Over 50% of Indian Population is unbanked, that is, they do not have an account at a formal financial institution. Pradhan Mantri Jan Dhan Yojana seeks to ensure that all households and businesses, regardless of income level, have access to and can effectively use the appropriate financial services they need to improve their lives.
Currently, the poor in India live in and work in what is known as the informal economy. Even though they have little money, they still save, borrow and manage day-to-day expenses. However, without access to a bank, savings account, debit card, insurance, or formal credit, they mostly rely on informal means of managing money. This includes family and friends, cash-on-hand, pawn-brokers, moneylenders, or keeping it under the mattress. Sometimes these choices are insufficient, risky, expensive, and unpredictable. Some quacks even charge them with exorbitant interest rates.
Being included in the formal financial system helps people:
- Make day-to-day transactions, including sending and receiving money;
- Safeguard savings, which can help households manage cash flow spikes, smooth consumption and build working capital;
- Finance small businesses or microenterprises, helping owners invest in assets and grow their businesses;
- Plan and pay for recurring expenses, such as school fees;
- Mitigate shocks and manage expenses related to unexpected events such as medical emergencies, a death in the family, theft, or natural disasters; and
- Improve their overall welfare.
The benefits of financial inclusion are not only significant for individuals but for economies as well. Financial inclusion is linked to a country’s economic and social development and plays a role in reducing extreme poverty.