NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, June 5, 2015

In India, growth with equity has been the central objective right from the inception of the planning process. Over the years, several initiatives have been taken both by the government and RBI to address the issue of inclusive growth. However, the last half a decade witnessed an enormous effort in advancing the financial inclusion agenda.

The latest endeavour is the Jan-Dhan Yojana, which saw the opening of 12.54 crore bank accounts and issued 11.08 crore RuPay debit cards by January 2015. A lot of these are through formal financial institutions—by opening fresh branches in unbanked regions, employing business correspondents (BCs) and helping open no-frills accounts.

While in terms of numbers, significant progress appears to have been made, the actual benefits of this linkage are not yet perceptible, with few accounts activated. The bank branches and officials did not take interest in keeping these accounts active through allowing transactions or, say, a small overdraft, the former deputy governor of RBI, KC Chakrabarty, said at an event on financial inclusion, organised by the Indian Chamber of Commerce. However, the interesting aspect of the government’s ambitious financial inclusion drive is positioning itself as an individual-centred and technology-based strategy to link the unbanked with formal financial service providers and completely bypassing group-based programme such as the Self Help Group-Bank Linkage Programme (SHG-BLP).

The SHG-BLP was conceived to fill the gap in the formal financial network by extending the outreach of banking to the poor in an affordable way. It was designed to supplement the formal credit delivery mechanism with a focus on savings first followed by credit. The programme has come a long way since 1992, passing through stages of pilot (1992-1995), mainstreaming (1995-1998) and expansion (1998 onwards), emerging as the world’s largest community-based microfinance programme in terms of outreach.