India’s Pradhan Mantri Jan Dhan Yojana (PMJDY) programme has brought more individuals into the formal financial fold than any other inclusion-related intervention attempted to date. The level of financial inclusion among Indian adults increased by 20% between 2014 and 2015, an unparalleled rate of growth across the eight countries tracked by InterMedia’s Financial Inclusion Insights (FII) research programme.
FII data suggests that PMJDY has contributed to equalising financial inclusion across demographics groups. Particularly encouraging, PMJDY is facilitating greater financial inclusion for the traditionally under-banked segments of Indian society – those living below the poverty line, those in rural areas and women. Due in large part to PMJDY, the rate of financial inclusion for Indian women, for example, increased by 24% between 2014 and 2015, compared with an increase of 14% among men. Despite not explicitly targeting women, it’s evident that PMJDY was particularly impactful for enabling women’s ability to access financial services.
There are several possible explanations for this trend. One is that women’s level of financial inclusion started from a relatively lower base (in 2013 prior to the start of PMJDY, 39% of women had bank accounts compared with 55% of men). Thus, there was simply more room for growth among women. It is also likely that by requiring banks to provide accounts with attractive features, such as a zero minimum balance and an overdraft facility, and advertising the existence of those accounts, the program lowered social barriers to account access, which disproportionately affected women. As women were informed they had a right to a bank account that was within their financial reach, many women decided to open accounts.
Account ownership, in and of itself however, does not paint the full picture. That is, simply having an account reveals little about the way in which a person uses it. We must ask the question: Does removing institutional barriers to access prompt meaningful account utilisation (i.e. regular use) and, ultimately, a deeper engagement with formal financial services? To address this, we can look at engagement metrics such as how actively customers use their accounts and what types of services they access.
For the purposes of the FII survey, an active bank account holder is defined as an individual who has used their bank account within the 90 days prior to taking the survey. The survey findings revealed that 67% of Indian bank account holders are active. That means approximately a third of account holders had not used their accounts in the last three months, at the time of the survey. The gap between account ownership and active use is even clearer when we isolate PMJDY account holders. Thirty-seven percent of those with PMDJY accounts had not used their accounts in the last three months from those interviewed. Fifty-seven percent of women who opened their accounts under PMJDY are active users. This shows there is a need to encourage greater account utilisation among newly banked women. However, stepping back, overall growth in active use is clear, as 35% of adult women are now active bank account holders compared to 18% in 2013, before the PMJDY programme roll-out.
A large number – 84% of PMJDY account holders overall and 86% of female PMJDY account holders – use basic banking activities like withdrawals and deposits. While ownership of a PMJDY account can provide access to more sophisticated financial services, banking is a journey and we will monitor closely for indications of increased usage of services beyond deposits and withdrawals in subsequent surveys.
Removing institutional barriers to access is a crucial first step but currently PMJDY account holders use their accounts less frequently and with less sophistication than non-PMJDY account holders. While this could evolve over time as new account holders grow more comfortable transacting, simply promoting account ownership may not be sufficient to foster more advanced financial behavior, especially among Indian society’s most marginalised. As per the new directive of State Bank of India, the country’s largest lender, the bank will offer overdraft and loan facilities to nearly seven lakh account-holders who have enrolled with it through the PMJDY. With the continued engagement of the State Bank and encouraging measures such as these, the gains made from increasing access may be converted to higher, more sophisticated usage.
Diverse segments of society face diverse sets of obstacles; applying blanket solutions will only go so far. PMJDY was an extremely successful and important first step, but more targeted solutions and tools are likely to be required for continued progress. We anticipate that the newly licensed Payment Banks and Small Finance Banks will offer differentiated products and services that could help the cause of financial inclusion.
As these recent survey findings suggest, there is a need to shift the interventional focus from simple access-oriented measures toward utilisation and engagement-oriented measures. It is vital that we keep in mind that financial inclusion is a means to an end and not the end in and of itself. It is only when people use financial tools to make their lives better, and their communities’ stronger that the promise of financial inclusion is truly realised.
Nathaniel Kretchun is Senior Associate Director at InterMedia