Jan Dhan Yojana: an old scheme repackaged
The Jan Dhan Yojana is to be celebrated more for what it implies than for what it intends
The new financial inclusion scheme—Pradhan Mantri Jan Dhan Yojana (PMJDY) is another old scheme repackaged for a special occasion. A bank account, with an overdraft facility and a risk cover for all. So what is new? It has a minor detail, which could be a game-changer.
Challenges of financial inclusion are solvable on the drawing board as demonstrated by the recent Nachiket Mor committee report, but they do not address the last mile.
While innovations have all addressed the pipeline problem of cash transfers, none have addressed delivery. Delivery can happen with interoperability, but commercial considerations backed exclusivity.
The big initiative of the banking system in the financial inclusion space in recent times was of appointing business correspondents. The business correspondents were exclusive and not interoperable, worse still most of the customers could not even use the bank branches or bank teller machines. Debit cards were issued for better customers. The other “cards”—the Kisan credit card, or General credit card—were technically limits that could be drawn from the host branch, without any technology backbone.
By mandating handing over of RuPay cards to every poor customer, the PMJDY has (possibly inadvertently) solved the interoperability problem. The poor customers will now be customers of the banking system and more.
These cards can be swiped at any merchant establishment accepting RuPay cards. This not only provides interoperability within the banking system, it provides last mile cashless settlement.
This initiative is much more than just inclusion for RuPay. If handled well, it would drive traffic to keep the accounts active. If wages under employment guarantee and the other direct benefit transfers get into a RuPay enabled bank account, it would be a powerful start point. The Aadhaar technology overlay for de-duplication could happen slowly on the parallel.
The international payments system dominated by MasterCard, Visa, American Express and Diners is oligopolistic. It is difficult for a new player to make a breakthrough in this market because of a chicken and egg problem. Customers would not opt for RuPay cards till they have usage points. Establishments would not offer RuPay payment options unless there is demand. The card company will have to spend heavily on promotion and should have deep pockets to amortize these costs.
Through PMJDY, there would be a massive inventory of cards with consumers. It is a matter of time that the merchant establishments take to honouring RuPay cards to capture the business of the poor. By creating a massive demand, the state indirectly bears the cost of promoting RuPay. Should the state favour only RuPay or should it give the option for customers to choose other cards? This would be driven as much by nationalistic considerations as by costs. By promoting RuPay, the state is providing effective domestic competition to the dominant players. Much like Amex and Diners are seen as the cards of the elite, RuPay might turn out to be the card of the poor, forcing the issuers to rationalize on issue costs and merchant charges.
How will this interoperable card affect the poor if they use it at a non-host outlet? They may have to pay a relatively heavy usage charge. Should we be worried? No. This would get sorted out over a period of time as more and more traffic lands up at the lap of RuPay. Therefore the PMJDY is to be celebrated more for what it implies than for what it intends.
M.S. Sriram works with the Centre for Public Policy, Indian Institute of Management, Bangalore.
Comments are welcome at email@example.com
Follow Mint Opinion on Twitter at https://twitter.com/Mint_Opinion
Editor's Picks »
- DCB Bank Q3 results: Small loans give big pain as farm, mortgages lift delinquencies
- 1 step forward, 2 steps back. Is GST going the VAT way?
- Mindtree delivers stable Q3 results after a shock Q2
- RIL Q3 results: Will Reliance Jio, Reliance Retail make up for lost energy?
- Why Tata Motors’ Project Charge at JLR is failing to recharge its shares