Over the past few decades, India’s journey towards financial inclusion has seen a number of policy innovations. This meant pursuing bank nationalization and expanding the availability of banking services in rural areas in the early 1970s.
Aadhaar’s introduction in 2009 signaled a paradigm shift in policy towards the use of technology to promote financial inclusion. After the foundations for digital infrastructure had been established, it was more clear how this infrastructure would be used to enhance the results of financial inclusion.
One way to accomplish this was to use the “Jan Dhan Account- Aadhaar- Mobile” (JAM) trinity to make it easier for the poor to receive Direct Benefit Transfers (DBTs) of welfare subsidies into their bank account. By transferring money from the government into citizens’ bank accounts, the main goal was to increase account ownership and usage. As a result, the market segments that the formal financial system typically underserves might be integrated into it.
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What are the components of the JAM trinity?
The basic savings accounts offered under the Jan Dhan Yojana, the one-of-a-kind biometric identification provided by Aadhaar, and the nation’s rapidly rising mobile penetration are the main elements of the JAM architecture. Each of these elements serves a particular purpose in the DBT pipeline:
• The Aadhaar number identifies people who qualify for various government programs and uses biometrics to verify their identity. Aadhaar numbers serve as a person’s financial address and are linked to bank accounts, making it simple to send electronic welfare payments.
For example, a person would submit their Aadhaar information to sign up for the Indira Gandhi National Old Age Pension Scheme (IGNOAPS) or the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The relevant benefits would be transferred to the bank account associated with the provided Aadhaar number after their identity was confirmed using their Aadhaar.
• Transfers from the government are made directly into Jan Dhan Accounts, which are simple savings accounts with no balance.
• When welfare payments are successfully transferred, a high mobile ownership rate ensures outreach to and communication with citizens.
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Government schemes under JAM
• Pratyaksh Hanstantarit Labh (PAHAL) Yojna- LPG subsidies are deposited directly into bank accounts under the PAHAL Yojna. More than 14.62 crore people currently receive direct cash assistance. Additionally, it has assisted in the identification and blocking of 3.34 crore duplicate or inactive accounts, saving hundreds of billions of rupees. The PAHAL Yojana, the largest direct cash transfer program in the world, was just inducted into the Guinness Book of World Records.
• Pradhan Mantri Suraksha Bima Yojna-Accident insurance in the amount of Rs. 2 lakh is offered under this program. Even the poorest Indian can afford the premium because it is only Rs. 12 per member per year.
• Pradhan Mantri Jivan Jyoti Bima Yojna- This program offers life insurance for just Rs. 330 per year, payable to the member’s family in the event of his untimely death. The Pradhan Mantri Jivan Jyoti Bima Yojana has attracted nearly 3 crore participants.
• Atal Pension Yojana- It offers a pension of up to Rs. 5000 per month, depending on contributions, as it is a guaranteed pension scheme. 15.85 lakh individuals have signed up for the Atal Pension Yojana.
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Greater ease of access to formal financing
Improving bank account ownership by bringing banking to the base of the pyramid was one of JAM’s key goals. According to government estimates, 470 million people have Jan Dhan bank accounts that were opened since 2014, of which 261 million are women.
The initial Jan Dhan account offer included a RuPay debit card, as well as government-provided pension and insurance plans. The bottom of the pyramid now has better access to a wider range of financial instruments thanks to this bundling.
Although there has been a significant increase in account ownership over the past few years, it is still unclear whether this has resulted in meaningful financial inclusion. As of August 2021, roughly 14% of all Jan Dhan accounts were inactive, according to a report by The Print.
Direct Benefit Transfers Facilitation
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The JAM trinity has additionally contributed to improvements in the provision of public benefits to citizens as a crucial DBT system enabler.
Cash transfers used to be made using physical distribution channels, which frequently had leaks caused by middlemen. Cash was physically distributed, which cost the exchequer money and was ineffective for the recipient. With the DBT system, there are no longer any physical channels for distributing cash; instead, electronic transfers are made straight to bank accounts. The seeding of bank accounts with Aadhaar enabled beneficiaries’ identities to be verified, assisting in determining whether welfare benefits were being sent to the right people.
The use of JAM should, in theory, result in an airtight transfer system with no potential for leakage. This has not happened according to a report by the Print. For instance, under the Pradhan Mantri Kisan Samman Nidhi (PM KISAN), thousands of crores of rupees that were meant to support farmers’ incomes have been diverted from deserving recipients and placed in the accounts of fraudulent individuals.
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