By Moin Qazi
The Financial Literacy Week event, shepherded by the Reserve Bank of India (RBI), recently concluded a week of learning in financial education. The entire financial sector was galvanised to bring awareness to those who remain unlettered in financial skills. It is a laudable step towards a financially inclusive society.
Slow steps toward inclusion
Ideal financial societies provide safe and convenient ways of managing simple monetary affairs. Financial inclusion is the philosophy of providing affordable, safe, accessible, and properly regulated financial tools to the people. These tools enable saving and responsible borrowing and allow people to build their assets while improving their livelihoods. The most discussed are ‘the unbanked’—usually defined as those who do not have a traditional savings account. They need to be brought within the ambit of formal finance.
In India, financial inclusion received a steroidal boost with the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme. By 4th January 2017, there were over 265 million accounts under the scheme. India earned a place in the Guinness Book of World Records with the citation, “Most bank accounts opened in one week as part of the Financial Inclusion Campaign is 18,096,130″. However, a disquieting feature is that public banks, regional rural banks (RRBs), and 13 private lenders have reported that as of 24th March 2017, 9,252,609 accounts were frozen under the PMJDY. This was due to the lack of any transactions in the last year.
India’s lack of literacy
Merely opening physical accounts as flag posts for a financial identity won’t help unless they are actively used by people for managing their money. For this, people need to be made cognizant of how to handle their bank accounts. This skill is known as financial literacy. It is a combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and achieve individual financial wellbeing. Financial literacy is expected to impart the means to transform ordinary individuals into informed and questioning users of financial services.
According to a global survey by Standard & Poor’s Financial Services LLC (S&P), less than 25% of adults are financially literate in South Asian countries. Financial literacy is yet to become a priority for an average Indian. India is home to 17.5% of the world’s population, but nearly 76% of its adult population does not understand even basic financial concepts. Financial regulators in India – the RBI, the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA), have created a joint charter called the ‘National Strategy for Financial Education’. Its goal is to change the average Indian’s perspective on financial management.
Hurdles born of habit
Poor people operate almost entirely in the cash economy, particularly in the developing world. They use cash, physical assets (such as jewellery and livestock), or informal providers (such as money lenders and payment couriers) to meet their financial needs. However, these informal mechanisms can be insecure, expensive and complicated to use. Moreover, they offer limited recourse when a major problem arises–such as a serious illness in the family or a poor harvest.
Financial services are like clean water and electricity in their necessity for progress. Yet, opening an account does not ensure that the account is used. Two-thirds of the world’s 299 million mobile money accounts are dormant. A lack of comfort with technology or low literacy may discourage use. Products are also not always designed with the unique needs of poor users in mind.
Addressing the needs of the poor
The National Bank for Agriculture and Rural Development (NABARD), has initiated a survey of 40,000 households to study the impact of financial inclusion. The survey will track savings patterns, card usage, mobile payments and changes in patterns of usage between the young and the old. These surveys should be used for designing modules for enhancing the financial literacy of people.
Low-income people need products well suited to their needs so that they may protect and improve their lives. Training and education for utilising financial services need to be imparted. This calls attention to human and institutional issues–such as quality of access, affordability of products, sustainability for the provider of these services and outreach to the most excluded populations.
The new revolution for financial inclusion will have better chances of success if it is driven less by financial punditry and more by empathetic governance. People take to new technology when they see clear benefits, have greater confidence in the services, find it convenient and can afford it. The consumers come into the formal financial sector in the hope that certain pains will be assuaged. Thus, we have to address these real pains and not simply offer benefits.
Featured Image Credits: Pixabay