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.
