Challenges in Banking the Unbanked: A Study of Financial Inclusion through the Pradhan Mantri Jan Dhan Yojana

Abstract

Financial inclusion has been a public policy priority of governments across the world. Special efforts were made since independence by both Government of India and the Reserve Bank to achieve financial inclusion. A substantive change in the approach came with the implementation of the PMJDY scheme where millions of bank accounts were opened for the poor population. The PMJDY scheme has been the largest financial inclusion programme in the world till date. The bank accounts have been used to provide DBT to poor households. However, due to financial illiteracy, majority of the bank accounts remain non-operational or see very little transaction happening and the poor still rely on traditional sources of banking facilities. Interviewing a total of 24 village residents in the Jaipur district of Rajasthan, this dissertation study lays out possible solutions so that the PMJDY bank accounts can become operational and true financial inclusion can be attained. For this, at first, financial behaviour with respect to income, savings, spending and credit requirements of poor household in rural areas is studied. Lower levels of incomes and savings often force households to take credit. For this purpose, moneylenders offer lucrative loan products. When compared to banks, households prefer taking loans from moneylenders because bank structures are rigid and the bank managers cannot offer the flexibility which the moneylenders offer. Moreover, bank managers also lack motivation to reach out to the poor. To tackle the stated barriers, it is proposed that both, the lender and the borrower need to be strengthened and the possible ways to do the same are suggested.