How a 1% DBT Commission Could Undermine India’s Financial Inclusion Efforts

This policy brief evaluates how the Indian government’s direct benefit transfer (DBT) commission rate for rural areas can affect the success of Jan Dhan Yojana. The Jan Dhan Yojana is a national initiative undertaken by the Government of India to increase financial inclusion in the country. The brief states that the success of the initiative depends on the reach and quality of last-mile business correspondents (BCs) established by banks and deployed by BC network managers. It notes that in the last three years, as many as 22-35% of BCs appointed to deliver financial services have become dormant and the current, 1% DBT commission in rural areas may lead to even greater dormancy. It recommends a minimum DBT commission rate of 3% for a few years in order to build a sustainable network of BCs providing quality services. The brief covers the following sections in detail:

• Benefits to government of digitizing payments;
• Impact of a 1% commission on the distribution network;
• Evaluation of whether the Indian government can afford higher DBT commissions;
• Next steps and recommendations for the Indian government for ensuring successful rollout of the Pradhan Mantri Jan Dhan Yojana.