Jan Dhan Yogana can be a game Changer

In his address to the nation on the 68 Independence Day Prime Minister, Narendra Modi, announced the launch of an ambitious financial inclusion program called the Jan Dhan Yogana. Under this plan every household in rural India will have access to bank account and Rupay debit card with Rs. 1 lakh personal accident insurance cover. About 60% of the Indian population doesn’t have access to any form of banking services. Also envisages under the plan is Rs. 5000 overdraft facility for each household. While the prime minister has set no deadlines, the talk in the knowledgeable circles is that the Government intends to complete this by 2016.

Challenging but not un-doable

While this is a challenging task it is by no means un-dobale. Mr. Modi gave the example of almost every household having a mobile but not a bank account. If we think back to pre-liberalization days the tele density in the country about 1%. Today it is over 80%. What financial institutions like banks and insurers need to do is to replicate the same in banking and Insurance, something that is more existential than a mobile.  All indications are that government is doing its part to help. There are strong indications that both the providers and distributors will have incentives to make this scheme a success. All of the direct cash transfers would be thru these accounts, thus creating demand for this service in the rural areas. Banks are to get a fixed percentage (about 2%) of the new deposits as commission.  It also being said that a monthly salary would be paid to the last mile distributor who enrols and services these accounts. In past retaining the banking correspondents in the rural areas have been a great challenge.

The rural population engaged mainly in manual labour is highly vulnerable to workplace accidents. Death, permanent or temporary disability to earning members can bring quite a lot of hardship to the family. By including a Personal accident cover the scheme will provide much needed protection to these families.

 Need to build on this.

While this is a good basic scheme, the providers like banks and Insurers need to go beyond what is stated in the scheme and build on it to create a robust financial network in the rural areas.  The providers would need products that cater to seasonal income patterns prevalent among the targeted people.  The government need to think about the safety aspects of moving cash in rural and remote areas.  Governments Health Insurance plans like RSBY should be linked to this initiative to avoid duplication and cost optimization.

While the potential is immense, only time will tell if this scheme would go the same way as its predecessors or it will bring a revolution like the one this country has seen in the telecom space. Let’s hope for the later.