PM Narendra Modi kicks off Phase I of financial inclusion programme on Independence Day

Prime Minister Narendra Modi, in his maiden Independence Day speech on Friday from the ramparts of the Red Fort, touched upon a major drive that the government is planning on financial inclusion.

Unveiling the 'Pradhan Mantri Jan Dhan Yojana', he said there were more mobile phones than bank accounts in the country. As part of the scheme, access to bank accounts will be made available to the poorest of the poor and each account holder will get a debit card (Ru-Pay card) and a Rs 1 lakh insurance cover.

While Modi did not share any details of the scheme, some of this has already been put out by the Ministry of Finance on its Facebook page. The ministry says the efforts will be more than just opening bank accounts. The target would be individual households given that there are 7.5 crore households that do not have a bank account.

Also, the government's financial inclusion mission would have two phases starting Friday. The first phase will get over by August 14, 2015, and the second Phase by August 14, 2018. Most activities will be done in the first phase, and insurance and pension would be covered in Phase-II. This will help the government transfer subsidies directly to the accounts of the beneficiaries.

What will now need to be seen is how this scheme is operationalised. What will be the financial cost of all this for the government as each account is expected to have a Rs 5,000 overdraft facility? What will be the commitment of banks as they will have to issue the debit cards? And how will it be monitored by the RBI and other authorities?

Some experts say the government has already taken some major steps towards financial inclusion.

Some of this evident from the policy statements made by the RBI in the past couple of years - from recognising Non-Banking Financial Companies - Micro Finance Institutions (NBFC-MFIs) as a separate category; letting NBFC-MFIs to become banking correspondents; giving Bandhan a banking license, making it the first MFI to get this; allowing Ru-Pay enabled debit system; encouraging banks and mobile phone companies to form alliances; coming out with draft regulations for payment banks; and seeking industry views on its new policy on creating small banks.

According to the Ministry of Finance (as given on its Facebook page), here are broadly some elements of the new architecture that the government seems to be planning on financial inclusion:  

SOME ELEMENTS OF THE OLD FINANCIAL INCLUSION PROGRAMME:

>> Village-based approach for villages where population is greater than 2,000

>> Only Rural

>> Mobile Banking Correspondents

>> Focus on opening of Basic Savings Bank Deposit Accounts

>> Monitoring by banks

>> Operation of Accounts offline; separate server.

SOME ELEMENTS OF THE NEW FINANCIAL INCLUSION PROGRAMME:

>> Aims to cover households in all villages

>> Both rural and urban

>> Focus on financial literacy, opening of Basic Savings Bank Deposit Account, Convergence with other subsidy schemes and Micro Insurance/Pension, RuPay Debit Card, Kisan Credit Card.

>> Monitoring Mechanism at Centre, State, District level. Active participation of state and district emphasized.

>> Accounts online on Core Banking Solution of banks. Provision of RuPay Card to each account holder, giving him freedom to operate anywhere.