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The document discusses the relationship between financial inclusion and financial literacy in India. It notes that while access to banking has expanded in rural areas, usage remains uneven, with deposits and credits still concentrated in urban centers. It argues that the main hindrance to true financial inclusion is lack of financial literacy among the population. People need to understand how and why to use formal financial services like savings, but programs have focused more on supply than demand. Financial literacy must be developed alongside access to empower people to demand and benefit from financial services. Students could play a role in educating others to boost literacy and inclusion.

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Debasish Rout
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54 views

Article

The document discusses the relationship between financial inclusion and financial literacy in India. It notes that while access to banking has expanded in rural areas, usage remains uneven, with deposits and credits still concentrated in urban centers. It argues that the main hindrance to true financial inclusion is lack of financial literacy among the population. People need to understand how and why to use formal financial services like savings, but programs have focused more on supply than demand. Financial literacy must be developed alongside access to empower people to demand and benefit from financial services. Students could play a role in educating others to boost literacy and inclusion.

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Debasish Rout
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© Attribution Non-Commercial (BY-NC)
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Download as DOCX, PDF, TXT or read online on Scribd
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A TOSS BETWEEN FINANCIAL INCLUSION AND FINANCIAL LITERACY

Debasish Rout

Shakti Chandan Jena

MFC(1st )

Shall there be a toss between financial inclusion and financial literacy or are they
both the same sides of the coin. In this new millennium we talk of improving many things.
One such step is financial inclusion, i.e delivery of financial services at affordable costs to
sections of disadvantaged and low income segments of society. This has gained prominence
from the start of this millennium.

As on March 2010, there were 83,997 branches of scheduled commercial banks


(SCBs) out of which 32,289 (37 per cent) branches were in the rural areas (with population
up to 9,999), 20,358 branches (24 per cent) in semi-urban areas (with population of from
10,000 to 99,999 people), 46,047 (55 per cent) in urban areas (with population of 100,000 to
9,99,999) and 14,697 (17 per cent) are in metropolitan areas (with population of 1 million and
more). The number of branches in semi-urban and rural areas hence constitutes around 61 per
cent of the total bank branches.  This shows the growth of banking industry during the last
decade (2000-10), in various population segments and gives us not so comforting picture of
financial inclusion in the last few years. Also, even though the bank deposits grew by 4.5
times and credits by 6 times in the last decade, the percentage share of deposits and credits in
semi-urban and rural centres had declined markedly whereas the relative percentage in metro
and urban centres had increased substantially(Quarterly Statistics on Deposits and Credit of
Scheduled Commercial Banks, released by RBI). The above implies, in spite of robust
overall growth of banking industry, there seems to be uneven levels of banking penetration in
semi-urban and rural centres, with more focus taking place in urban centres.

Despite the best intentions and the effort from the authorities financial inclusion is
not picking up. Some reasons :-

1. The general apprehension among the people that there can be some harassment or
their secrets get shared with official agencies which may lead to some embarrassment
in their perception and this has no basis.
2. Illiteracy to understand and comply with the formalities, which keeps people away
from formal institutions.
3. The products banks offer do not suit their immediate requirements. What they require
is easy loan facilities without much hassles.
4. The timing of the bank also doesn’t suit them. Most of these people are some small
retailers/vendors, labourers, some technically skilled workers like plumbers,
electricians, auto mechanics, house maids, drivers, bullock cart owners, rickshaw
pullers, iron scrap collectors and dealers etc., and their work starts early in the
morning and the bank timings do not at all suit them.
Though many schemes like Banking on a bike, laptop and a data card have
been launched to reach the unbanking villages, to achieve the financial inclusion target
but still we are not, due to some of the above reasons. But the main factor that I believe is
creating hindrance in the way of financial inclusion is financial literacy. Financial literacy
stimulates the demand side i.e literating people what they can and they should demand,
but we, rather giving it much importance are focusing more on the supply side.
Traditionally we are more focused on addressing financial inclusion through many
supply-side measures so as to help “connect people” with the banking system, but we
need to recognize the demand side imperative also – that financial literacy and education
should be developed hand in hand with improving access to financial services. Basically a
woman in a rural backward area does not know where to store their small savings. They
still store it in their houses. Unless they are aware and confident of the banking system,
they will never go for the facility i.e actually a benefit for them. We should literate them
about savings (even if it is very less as rupees 100/week/month) and investment. Last year
RBI Governor Dr. Subbarao and the top management of RBI visited at least one village in
every state and most union territories. They were struck by the rising aspirations and the
rising awareness of rural people and even more by how eager they were to learn more
about saving and investment.

India has over 600000 villages. It is axiomatic that when income levels rise,
the time horizons of households become longer. From thinking about the next agriculture
season, they start thinking about the next five years, and then about their children’s future and
their own old age. These are healthy concerns on which we must capitalize. We should
address the challenge and the opportunity of financial literacy head on. The concerned
authorities should cross check the significant commitment to financial education by the
government, it is important to determine the impact and effectiveness of such programs so as
to understand what works and what does not. We need good financial instructors and they
should be available for financial advice when the clients are making financial decisions. We
should leverage communications and technology in ways to engage and empower people
about financial literacy. We should recognize different ways how people receive, learn and
digest information, and should use all possible avenues of communication to determine the
best way of capturing people’s attention and interest.

So, let us kick start start our endeavour in increasing the financial literacy,
thus achieving the target of inclusion faster. What we need is a “self driver” concept where
the customer can demand the desired services, thus creating qualitative demand. This will
lead to Financial Empowerment which is our actual requirement. Finally I even feel that, we
the students can play a minor role in a major way in literating the illiterate people about
savings and investment, thus contributing to the development of the country and the
economy.

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