What was the issue?
- The JAM framework has been the centre piece of financial inclusion in India.
- But the focus on reforming PSBs should be revamped for better inclusion.
What is financial inclusion?
- It is a process of making financial services (savings, credits and insurance) accessible at affordable costs to all individuals and businesses.
- A broad and vibrant financial sector can lubricate the engine of growth.
- It is an important aspect of financial development.
- Financial inclusion can also be an important catalyst for promoting equity and poverty reduction.
- It allows even the less well-off to store money and send and receive payments.
What is JAM?
- It is a three-part strategy based on using digital technologies standing for Jan Dhan (banking), Aadhaar (biometric identity) and Mobile (transactions).
- It has the potential to avoid a common problem in policymaking in India like intervention and leakage and facilitate financial inclusion.
- e.g Biometric identity cards have reduced corruption in welfare programmes.
Why reforming PSB should also be focussed?
- The commercial bank loan officers can be more efficient and include more people if provided with better designed incentives.
- e.g A study found that a properly incentivised loan agents working for SEWA Bank can improve access to loans and integration of women into the labour market.
- Attention should be given to the structure of such organisations, including the incentives provided to employees and overall organisational culture.
- Enlisting local trader agents in lending decisions can improve inclusion of small farmers.
- Better targeting of credit to small farmers might also help them in getting better prices for their output.
- Agricultural insurance can be designed to be both affordable and beneficial for production and welfare.
- Existing government assistance programs, such as loans, training, and marketing, do not help these firms transition and grow.
- Employment creation through the growth of India’s myriad small firms seems like an essential part of generating job-friendly and inclusive growth.
- Institutional innovation like effective regulation, targeting etc., is necessary in both the public and private sector.
Source: The Indian Express
