Modi's Jan Dhan scheme lacks purpose; accounts penetration worst in BRICS: WB

By Rajiv Shah
A new report by the World Bank, “Global Findex Database 2014: Measuring Financial Inclusion Around the World”, has said that the Government of India’s high-profile Jan Dhan scheme, launched for bank transfer subsidies to the poorer sections of India’s population, has been lacking any “explicit purpose”, one reason why around 43 per cent of the country’s accounts are "dormant."
The report, whose Indian survey is based on what it calls “face-to-face” interview with around 3,000 lower middle class sections of the population between September 7 and October 15, 2015, said, “In South Asia about 40 percent have an account classified as dormant. One possible reason for this is the large number of accounts opened within the past year in India, many of which were set up without an explicit purpose in mind.”
The report, which has been authored by Asli Demirguc-Kunt, Leora Klapper, Dorothe Singer and Peter Van Oudheusden, has found that the account penetration in India of all adults is 53 per cent, of women 43 per cent, and of adults in poorest 40 per cent households is 44 per cent.

While this may be some consolation as it is much better than the neighbouring Pakistan (13 per cent, 5 per cent, and 11 per cent respectively), it is worse than not only all other BRICS countries but also the average of the developing countries.

Thus, in China the account penetration among adults is 79 per cent, women 76 per cent, and among adults in poorest 40 per cent households 72 per cent. The respective figures for Brazil are 68 per cent, 65 per cent and 58 per cent; for Russia 67 per cent, 70 per cent, and 62 per cent; and South Africa 70 per cent, 70 per cent, and 58 per cent. The developing countries’ average is 54 per cent, 50 per cent, and 46 per cent, and world average is 62 per cent, 58 per cent, and 54 per cent.
Commenting on accounts penetration in the BRICS countries—Brazil, the Russian Federation, India, China, and South Africa—the report said, “Among these five countries, China has the highest share of adults with an account, at 79 percent. South Africa has the highest share of adults who reported using an account to make or receive payments, at 60 percent, followed by the Russian Federation with 51 percent. In Brazil and China about 40 percent of adults reported using an account to make or receive payments.”

As against these countries, the report said, “in India not only is account penetration comparatively low, at 53 per cent, but so is the use of accounts for payments: a mere 15 per cent of adults reported using an account to make or receive payments.”

Comparing account penetration of India and China, the report said, both “saw strong growth in account ownership between 2011 and 2014—in China account penetration increased from 64 percent to 79 percent, and in India from 35 percent to 53 percent.” 

Translated into absolute numbers, it added, “this growth means that 180 million adults in China and 175 million in India became account holders—with the two countries together accounting for about half the 700 million new account holders globally.”
Despite this, the report said, “India is home to 21 per cent of the world’s unbanked adults”, while China accounts for “12 per cent of the world’s unbanked adults.” It added, “India, with a dormancy rate of 43 per cent, accounts for about 195 million of the 460 million adults with a dormant account around the world.” This is against the western economies, where the “dormancy rate is 5 per cent.”
The report also points out that as against the less than 5 per cent of adults around the world reported borrowing from a private informal lender, by contrast, in India and Nepal, “more than 13 percent of adults reported borrowing from a private informal lender.”
In South Asia about 40 percent have an account classified as dormant. One possible reason for this is the large number of accounts opened within the past year in India, many of which were set up without an explicit purpose in mind.