Janata Likes Jan Dhan

It has now been just more than a year since the Pradhan Mantri Jan Dhan Yojana was launched, with the idea of providing banking facilities to the poorest of the poor. In this year PMJDY has orest of the poor. In this year PMJDY has created a huge base of bank accounts for much of the unbanked population, upon which will take shape all future developments in the financial inclusion space.

Its effectivity in rural areas is emphatically proved by a large random sample study of Jan Dhan accounts opened by State Bank of India between August 2014 and May 2015.

We find rapid growth in active accounts across all geographies, where an active account is one where at least one transaction takes place in a month.The average of the number of active accounts has grown 25 times between August 2014 and May 2015. Dormant accounts have multiplied by 10 times.

The big push in active accounts for rural areas is coming from the rural west, followed by the rural north. Interestingly , semi-urban regions in the east and south are also showing an exponential growth.One reason for this could be that domestic remittances in such regions that were already buoyant prior to August 2014 have gathered further pace since then, thanks to the proliferation of accounts.

We defined “active of the active“ accounts as those with more than two transactions a month. In rural east, the number of such accounts has jumped from zero to 16%. In rural north, from 4% to 15%. A logical corollary is the manifold increase in average balances in active accounts across all geographies.Average balance in rural regions has increased from a mere Rs 250 to around Rs 2,000, with the east showing the way , followed by the west. Average balance in rural east (close to Rs 3,000) is even higher than in metro east, indicating the huge untapped potential of this part of India.

The past year has seen a rapid growth of active PMJDY accounts across all geographies

One proxy for the creditworthiness of such accounts is the time taken for average balances to peak. This was estimated at between four months in the south, five in the north and west, and six in the east. Interestingly , the average balances in married couples’ accounts take a bit longer to peak as compared to unmarried couples. Plus, balances in the accounts of rural females tend to peak a bit later than their male counterparts, indicating greater propensity for saving.PM JDYlogo

Perhaps the most fascinating aspects of our study were the trends in remittances. As India’s median age has continued to fall over the last two decades, it has been the informal sector that has produced the largest share of jobs. Unbalanced growth across regions has accentuated rural-urban migration within states and between states. Interaction between the informal economy , migration and the need for employment opportunities has created a huge demand for domestic remittance services. As a matter of fact, 75% of domestic remittances are estimated to be channelled in the informal sector in India as against 30% in China, revealing a huge opportunity for banks to serve migrant workers. For the vast majority of an unbanked and internet illiterate population, PMJDY accounts provide the cheapest and the most accessible remittance service provided by banks. For banks, the cost saving potential is apparent as mobile banking based transactions cost about 2% of branch banking, 10% of ATM based transactions and 50% of internet banking.

As per independent estimates, about 1.15 crore households received remittan ces of around Rs 50,000 crore during FY11. Our results show that in rural east, remittances now constitute nearly twothird of the total credit deposit as against virtually non-existent transfers in August 2014. Similar trends are being witnessed in rural south. In rural west and rural north, however, cash deposits constitute an increasing trend. As we indicated earlier, an increasing share of such remittance transfers is happening in semi-urban areas of south and east, pointing towards both an intra-state and inter-state migration.

Also, the gaps between remittances as a percentage of credit deposits in the female accounts versus male accounts are getting narrower over time. This is a welcome trend as male migrant workers who send back remittances to their women counterparts often allow women to acquire new skills, capacities and knowledge to deal with new challenges. Thus migration is also proving to be a source of women’s empowerment as they can take independent decisions benefitting their families.

Studies in India have also highlighted the positive impacts of domestic remittances on wealth creation and asset accumulation as well as in increasing teen schooling attendance. Such services will ultimately give banks the opportunity to provide differentiated products.

Once we can link direct benefit transfers with a common identification number like Aadhaar and mobile call data, the potential of PMJDY in financial inclusion can be mapped in much more minute details. This big data approach to PMJDY can prove very beneficial to make sure that inclusive growth happens amidst the right segments of the population, at the right time and with the right product ­ without losing money in the middle.

To sum up, we are now standing at the next level of financial inclusion. The ecosystem of such financial inclusion will require a more flexible and technologically aided platform that can be effectively leveraged to increase the reach of the formal financial system.

Source: TOI 30 Oct’2015