Budget 2023: Jan Dhan 2.0 Can Make Digital Financial Infrastructure Work for All Citizens

The financial sector has big hopes pinned on the Union Budget 2023-24, especially in terms of financial inclusion, which has been one of the highest priorities of the government. As India is prominently placed on the global map this year with a steadily growing economy and the presidency of the G20, our flagship models of innovation-infrastructure-inclusion are envisaged to be the focus of this Budget. We hope that the Pradhan Mantri Jan Dhan Yojana (PMJDY) will get a renewed boost in the next phase of financial empowerment.

India as the Torch Bearer of Digital Public Infrastructure

As the host country for the G20, one of India’s key focus areas is to leverage “Digital Public Infrastructure (DPI) for Financial Inclusion and Productivity Gains” as countries recover, rebuild, and grow amidst multiple global shocks.

As per a World Bank report, nations that invested in digital systems based on the values of inclusion and empowerment prior to the pandemic were better able to ensure that social protection programmes reached millions. India is well placed to be the legitimate torch-bearer of the presidency given that digital transformation has made huge strides in scale and impact.

PMJDY with 81 per cent of the total 46.25 crore Jan Dhan accounts as of August 2022, having total deposits of over Rs 1.8 lakh crore, is a notable example of DPI in action in providing formal financial services to over 470 million low-income individuals, including over 230 million women. After seven years of success, it is time that the goal post shifts from financial inclusion to financial empowerment to ensure increased adoption and usage of financial services.

This would lead to productivity gains for those at the bottom of the pyramid while providing financial security through savings and investment channels. We hope that Jan Dhan 2.0 will adopt a gender-intentional and inclusive digital avatar.

Digital Jan, Digital Jan Dhan

A revamped Jan Dhan scheme could help ensure that every customer saves regularly at banks, BC points, or through BC sakhis, who are digitally enabled and empowered. The first and most critical step would entail implementing national and last-mile digital literacy campaigns in order to encourage the adoption of digital financial behaviors.

Jan Dhan 2.0 could also consider product modifications. For instance, all customers who save Rs 500 per month for five months could unlock an overdraft facility. Additionally, maintaining an annual outstanding balance of Rs 5,000 could attract a higher five per cent interest on their savings. Women customers could be offered an additional 0.25 per cent interest rate to incentivize household savings.

A gender-intentionally envisioned Jan Dhan 2.0 can be the impetus that women need for their financial resilience. If women customers could avail revolving credit through RuPay card at, say, a five percent interest rate, there could be incentives for those who repay on time, making them automatically eligible for Shishu Mudra loans. This can boost women’s confidence and give them access to capital for starting and growing their enterprises.

The Jan Dhan 2.0 could also include a mini fixed deposit style scheme where there is a guaranteed minimum interest rate of 6.5 per cent on deposits of at least Rs 500 per month, up to a max balance of Rs 50,000, for a lock-in period of three years. These customers can enjoy an automatic enrollment under the PMJJBY and PMJSBY insurance schemes, thus promoting long-term social security.

Unlocking the Power of Women’s Savings for Economic Resurgence

Gender-responsive design modifications have massive potential to unlock the power of women’s saving — the microfinance and SHG movements are proof that women are good savers and stickier customers. By focusing on and designing for women, banks could see an improvement in usage of accounts and other related products across the portfolio in just three to five years. Because when designed for women, the solutions benefit men too.

Jan Dhan 2.0 could be strikingly differentiating by ensuring gender-intentionality becomes key to rethinking the world’s largest financial inclusion programme, banks could potentially raise Rs 50,000 crore of deposits and offer emergency credit to over Rs 5 crore PMJDY women customers. This could also incentivise BCs and BC Sakhis to seek more customers and cross-sell more financial products. Further, timely repayment will improve women’s credit history, unlock higher loans, and bring them into the formal banking system. Within a few years, we could move households away from local money lenders and fraudulent schemes that keep people in a low-income trap.

We have seen in previous decades the growth and transformation of the middle class in India through the power of savings. India has maintained a high savings rate, which has powered and stabilised our economy. Jan Dhan 2.0 could invigorate the economic power amongst women and other low-income segments making them the engine behind the huge economic resurgence expected in the next five years in India.

(Sanjeev Kaushik (IAS) is the former additional secretary (banking), Department of Financial Services, GoI, and currently Principal Financial Sector Specialist of Asian Development Bank; and Ajit Agarwal is lead (partnerships & policy) at Women’s World Banking.)

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