Financial inclusion is a key driver of sustainable economic development and has been featured as a separate target in eight (SDG1, SDG2, SDG3, SDG5, SDG8, SDG9, SDG 10 and SDG 17) of the 17 Sustainable Development Goals of 2030. Financial inclusion has multi-faceted benefits not only in the form of promoting inclusive sustainable growth, but also encouraging social justice by providing avenues for savings, channelising savings into productive investment, and ensuring access to credit from formal financial institutions to the poor, saving them from the clutches of usurious informal sources.

Financial inclusion has remained one of the key developmental priorities since Independence. The government and the RBI have undertaken numerous initiatives to ensure access to financial services to all sections of society.

These policy measures include nationalisation of 14 major banks in 1969, the lead bank scheme, introduction of priority sector lending requirements for banks, establishment of regional rural banks and expansion of bank branch network, banks and self-help group linkages programme, nationwide programme for financial inclusion under Swabhiman scheme, initiating business correspondent (BC) model, providing credit and remittance facilities, and introducing financial literacy programmes.

However, the benefits of these policy measures have not reached large sections of the population, especially the low-income group, women and informal workers. According to Census 2011, around 42 per cent of households in all, and a little less than half of the households in rural India, did not have access to banking/financial facilities (PMJDY 2014).

Objectives of PMJDY

The Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched by the government on August 28, 2014. The major objective of the scheme is to provide universal access to banking facilities to every household, and access to credit, insurance and pension facilities to every adult individual. Unlike previous initiatives on financial inclusion, PMJDY targets households and sub-service areas comprising 1,000-1,500 households. Further, this scheme covers both rural and urban areas along with other services like RuPay debit card with inbuilt insurance cover of ₹1 lakh, life cover of ₹30,000 and overdraft facility of up to ₹5,000.

More than 12.5 crore accounts were opened in the first nine months of the launch of the scheme. This scheme was extended beyond 2018 with some changes, which include a shift in focus from ‘every household’ to ‘every unbanked adult’, increase in accidental insurance cover on RuPay cards from ₹1 lakh to ₹2 lakh for accounts opened after August 28, 2018, increase in overdraft facility from ₹5,000 to ₹10,000 and increase in the upper age for overdraft from 60 to 65 years.

Subsequently, to reach out to the un- and under-served sections of society, JAM trinity (linking of Jan Dhan Yojana, Aadhaar and mobile numbers) was initiated to transfer government subsidies and benefitsdirectly into accounts of the intended beneficiary. These changes have resulted in a three-fold growth in PMJDY accounts from 17.9 crore in August 2015 to 43.04 crore in August 2021, with a CAGR of 14.62 per cent in a span of seven years of its operation.

It is interesting to note that out of 43.04 crore Jan Dhan accounts, 55.47 per cent (23.87 crore) account-holders are women and 66.9 per cent (28.70 crore) of such accounts are in rural and semi-urban areas. Remarkably, the proportion of inoperative Jan Dhan accounts has also declined substantially from 24 per cent to 14 per cent during 2015-2021. Also, total deposits in such accounts increased 6.38 times and RuPay debit card issued almost doubled during August 2015 to August 2021. Presently, around 72.5 per cent of such account-holders have a RuPay card.

The JAM trinity was further leveraged by the government to mitigate the impact of the Covid pandemic through immediate Direct Benefit Transfer (DBT) to rural households under Gareeb Kalyan Yojana, stimulus package under the AtmaNirbhar package, loans to MSMEs, etc.

The UPI system has played crucial role in bringing large excluded sections within the ambit of financial services, lowering overall infrastructure cost of banking services in remote and underserved areas through its instant single click app-based transfer.

There is a robust customer protection through a two-factor authentication system. Despite its slow start in 2016, the total number of transactions on UPI has reached 6.2 billion, worth ₹10.62 trillion, in July 2022.

Clearly, the volume and frequency of digital financial services have accelerated recently.

But there are certain challenges hindering the growth in access to banking services, especially in rural areas which include large number of dormant accounts, lack of training to banking correspondents, lack of knowledge about functioning of ATMs, e-banking and government schemes among customers, poor digital infrastructure, risk of cyber frauds, data privacy, etc.

To achieve the cherished goal of providing access to financial services to each adult, emphasis should be given on quality rather than quantity, financial literacy and credit counselling programmes, adoption of secure digital technology with adequate safeguards and consumer protection measures.

The writers are with the Indian Economic Service. Views are personal