of India Population Census 2011

Informal Sources (%)

People Availing Banking Services Table: 3 Source: RBI report2014.

Population
Rural
30.1%
Urban
49.5%
Total

Census2001

Census2011

54.4%
67.8%

35.5%
58.7%
(c) CRISIL- Financial Inclusion Index. ( Inclusix);1 In June 2013, CRISIL, the International Rating Agency, first time published a
comprehensive financial inclusion index (viz,Inclusix). For constructing the index,
International Conference

Economies (ICIEE), 29-

on Issues in Emerging

30th January 2015

196

CRISIL identified three critical parameters of basic banking services namely branch
penetration, deposit penetration and credit penetration.
2

The CRISIL Inclusix indicates that there is an overall improvement in the financial
inclusion in India.

CRISIL Inclusix increased from 35.4 in March 2009 to 37.6 in March 2010 and to 40.1 in
March 2011.

(d) RBI Working Paper Series Study on Financial Inclusion in India:Mr. Sadhan Kumar Chattopadhyay (2011) worked out an Index on financial inclusion (IFI)
based on three variables namely penetration (number of adults having bank account),
availability of banking services (number of bank branches per 1000 population) and usage
(measured as outstanding credit and deposit). The results indicate that Kerala, Maharashtra and
Karnataka has achieved high financial inclusion (IFI >0.5), while Tamil Nadu, Punjab, Andhra
Pradesh, Himachal Pradesh, Sikkim, and Haryana identified as a group of medium financial
inclusion (0.3)
Financial Inclusion and RBI Policy Initiatives
1

RBI has adopted a bank-led model for achieving financial inclusion and removed all
regulatory bottle necks in achieving greater financial inclusion in the country.
Further, for achieving the targeted goals, RBI has created conducive regulatory
environment and provided institutional support for banks in accelerating their
financial inclusion efforts.

Advised all banks to open

Basic Saving Bank Deposit (BSBD)

accounts

with
minimum common facilities such as no minimum balance, deposit and withdrawal of
cash at bank branch and ATMs, receipt/ credit of money through electronic payment
channels, facility of providing ATM card.
3

Relaxed and simplified KYC norms to facilitate easy opening of bank accounts,

especially for small accounts with balances not exceeding Rs. 50,000 and aggregate
credits in the accounts not exceeding Rs. one lakh a year. Further, banks are advised
not to insist on introduction for opening bank accounts of customers. In addition, banks
are allowed to use Aadhar Card as a proof of both identity and address.
4

Simplified Branch Authorization Policy

, to address the issue of uneven spread bank

branches, domestic SCBs are permitted to freely open branches in Tier 2 to Tier 6
centers(Tier2=area having population50,000 to 99,999 and Tier 6= Area having5,000 to
9999population)with population of less than 1 lakh under general permission, subject
to reporting. In North-Eastern Sates and Sikkim domestic Scheduled Commercial
banks can open branches without having any permission from RBI. With the objective
of further liberalizing, general permission to domestic scheduled commercial
banks (other than RRBs) was given for opening branches in Tier 1 centre, subject to
certain conditions.
5

Compulsory Requirement of Opening Branches in Un-banked Villages

, banks are

directed to allocate at least 25% of the total number of branches to be opened during
the year in un-banked (Tier 5 and Tier 6) rural centers.
6

Opening of intermediate brick and mortar structure , for effective cash management,
documentation, and redressal of customer grievances and close supervision of BC
operations, banks has been advised to open intermediate structures between the present
base branch and BC locations. This branch could be in the form of a low cost simple
brick and mortar structure consisting of minimum infrastructure such core

banking solution terminal linked to a pass book printer and a safe for cash retention for
operating larger customer transactions.
7

Public and private sector banks had been advised to submit board approved three
year Financial Inclusion Plan (FIP) starting from April 2010. These policies aim at
keeping self-set targets in respect of rural brick and mortar branches opened,
Business Correspondents employed, coverage of un-banked villages with population
above 2000 and as well as below 2000, BSBD accounts opened, KCCs(Kisan Credit
Cards), GCCs (General Credit Cards) issued and others. RBI has been monitoring these
plans on a monthly basis.

Banks have been advised that their Financial Inclusion plans should be disaggregated
and percolated down up to the branch level. This would ensure the involvement of all
stakeholders in the financial inclusion efforts.

In June 2012, revised guidelines on Financial Literacy Centres (FLCs). Accordingly, it

was advised that FLCs and all the rural branches of scheduled commercial banks
should scale up financial literacy efforts through conduct of outdoor Financial
Literacy Camps at least once a month, to facilitate financial inclusion through
provision of two essentials i.e. Financial Literacy and easy Financial Access.
Accordingly, 718 FLCs have been set up as at end of March 2013. A total of 2.2
million people have been educated through awareness camps /e- choupal, seminars and
lectures during April 2012 to March 2013.

Recent Measures taken by various authorities

a

Reserve Bank of India :

Licensing of New Banks

: The present round of licensing new banks is essentially aimed

at giving further fillip to financial inclusion efforts in our country. Innovative business
models aimed at furthering financial inclusion efforts would be looked into closely in

processing applications for banking license. Financial inclusion plan would be an

important criterion for procuring new bank licenses (Dr. D Subbarao).
2

Discussion Paper on Banking Structure in India

The Way Forward: The RBI

has put out a discussion paper in August 2013 on Banking Structure for public comments.
One of the main issues relates to Differentiated Banking Licenses. The subject of
licensing small banks and financial inclusion has been discussed therein. A view will be
taken by RBI after factoring in the comments/suggestions received from the general
public.
3

In this context, it needs to be mentioned that Urban Co-operative Banks (UCBs), Regional
Rural Banks (RRBs) and Local Area Banks (LABs) numbering 1606, 64, and 4
respectively are, in fact, Small Finance Banks operating in this country. These apart, there
is a 3- Tier rural co-operative structure with State Co-operative Central Banks (SCCBs) at
the apex, District Central Co-operative Banks(DCCBs) at the intermediary level and
Primary Agricultural Credit Societies (PACs) at the grass root level, which number 31,
371 and 92,432 respectively. Furthermore, we have around 12,225Non Banking
Financial Companies (NBFCs ) as on March 2013, which could be conceptually construed
as semi- banks undertaking predominantly credit/investment activities.

Government of India:-

Pradhan Mantri Jan Dhan Yojana launched by Prime Minister Mr. Narendra Modi
in August, 2014 ,
(PMDJY) Prime Minister's People Money Scheme is a scheme for comprehensive financial
inclusion launched by the Prime Minister on 28 August 2014. He had announced this scheme on
his first Independence Day speech as Prime Minister on 15 August 2014.The Scheme is Run by
International Conference on Issues in Emerging Economies (ICIEE), 29-30th

January 2015

Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore (15
million) bank accounts were opened under this scheme. By September 2014, 3.02 crore accounts

were opened, with around 1500 crore (US$240 million) were deposited under the scheme, which
also has an option for opening new bank accounts with zero balance.SBI, India's largest bank had
opened 11,300 camps for Jan Dhan Yojana over 30 lakhs accounts were opened so far, which
include 21.16 lakh accounts in rural areas and 8.8 lakh accounts in urban areas. On the contrast,
even taking together all the major private sector banks, have opened just 5.8 lakh accounts.In a run
up to the formal launch of this scheme, the Prime Minister personally mailed to Chairmens of all
Public Sector banks to gear up for the gigantic task of enrolling over 7.5 crore (75 million)
households and to open their accounts. In this email he categorically declared that a bank account
for each household was a "national priority".
The scheme has been started with a target to provide 'universal access to banking facilities' starting
with "Basic Banking Accounts" with overdraft facility of Rs.5000 after six months and RuPay
Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan Card. In next
phase, micro insurance & pension etc. will also be added under the scheme:
1

Account holders will be provided zero-balance bank account with RuPay debit card, in
addition to accidental insurance cover of Rs 1 lakh(to be given by 'HDFC E-Gro').

Those citizens, who open accounts by January 26, 2015 over and above the 1
lakh, accidentcover, they will be given life insurance cover of Rs 30,000(to be given by
LIC).

After Six months of opening of the bank account, holders can avail Rs. 5,000 overdraft
from the bank.

With the introduction of new technology introduced by National Payments Corporation of

India (NPCI), a person can transfer funds, check balance through a normal phone which
was earlier limited only to smart phones so far.

Mobile banking for the poor would be available through National Unified USSD Platform
(NUUP) for which all banks and mobile companies have come together.

PMDJY Number OF Accounts opened so far(18.12.14) :

Na

No. of

Balan

No. of

me

Ru-

ce in

accou

of

pay

Accou

nts

the

debit

nts( R

with

ban

cards

s.

zero

Rural

Urban

Total

in

Lakhs

balanc

Public Sector 4156205

34784256 76300961 61639177 57689.49

55850016

Banks
Rural
Regional
Banks
14317151 2573207 16890358 4975489

112721.05

12961978

Private sector
banks
1334250

1214284 2548534 1715468 44229.63

1771359

Total 57168106 38571747 95739853 68330134 733850.17

70583353
The above table gives an idea about the bank accounts opened by households under this scheme in
the rural and urban areas by public sector, private sector and rural regional banks. These banks
have also issued Ru-pay debit cards to these new accountholders to use overdraft facility in future.
The table shows that though no. of new accounts are opened , the balance in these accounts is very
low and there are various accounts opened with zero balance in the hope that money will be
transferred in the account by the government as per direct benefit scheme.
(C) Initiatives taken by National Bank for Agricultural and rural Development (NABARD)NABARD, in January, 2013 set up Special Project Unit- Kisan Credit Card (SPU-KCC) with a
mandate for encouraging cooperative banks and Regional Rural Banks across the country

International Conference on Issues in Emerging Economies (ICIEE), 29-30th January 2015

to issue Rupay KCC debit cards. The core objective of the unit is to facilitate issuance of cards
by these banks through guidance, co-ordination with National Payment Corporation of
India (NPCI), interaction with sponsor banks of RRBs and cooperative banks. The
overarching goal is to develop cash-less eco system by enabling the farming community to
avail all new banking facilities at par with urban area of the country. The SPU undertakes
policy formulation, capacity building and networking with the various stake holders to
achieve the above objectives.The new KCC guidelines specify that all KCC customers should
have the facility of withdrawal through ATM / Debit cards. NABARD, with a view to
facilitate early action in this direction, has already floated schemes providing financial support
to RRBs and cooperative banks for issuing these cards.
(D) Initiatives taken by Small Industries Development Bank of India (SIDBI)Poorest States Inclusive Growth Programme (PSIG ) forFinancial Inclusion and
Women Empowerment.
Under this scheme the funds are provided for liquidity problems of small industries. At the
same time it also undertakes the Financial Literacy programmes for Self Help groups and
other entrepreneurs through Regional Rural Banks.
(E)Financial Inclusion Initiatives Private Corporates:
A few large private corporate have undertaken projects such as E-Choupal/ ESagar(ITC), Haryali Kisan Bazaar (DCM), Project Shakti (HUL), etc. Reportedly,
these pioneering projects have brought about vast improvement in the lives of the
participants and set the tone for economic development in their command areas;
which is a pre-requisite for Financial Inclusion efforts to be undertaken by the banking

system.
Stakeholder-wise Issues in Financial Inclusion
After taking into account the efforts taken and achievements stated in the previous section
and based on interactions

of RBIwith the stakeholders during

various outreach

programmes, as also
the feedback received from RBI meetings with the frontline managers,

the

more

important
issues which need to be attended; stakeholder-wise are listed below:(1)Business Correspondents (BC):
For effective functioning of BC model in reaching poor villagers, the following need to be
addressed:BCs are not making enough income due to catering of services to lowincome customers with low volume transactions. For optimum usage of BCs in reaching the
poor villagers, BCs have to be adequately compensated so that they are sufficiently
incentivized to promote financial inclusion as a viable business opportunity. The proper
training requirements to BCs are also thereby the banks.
(2)Tailor Made Services:
Innovative Products : Designing suitable innovative products to cater to the requirements of
poor villagers at affordable rates is an absolute imperative. Again, to wean away villagers
from borrowing

from

money

lenders,

banks

should

develop

simplified

credit

disbursement procedures and also flexibility in their work processes.

(3)Technology Applications:
In an ICT enabled environment, technology is the main lever to achieve the eventual goal of
financial inclusion at the earliest.

RESEARCH METHODOLOGY
RESEARCH
A Systematic search for an answer to a question or solution to problem is known as
RESEARCH.
According to KERLINGER defines RESEARCH , A Systematic , Controlled , Empirical
and Critical Investigation of Hypothetical Preposition about Preasumes Relation among
Natural Phenomen .
The marketing research process that will be adopted in the present study will consist of the
following stages
a. Defining the problem and the research objective:
b. Developing the research plan:
c. Collection and Sources of data:
d. Analyze the collected information
e. Report research findings:
RESEARCH DESIGN
A research design is defined, as the specification of methods and procedures for
acquiring the Information needed. It is a plant or organizing framework for doing the study and
collecting the data. Designing a research plan requires decisions all the data sources, research
approaches, Research instruments, sampling plan and contact methods.
Research design is mainly of following types: 1

Exploratory research.

Descriptive studies

Exploratory Research
The major purposes of exploratory studies are the identification of problems, the more precise
Formulation of problems and the formulations of new alternative courses of action. The design of
exploratory studies is characterized by a great amount of flexibility and ad-hoc veracity.
DESCRIPTIVE STUDIES
Descriptive research in contrast to exploratory research is marked by the prior formulation of
specific research Questions. The investigator already knows a substantial amount about the
research problem. Perhaps as a Result of an exploratory study, before the project is initiated.
Descriptive research is also characterized by a Preplanned and structured design.
The research design used in this project is a DESCRIPTIVE DESIGN.
DATA COLLECTION
Research will be based on two sources:
PRIMARY DATA

Primary data is that kind of data which is collected by the investigator herself for the purpose of
specific study. The data such collected is original in character. The advantage of third method
collection is the authenticity.
SECONDARY DATA When an investigator uses the data that has been collected by others is
called secondary data. The secondary data could be collected from journals, reports and various
publications. The advantages of secondary data can be economical, both in the term of money
and time spent.

Data Collection Method

Primary

Secondary

Direct personal Interview

Published Sources

Govt. publication Sources

Information from correspondents

Report Committees

Mailed questionnaire &Commissions

Private Publication

Question filled by enumerators

1
2
3
4
5

Unpublished

Indirect personal Interview

Research Institute

SECONDARY DATA
Sources of Secondary Data
Following are the main sources of secondary data:
Official Publications.
Publications Relating to Trade:
Journal/ Newspapers etc.:
Data Collected by Industry Associations:
Unpublished Data: Data may be obtained from several companies, organizations, working in
the same areas like magazines.
NOTE In this research report I have used the Secondary data from the different source of
secondary data.
TOOLS USED FOR DATA COLLECTION METHOD
STATISTICAL TOOL:
The researcher has used

Simple Percentage

Pie- chart. .

Period of Study:
This study has been carried out for a maximum period of 6 weeks.
Area of study:
The study is exclusively done in the area of operation. It is a process requiring care,
sophistication, experience, business judgment, and imagination for which there can be no
mechanical substitutes.
Sampling Design:
The convenience sampling is done because any probability sampling procedure would require
detailed information about the DLW Policy, which is not easily available further, it being an
exploratory research.

Sample Procedure:
In this study judgmental sampling procedure is used. Judgmental sampling is preferred because
of some limitation and the complexity of the random sampling. Area sampling is used in
combination with convenience sampling so as to collect the data from different regions of the
city and to increase reliability
Method of the Sampling:
Probability Sampling
It is also known as random sampling. Here, every item of the universe has an equal chance or
probability of being chosen for sample.
Simple Random Sampling
A simple random sample gives each member of the population an equalchance of being chosen.
It is not a haphazard sample as some people think! One way of achieving a simple random

sample is to number each element in the sampling frame (e.g. give everyone on the Electoral
register a number) and then use random numbers to select the required sample.
Random numbers can be obtained using your calculator, a spreadsheet, printed tables of random
numbers, or by the more traditional methods of drawing slips of paper from a hat, tossing coins
or rolling dice.
Systematic Random Sampling
This is random sampling with a system! From the sampling frame, a starting point is chosen at
random, and thereafter at regular intervals.
Stratified Random Sampling
With stratified random sampling, the population is first divided into a number of parts or 'strata'
according to some characteristic, chosen to be related to the major variables being studied. For
this survey, the variable of interest is the citizen's attitude to the redevelopment scheme, and the
stratification factor will be the values of the respondents' homes. This factor was chosen because
it seems reasonable to suppose that it will be related to people's attitudes
Cluster and area Sampling
Cluster sampling is a sampling technique used when "natural" groupings are evident in a
statistical population. It is often used in marketing research. In this technique, the total
population is divided into these groups (or clusters) and a sample of the groups is selected. Then
the required information is collected from the elements within each selected group. This may be
done for every element in these groups or a subsample of elements may be selected within each
of these groups.
Non Probability Sampling

It is also known as deliberate or purposive or judge mental sampling. In this type of sampling,
every item in the universe does not have an equal, chance of being included in a sample.
It is of following type:
Convenience Sampling
A convenience sample chooses the individuals that are easiest to reach or sampling that is done
easy. Convenience sampling does not represent the entire population so it is considered bias.
Quota Sampling
In quota sampling the selection of the sample is made by the interviewer, who has been given
quotas to fill from specified sub-groups of the population.
I have chosen convenient samplingfor my project work

Conclusion
Expanding access to financial services seems to hold promise as a means for including the poor,
reducing poverty, and spurring economic development (Karlan & Murdoch, 2010). With the
announcement of the SVS financial inclusion blueprint by the government under which the
PMJDY was launched, and the new payment bank guidelines suggested by the RBI, there is hope
that financial inclusion is a clearer and important mandate in the country. Both these measures
emphasize the provision of bank accounts, which is an essential factor, but only a limited one
towards achieving financial inclusion in India.
In the past decades, state policies of financial inclusion have overwhelmingly relied on extending
credit to low-income households through subsidized credit schemes like IRDP or expanding
SHGs and providing no-frills bank accounts. Private sector initiatives like the significant
expansion of microfinance activities in India have also shown the limited scope within which
lenders functioned. Research has shown that unless financial instruments are designed for
specific needs of the poor, they remain underutilized and costly for the providers, and therefore,
non-sustainable. Broader financial needs of the poor have so far been met through informal
means which are costly and risky and result in sub optimal outcomes for the most vulnerable
sections of our society. Allowing and encouraging
12 Advancing Financial Inclusion in India beyond the Jan-Dhan Yojana
innovation in savings instruments for the poor by the formal financial sector is thus critical to
achieving our goals of financial inclusion.
To complement such innovation, indigenous financial institutions must find a place within the
financial inclusion policies of the government. These are old institutions based on established

social networks. Our policies must incorporate these and facilitate further healthy growth of such
indigenous institutions. We must also actively seek to understand these institutions to shape a
regulatory policy rather than shun all out of ignorance. They have a far greater reach and
acceptance amongst the people than most top-down policies of financial inclusion in the recent
history of liberalized India. Government policies must recognize this and build on the strengths
of indigenous financial institutions. For similar reasons, post offices must also be brought within
the fold of national financial inclusion strategy due to their extensive network and greater
accessibility. Raising awareness and imparting financial literacy are also critical to the utilization
of financial instruments and for better financial decision-making. Educating people about
financial risks can prevent them from investing in dubious schemes. Such schemes are
particularly rampant amongst the poor and vulnerable sections of the Indian society, as recent
scams have highlighted. Regulation should also ensure customer protection and transparency
through requirements of clear and standardized reporting by the sellers of financial instruments.
Technology must be leveraged to bring down the operating costs of these financial instruments
which are more expensive in comparison to larger ticket instruments of the mainstream financial
sector. Innovation in the financial sector- through greater autonomy and competition must be
encouraged. Institutions should have the autonomy to experiment with management practices as
well as financial products which can help offer sustainable solutions to the financial needs of all
segments of the Indian economy.

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Access

http://ssrn.com/abstract=1424895

to

credit

as

Insurance.

Available

at

SSRN: