The Weakest Link is Jan Dhan Account





Needed, ubiquitous correspondents for mobile banking

Prime Minister Narendra Modi has announced the start of three schemes, two insurance products and one pension scheme, for poor and unorganised workers. These might repackage ongoing schemes introduced by the previous UPA government, but there is no denying the present administration's ability to give them scale, commitment and visibility the schemes needed. Insurance pools resources to meet contingent expenses. Give that nearly two-thirds of Indians are below 35 years of age, the probability of death in the entire population is small and the premium amount can be kept low to mobilise the resources needed to meet insurance payouts. When coverage is expanded to include the entire population, the odds work in favour of lowering costs.This does not mean that no state subsidy would ever be needed. But the subsidy requirement is not likely to be huge, with some mandatory contribution from the beneficiaries as well. The earlier a worker starts saving for re tirement, the lower the burden on the government to ensure him a minim um pension in old age. These schemes can work well only when the benefici aries understand the schemes in ques tion and diligently make their contri butions. The weakness in the system is not the inability of the poor to pony up the small amounts required as their contribution to these funded programmes, but the bank accounts to which these are linked. While large numbers of bank accounts have been opened, these accounts in physical branches at a distance from where the account holders live remain as hard to operate as ever.
The way to make banks accessible is through mobile phone-linked accounts that can be operated through ubiquitous banking correspondents for depositing or taking out cash. For this, the RBI would need to liberalise its terms for banking correspondents and allow telecom joint ventures with banking licences to make use of their telecom retail network to service banking needs as well.Once that is done, India will move ever closer to the goal of financial inclusion.