Events
& Issues
New Delhi, 5 July
2017
Financial Literacy
ADDRESS PAINS, NOT OFFER BENEFITS
By Moin Qazi
Indians have
concluded a weeklong learning in financial education through the Financial
Literacy Week shepherded by the Reserve Bank of India (RBI) last month. The
entire financial sector across the country was galvanised to bring awareness of
basic financial knowledge to those unlettered in financial skills. It is a
laudable step towards making the entire population an inclusive financial
society.
Finance is the glue
that holds all pieces of our life together. Ideal financial societies are those
which provide safe and convenient ways of managing these simple monetary
affairs. This philosophy is known as financial inclusion. It is providing
financial tools to people —tools that people can afford, that are safe and
properly regulated, that people can access conveniently from institutions that
treat them with respect.
These tools enable
them to save and to responsibly borrow—allowing them to build their assets and
improve their livelihoods. The term most buzzed in this respect is “the
unbanked” — usually defined as people who don’t have a traditional savings
account. These are the people who have to be brought into the orbit of formal
finance.
In India, financial
inclusion received a steroidal boost with Prime Minister’s Jan Dhan Yojana
(PMJDY). By Jan. 04, 2017, there were over 265 million accounts under the
scheme. India earned a place in the Guinness Book of World Records with a
citation: “Most bank accounts opened in one week as part of the Financial
Inclusion Campaign is 18,096,130.” But a disquieting feature is that public
banks, regional rural banks (RRBs) and 13 private lenders have reported that as
on 24 March 2017, 92,52,609 accounts were frozen under the PMJDY due to lack of
transaction in the last one year.
Merely opening
physical accounts as flagposts of financial identity wouldn’t help unless they
are actively used by people for managing their money. To make this possible
people have to be imparted literacy necessary for handling 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 ultimately achieve individual financial wellbeing.
Financial literacy is expected to impart the wherewithal to make ordinary
individuals into informed and questioning users of financial services.
Thus the RBI planned
the literacy week to focus on four broad themes: Know Your Customer (KYC), Exercising
Credit Discipline, Grievance Redressal and Going Digital. It had issued an
advisory to all banks to conduct select activities such as conducting special
camps by Financial Literacy Centres; displaying posters on themes in local
languages in prominent places inside the branch premises; distributing flyers
and charts at the training camps; conducting financial literacy camp by rural
bank branches; and hosting an online quiz for the general public to generate
interest.
According to a global
survey by Standard & Poor’s Financial Services LLC (S&P) less than 25
per cent of adults are financially literate in South Asian countries. For an
average Indian, financial literacy is yet to become a priority. India is home
to 17.5 per cent of the world’s population but nearly 76 per cent of its adult
population does not understand even the basic financial concepts. Financial
regulators in India—the RBI, Securities and Exchange Board of India (SEBI),
Insurance Regulatory and Development Authority of India (IRDAI) and Pension
Fund Regulatory and Development Authority (PFRDA)—have created a joint charter
called ‘National Strategy for Financial Education’, to achieve e changes in the
perceptions that an average Indian has about financial management.
Financial services
are like clean water and electricity. But opening an account does not ensure
the account is used. Two-thirds of world’s 299 million mobile money accounts
are dormant. A lack of comfort with technology or low literacy may discourage
use, and products are not always designed with the unique needs of poor users
in mind.
The National Bank for
Agriculture and Rural Development (NABARD) has initiated a survey of primarily
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.
Poor people operate
almost entirely in the cash economy, particularly in the developing world. This
means they use cash, physical assets (such as jewelry and livestock), or
informal providers (such as money lenders and payment couriers) to meet their
financial needs—from receiving wages to saving money. However, these informal
mechanisms can be insecure, expensive, and complicated to use. And they offer
limited recourse when a major problem arises, such as a serious illness in the
family or a poor harvest.
To use financial
services to their full potential, to protect their families and improve their
lives, the low income people need products well suited to their needs and
appropriate training and education for adapting to these financial services.
Bringing this about requires 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 both through the physical and digital system will have
better chances of success if it is driven less les by financial punditry and
more by empathetic governance. People take to new technologies and new cultures
when they see clear benefits, have greater confidence in the services, find it
convenient and can afford it.
The issue is lot more
nuanced than what we are seeing today. Nuances change from culture to culture
and consumer segment to consumer segment. The consumers will come into the
formal financial sector and embrace the
new opportunities believing that if they change their behaviour and exert the
effort to get into the new world then certain specific pains will disappear. We
have thus to address real pains, not just offer benefits. --- INFA
(Copyright, India
News & Feature Alliance)
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