Give 'Dhan' to 'Jan'

The Narendra Modi led ruling coalition, National Democratic Alliance (NDA) has entered into the Guinness Book of World Record on the back of its ambitious financial inclusion scheme, Pradhan Mantri Jan Dhan Yojana (PMJDY).

At Day Zero, Prime Minister, Narendra Modi said that the aim was to end, Financial Untouchability. He wants millions of poor in India to not only have a bank account but also start getting the attached financial benefits such as loans and insurance.

The number of accounts opened under PMJDY stood at 11.5 crore as of January 17 after a survey of 21.02 crore households. Of the total bank accounts opened, 3.23 crore have deposits worth Rs 9,188 crore.

“India is now full banked,” said Finance Minister Arun Jaitely. It will take little while for the applause to settle down, however, it will take much longer to actually end the stigma of exclusion.

Financial Untouchability does not end at opening of a bank account. It means availability of basic financial products and most importantly access to credit. The scheme’s success cannot and should not be mapped only on this criterion.

Even after having a bank account, most of these new customer, may continue to depend on usurious moneylenders and in the words of the Prime Minister, entangled in the vicious cycle of debt and poverty.

PMJDY aims to break that chain. But what is required is to look beyond the numbers. Opening of bank accounts, is one small step. To make it a giant leap for the citizens of this country require that these accounts remain active. A heavy two way traffic of transactions, reflected under both debit and the credit columns.

Government estimates are that only 28% of the 11 crore accounts are active presently, and it is banking on the fact that the money under various government sponsored benefit schemes will soon be directly debited in these accounts.

It hopes that this will kick-start a circle of transactions. That may, however, not be the case. Transfer of government subsidies into these accounts will also be limited to a few. To assume that even half of the 11 crore and more households will be beneficiaries of government’s schemes will be ludicrous.

So what can be done to make these accounts, debit card, and insurance cover bundled under the scheme a long lasting success? Small value loans. To make these no frill or basic banking accounts a step stone towards ending financial untouchability, banks need to get back to traditional banking. They need to lend.

These small value loans can empower the youth of this country to be job creators rather than being just job seekers. And once this ecosystem is set up, it will itself kick start the slowing wheels of economy in traditional sectors such as manufacturing.

The latest gross domestic production (GDP) figures indicate that there are green shoots of recovery. A credit support at this juncture will provide a stimulus which will not add to the fiscal deficit woes of the nation. 

Small ticket loans be it towards animal husbandry, or small scale industries will give boost to the manufacturing and farm sector indices of the GDP.

These loans will also develop an ingenious credit rating mechanism for the thus far financially excluded and provide them a platform to apply for big ticket loans in future. If such credit support is provided then only in the truest sense, Modi’s slogans – Make in India, Zero-defect production, promote Tourism, and even building toilets – from the ramparts of Red Fort will see some real action.

In the last few days both banks and bankers have witnessed the moral and financial hazards of focusing on lending high value loans. The bad loans in the banking sector is at a staggering all-time high. The Prime Minister himself in his speech has noted that a poor borrower can be counted upon to repay timely as he has limited alternatives. It is imperative that banks need to give such borrowers a real chance.

As proposed under this scheme, an Rs 5,000 overdraft limit after six month of operations, may not be the antidote for keeping these accounts operational. Six months is a long time in rural India. In some cases it may reflect the time between two crop seasons. This sometimes is the most vulnerable phase for a farmer, a labourer or anyone lower in the food chain who is dependent on agriculture as a livelihood.

Jan Dhan cannot be created alone by the government, the banks need to lend some ‘dhan’ to ‘jan’ to enable them to create cash flow and give a spur to the Indian economy.