Nov 23 2015
CDFI exclusive e interview with Honorable Finance Minister Shri Arun Jaitley
CDFI: As Finance Minister can you tell us what the government’s vision is for India in the financial inclusion space by 2020?
FM: About this government’s vision for 2020, the first thing is to overcome the legacy of the past government and streamline the disarrayed economic condition of the country. When the five-year term of this government expires, we would expect that every Indian household is integrated into the economic fabric of India. Through the basic financial instruments like saving bank accounts, insurance policies and debit card citizens should be financially empowered. They should become creator and beneficiaries of India’s growth story.
The option to open a zero-balance account under Pradhan Mantri Jan Dhan Yojana (PMJDY) was a game changer in the financial inclusion project. It can be compared to political enfranchisement of the masses after independence. In the British India, there were limited voting rights in municipal and provincial elections, reserved only for the moneyed and educated. Independence brought universal adult franchise. In the same manner while banking facility was in principle available, it did not penetrate the poorer sections. The zero-balance account financially enfranchised the masses. Their bank accounts should make as much difference to India’s economy, as their vote does to the political destiny. RuPay Card will give the holder freedom to operate from anywhere.
While the earlier approach was to target villages with populations greater than 2000, this government’s approach is to target households in all villages. Initially, three-fourth of the accounts opened under PMJDY were on zero-balance. The trend has slowly declined to around 45 percent. As of September 16, 2015 some 18.34 crore accounts have been opened under PMJDY. Rs. 24071 crores have been deposited into the banks. The Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY) have not only become popular but have also financially empowered the poor. Around 11.5 crores accounts have been opened under these three schemes of Jan Suraksha.
Financial inclusion also includes access to cheap micro loans. There are registered and licensed organizations in the microfinance sector. The government has laid emphasis on standardizing the sector by developing proper architecture, technology and a set of covenants for last mile connectivity. The Pradhan Mantri Mudra Yojana (PMMY) implemented through Micro Units Development & Refinancing Agency (MUDRA) is a thoughtful initiative of this government.
CDFI: A differentiated banking regime has been an initiative of this government. Can you spell out how the proposed new banks will help revolutionize the country’s banking sector activities and bring the unbanked masses under the ambit of formal banking and aid in spread of financial inclusion?
FM: Licenses have been given to 10 entities to act as small payment banks through a careful scrutiny out of 72 entities that applied. These were earlier microfinance companies under the purview of RBI and SEBI. Payment banks will further the cause of financial inclusion by providing (a) small saving accounts (b) payment/remittance services to migrant labour workforce, low income households, small businesses, entities in the unorganized sector by enabling high volume-low-value transactions in deposits and payment/remittance services in secured technology enabled environment.
The small payment banks will meet the needs of the unbanked population. Not many people are realizing its revolutionary effect in wealth generation. As microfinance institutions, they were only in the business of lending. Now, as small payments banks, they can raise deposits. They will no longer need to borrow from PSBs in order to lend money to people. This will unfetter their activities to a great extent. Wealth generation activities will increase. Small payment banks will provide all the banking services that its targeted section needs.
With path breaking developments in digital technology the world is today a global village with constraints of reach and availability being things of the past. Integration of seamless technology with industry and people will not only make the country’s economy robust but will also help in growth of the envisaged GDP of the nation.
CDFI: How does the government propose to overcome the barrier of literacy and financial literacy in the process of financial inclusion?
FM: Historian Niall Ferguson in his ‘Ascent of Money’ observes that financial literacy is far below expectation even in the educated western society. Given today’s economic complexity, the consequences of being financially uneducated are high. The Securities and Exchange Board of India, SEBI, in June 2010, launched a financial education drive through Resource Persons (RP) across 288 districts in 27 states. More than 23,000 programmes benefitting 17 lakh participants have been conducted in remote parts of the country. SEBI also focuses upon educational institutions to inculcate lessons on financial literacy. NCERT, which comes under the HRD Ministry, has included financial literacy in its school curriculum.
Some 1.23 lakh business correspondent agents or Bank Mitras have been deployed by various banks under the PMJDY both in urban and rural areas where it is not viable to open a branch. They bring banking services to people practically at their door step. Their services are delivered through biometric identification and using RuPay debit card. The Bank Mitras also educate the people on financial services. Thus they are playing a major role in increasing financial literacy.
CDFI: How can civil society help in promoting the cause of financial inclusion?
FM: The civil society is our greatest asset in promoting the idea of financial inclusion. They will be helpful in taking the message of financial inclusion down to the last man in society. Financial independence is no less important than political independence. As the civil society groups function in the field of rights, they can also work in the field of financial inclusion. For example, a family can gift PMJJBY and PMSBY to maids working in the household. This we can do at individual level so as to encourage their financial inclusion. I do not view micro-finance institutions as strictly commercial entities. They are products of an idea to promote financial inclusion and bank the unbanked population.
In the context of Hon’ble Prime Minister’s vision to enable financial inclusion of every Indian citizen, JAM – Jan Dhan, Aadhaar and Mobile – will be immensely helpful to take financial inclusion to the doorstep of every individual, target the beneficiaries and reaching them the benefits of direct transfers and do away with pilferages and wastage of national assets. This will also enable participation of people in asset creation of the nation and their contribution to the growth in GDP.
CDFI: What is your message for organizations working in the digital financial inclusion space, especially in the context of the government’s flagship Digital India programme?
FM: My message to the organisations working in the digital financial inclusion space would be to utilise the immense possibilities of digital and mobile technology services available under the Digital India Programme to penetrate deep into the nook and corner of the country to ensure that the last person is reached who does not suffer financial exclusion due to technical or systemic inadequacies. The organisations should engage in creation of enabling platforms to not only reach out to people but also provide them with easy technological options that would encourage them to not only do banking activities but also all marketing activities. This will also help the country in elimination of unauthorised financial transactions and bring in accountability in the financial sector.