"After 'banking the un-banked' with the Jan Dhan Yojana, it's time to 'fund the unfunded'," Prime Minister Narendra Modi said at the launch of the Micro Units Development Refinance Agency, or the MUDRA Bank, on Wednesday.

Approximately 58 million small businesses in the country, which account for a mere 4% of institutional funding, despite employing over 120 million people, will be the main beneficiaries of the bank, which has been launched under the ambitious Pradhan Mantri Jan Dhan Yojana.

It is hoped that the Rs 20,000-crore corpus of the bank will come in handy for extending credit of up to Rs 10 lakh to small businesses.

The un-banked

The Jan Dhan scheme started in August as a well intentioned mission for “banking the un-banked."

Providing free of cost bank accounts with minimal paperwork and free insurance to top it up seemed like an idea whose time had come. No wonder, the scheme soon amassed a 12.5 crore new bank accounts in less than eight months, establishing a world record.

However, to describe it as a success just yet would be an exaggeration as an alarming number of these accounts to not have any money in them.  As of Tuesday, almost 8.44 crore of the 12.5 crore new bank accounts had zero balances, reflecting the perils of the haste against which the Reserve Bank of India had warned the government long ago.

“The system is going to be a waste if what we do generates a whole set of duplicate accounts,” RBI governor Raghuram Rajan had said. “It is going to be a waste if you do not have full coverage. It is going to be a waste if those accounts are not used, they open and they languish.”

This confirms the suspicion that bankers were forced to meet unrealistic targets, forcing them to offer accounts to people who might not have otherwise qualified for them.

That the scheme has not lived up to its potential does not mean that it a total failure. It now has a healthy corpus of over Rs 10,000 crore in deposits after the Centre expanded the direct benefits transfer scheme in January. However, it is clear that the government has a long way to go before the programme can be made an emblem of financial inclusion.

Unsettling claims

Even the promise of a free insurance cover to the beneficiaries doesn't seem to have been completely met as the government quietly added conditions for claiming the insurance and overdraft benefits that vastly reduced the number of people eligible for the scheme. Anyone who pays taxes, doesn't have an Aadhar card or work for the government or public sector can no longer claim insurance benefits.

Besides, even those who claimed these benefits have not received them. A Right To Information query revealed last month that not one claim for accidental insurance under the scheme had been settled until December 2014. In reply to the query, National Payments Corporation of India stated that it received a total of 34 claims, out of which 25 were under process and only six met  the criteria. One was rejected and two were under discussion.

The account holders are required to have a Ru-Pay debit card and also perform one transaction, financial or non-financial in nature, once in 45 days prior to any accident. This is unlikely to happen if these accounts continue to be penniless.