In a country that is diverse and divided by culture and socio-economic barriers, financial inclusion is a challenge. Given the fact that boundaries are blurring, and consumer spending is on the rise, Indian masses are growing aspirational and moving to greener pastures for improving their lives.
In such a scenario, they are seeking all monetary options that can to make their dreams come true. Traditionally, there have been several methods of lending and borrowing amongst the unbanked masses of the country, which has resulted in a large population remaining excluded from the formal system that has hindered economic growth at the bottom of the pyramid.
That is why we still have almost 80 per cent of the population as unbanked and underserved because they are not financially literate and do not understand the concept of formal lending.
Financial literacy is much more than just a sharp acuity for handling money. It is a powerful source for the masses to gain access to formal financial systems and grow their monetary prospects.
Once aware of the options, individuals realise that borrowing from formal systems can unlock opportunities, which not just helps grow their wealth, but also increases their saving capabilities.
While there has been an evolution of sorts in the urban and semi-urban areas, it is the masses in the hinterland, which are missing out on the benefits.
In order to cater to an urgent requirement, they continue to borrow from informal sectors (family, friends, and moneylenders). Even though the availability and the provision of money from such sectors are alarmingly quick, there exists a flip side to it, which includes social as well as financial concerns.
Borrowing from the informal sector leads to a lack of financial discipline, as flexibility gives rise to an even bigger liability than the initially borrowed sum, thus becoming an unmanageable non-transparent spiral. The individual is caught in a vicious circle of borrowing only to pay back previous sums.
Formal lending from the fiscal sector provides people with multiple benefits, one of them being the concept of credit rating. It is a respectable way of becoming a part of the formal world of the financial sector and eventually trailing into banking systems. This is what is known as financial inclusion. The process is rather simple — you take a loan, follow a timely pattern of EMIs and earn a credit ranking.
It is a transparent method agreed upon between the borrower and lender with regulatory checks and balances and leaves. Usually, a first-time borrower with no credit history could borrow for fulfilling the smallest of aspirations — a mobile upgrade, a refrigerator or even education and marriage of his children.
It is a myth that one needs to be academically sound to be financially literate. One may start with not being averse to being a part of the formal financial sector — it is important to understand that the formal sectors are present in order to make dreams come true in a systematic way.
To be able to manage basic electronic-based financial transactions and modern methods (example: phone-based) is another way an individual may start his journey on the path of financial literacy.
Along with this, being disciplined in the course of paying back loans and acquiring good track record as well as saving money, is like education.
Lately, the government and the Reserve Bank of India have been laying thrust on financial inclusion across the country. Several policy changes and initiatives have been initiated.
Micro-finance institutions have been seen to contribute immensely to the financially under-penetrated regions. Digitisation of processes, payment banks and small finance banks have all helped improve the outreach of formal financial services to economically disadvantaged sections even in geographically remote regions.
However, the road is yet long. Clearly, the lack of effective and broad-based financial and digital literacy is inhibiting full-scale implementation.
The pinnacle of the process of progress will only be achieved when all citizens decide to empower themselves by joining hands with the formal financial sector and become a part of the big Indian dream to realise their own small, yet important dreams.