Financial inclusion—providing universal access to financial services and encouraging their use—is an important means for promoting economic development. As of 2014, the World Bank estimated that there were still 2 billion adults without a bank account, and many others with only a tenuous connection to the financial system (see Global Findex). Better access will boost the efficiency of the payments system, promote household savings and access to credit, and improve people’s ability to manage risk. And, as it does all of these things, financial inclusion has the potential to reduce inequality and increase economic growth. In other words, reducing the multitudes of those that are unbanked will improve the fate of the poorest of the poor. (For more detail, see our earlier post.)

India’s unprecedented effort to “bank the unbanked” through the Pradhan Mantri Jan Dhan Yojana (PMJDY), or “Prime Minister’s People’s Wealth Scheme,” is by far the largest such undertaking. Launched merely three years ago, on August 28, 2014, the mission to provide no-frills, no-minimum-balance (hereafter, JDY) bank accounts to every adult (including the one-fifth of the population living below the poverty line and the large rural population with limited access to physical bank branches) has been remarkably successful. As of this writing, more than 300 million people have opened JDY accounts. And, while initial readings suggested limited use, over time, JDY account holders look to be learning about the benefits, so that use is rising toward levels observed for bank accounts of comparable individuals. Put differently, by lowering bank transactions costs, hundreds of millions of people who lacked access to financial services are revealing a latent demand.

Many previous efforts to reduce the ranks of the unbanked have been far less effective (see, for example, Dupas et al). Consequently, a great deal of research is still needed to understand exactly which characteristics of the Indian program have been key to its success. Is it the country’s unique 12-digit biometric identification (Aadhaar) issued to over 99 percent of adults that facilitates account opening and limits fraud? Is the government’s effort to digitize payments, including benefits transfers that can be distributed through these accounts? Is it the ability of government to use a largely public-sector banking system to advance a possibly unprofitable national mission? Is it the thousands of new bank agents engaged to encourage account opening and use in rural villages? Is it added benefits (such as insurance and overdraft privileges) associated with the accounts? Is it the national scale that creates a range of favorable network effects (such as facilitating remittances across long distances)?

And what about side effects? To what extent are new accounts duplicates? Will the lack of financial literacy lead to fraud or abuse of the new accountholders? Will account use wither in the absence of government transfer remittances? Does the system require continuous subsidies to survive?

Most of these questions remain only partly answered. In this post, we summarize India’s progress toward providing universal financial access and highlight the conclusions of recent research—which use both direct measurement of accounts as well as survey data.

Let’s begin with a few facts. As of 2011, prior to the start of the JDY program, the World Bank reports that only 35% of Indian adults had a bank account. By 2014 (which included the first few months of the JDY program), that share had risen to 53%. Even then, however, only 22% had a debit card, only 14% had accumulated savings at a financial institutions (compared to 38% who had any savings at all), and no more than 4% used an account in the previous year to receive wages, receive government transfers, or pay utility bills. Similarly, while 46% had borrowed money over the past year, only 6% had done so through a financial institution. Finally, the share of women owning an account (43%) was far below the adult norm. In other words, only a very small percentage of the Indian population used the sorts of banking services that most of us benefit from nearly every day.

Where do Indians stand today? Fortunately, information about the JDY accounts means that we don’t need to wait for the World Bank’s triennial Global Findex (due out next spring) to find out.

As of October 25, 2017, just over three years from the start of the program, India’s banks had opened 305 million JDY accounts. Of these, 60 percent were in rural and semi-urban areas (see table and chart). And, account deposits currently total 671 billion rupees (more than $10 billion). Consistent with India’s banking system structure, most of these accounts and deposits are in public sector banks.

India, JDY Accounts, October 25, 2017