Boosting Financial Literacy is the key to progress

by Shruthi K. Finance Advisor

Banks, and the Indian Government strongly believe that financial literacy is the cornerstone to progress in India, when considering the potential in the rural and low-income sectors.

As of today, over 230 million bank accounts have been opened under the Business Correspondents (BC) model – which was developed by the RBI in 2006 – and is a low cost method of dealing out banking products.

The BC model is just one of the tools in the government’s arsenal of financial products that also spread financial literacy to the masses. The PMJDY (Pradhan Mantri Jan Dhan Yojana) or Mudra Loan is another such initiative, under which a bank account is opened with the additional advantage of a RuPay Card with accidental insurance coverage of Rs.1,00,000. Close to 200 million accounts have been opened under this scheme since its launch in 2014. The PMJDY initiative also includes:

- Another financial product that’s accessible and affordable by the financially weaker sections of society is the Pradhan Mantri Jeevan Jyoti Bima Yojana, which is a low cost life insurance product.

- The Pradhan Mantri Surakhsa Bima Yojana is an accidental insurance product that’s affordable and accessible by the demographic being targeted for financial literacy.

- The Atal Pension Yojana is a pension scheme designed to help the financially weaker sections of the society survive during their post-work years.

Not only are the economically weaker sections of society opening bank accounts, they are also using them – proof of this lies in the fact that zero balance accounts have reduced to just under a third, and usage of all accounts is increasing.

The banks, NBFCs, RBI, and government have seen that the demand for such financial products and bank accounts is constantly on the rise as people slowly start to realise the importance of maintaining bank accounts to manage their finances. Since its financially and logistically unviable to set up brick and mortar bank / insurance branches in every village and economically deprived geography, the RBI, government, and banks have joined hands with the common goal of educating the masses in all matters relating to finance and financial products.

Banks are also now moving to open micro-ATMs at BC outlets. Account holders are going to be encouraged to save more through the new plan to integrate Direct Benefit Transfers (DBT) for 26 schemes (like the DBT for LPG scheme which worked exceedingly well).

All in all, the RBI, the government, banks, and NBFCs are going to have to work together to increase financial literacy in the country as a whole, and bring financial products to those that need them in hard to reach areas. There are many new steps being taken in this direction like organizing financial literacy quizzes, pushing MUDRA Loans, etc.