Recent Initiatives Towards Financial Literacy / Inclusion

There is no high bar for being a financial literate, yet the financial literacy can be defined knowledge about the budgeting, saving, investing, interests, time value of money, financial assets, basic working of financial institutors and markets, credit scores,  government initiatives and one’s rights related to finance and money.  Financial literacy is now becoming a new trend in most of the developed and developing countries in order to spread awareness about Money management, Budgeting, Saving and Investments, Banking, Credit, Insurance and protection related products and services.  Most of the countries are adopting a unified and coordinated national strategy for financial education.  India having a large population, and a fast growing economy with national focus on inclusive growth and an urgent need to develop a vibrant and stable financial system, it has become necessary to quickly formulate and implement a national strategy.

Questions & Answers

What are the recent government initiatives regarding financial literacy?

Three initiatives should be mentioned viz. NSFE, NCFE and Comprehensive Financial Inclusion Plan (CFIP) or Sampoorn Vittiya Samaveshan.

NSFE & NCFE

During UPA government tenure, FSDC (Financial Stability and Development Council) had formulated a National Strategy on Financial Education (NSFE) in 2012 to spread awareness among masses about basic questions such as – why one should invest?, why one should borrow from bank? Under this, FSDC had proposed to make financial literacy an official responsibility of the industry stakeholders such as financial institutions, banks and regulators including RBI, SEBI, IrDA and PFRDA. This draft many changes in the way regulators, commercial banks and microfinance institutions (MFIs) approach financial literacy programmes. Following this up, the financial regulators viz.  Insurance Regulatory and Development Authority of India (IRDAI), Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Pension Fund Regulatory and Development Authority (PFRDA) had jointly set up National Centre for Financial Education (NCFE) under the guidance of the Technical Group of the Sub-Committee of the Financial Stability and Development Council (FSDC).

CFIP

This plan was unveiled in 2014 and its core idea was to change the financial literacy drive from push to pull i.e. from bank-driven to customer-driven strategy. It included participation of financial literacy centres, bank mitra, banking correspondents, shopkeepers and so on.

Some of the other initiatives by the governmental agencies include:

• The Reserve Bank of India has undertaken a project titled “Project Financial Literacy”, the objective of which is to disseminate information regarding the central bank and general banking concepts to various target groups, including school and college students, women, rural and urban poor, defense personnel and senior citizens. Modules covering matters related to General Indian economics and banking in India has been created in English and other vernacular languages and is disseminated to the target audience. Moreover, it also arranges visits of school and college students to RBI. Since last year it has started an annual quiz programme for students of classes VII to XI to generate their interest in economy, banking and insurance and RBI.
• The Securities Exchange Board of India has gone aboard for financial education programmes through a nationwide campaign. To impart financial education to school and college students, working executives, middle income group, home makers, retired personnel, self help groups, etc., SEBI has empanelled Resource Persons throughout India who are trained on various aspects of finance and equipped with the knowledge of financial markets.
• The Insurance Regulatory and Development Authority has also taken various initiatives in the area of financial literacy. Awareness programmes have been conducted to convey simple messages about the rights and duties of policyholders, channels available for dispute redressal, disseminated through television and radio as well as print media in sustained campaigns in English, Hindi and 11 other Indian languages. IRDA has conducted a pan India survey on awareness levels about insurance which was carried out through NCAER in a bid to improve its strategy of creating insurance awareness. Also, IRDA has published ‘Policyholder Handbooks’ as well as a comic book series on insurance.
• The decision to demonetise Rs 1,000 and Rs 500 notes will soon be part of the syllabus for CBSE students. The National Council of Educational Research and Training (NCERT) is mulling including demonetisation and its aftermath as well as the move towards Goods and Service Tax (GST) in textbooks. This will be done after an internal review of all textbooks (Class I to XII) aimed at keeping children updated on recent developments in the country.

To what extent the government strategies have been able to change financial literacy / inclusion bank driven model to customer driven model?

Despite of several steps including priority sector norms, easy branch licensing policy, focus on rural branches, no frill accounts, easy KYC norms, promotion of use of IT and intermediaries , introduction of DBT, Aadhaar platform and so on. However, despite that, covering the excluded population has been a challenge.  It is evident from the fact that of the 24.67 crore households in the country, 10.19 crore still don’t have access to the banking services. In rural areas, 44% households and in urban area, 33% still don’t have bank accounts. The CFIP was planned to make financial services reach via sub-service areas (SSA) model. Each SSA would cover 1000-1500 families in a cluster of villages and would be served via BC agents, who will facilitate the account opening and smooth transactions. There was also a proposal that once the people are brought under formal banking, and are able to operate satisfactorily the accounts, they would be extended credit facilities. Thus, the overall strategy under CFIP was to switch gears from push to pull i.e. from bank driven to customer driven strategy. This resulted in the Jan Dhan Yojana and subsequent efforts on easy mobile banking initiatives.  But the results were still not encouraging because somewhat these all models turned out to be mandate-models of inclusion.