FINACIAL EDUCATION – A POTENTIAL CHAGEMAKING TOOL OF

DRIVING INCLUSIVE GROWTH.

V G KRITHIKA (H2017RDGM032).

Tata Institute of Social Sciences, Hyderabad.

Introduction
Enabling financial inclusion is an essential target of any economy that is robust with a host of
financial institutions. An economy is said to grow well in monetary terms when the financial
institutions in the country are performing well, handling financial transactions an offering
financial services to a large user base. While such is the linkage, it is important that such
financial transactions are carried out and accessed by a wide range of users from different
communities, such as including the disadvantaged and marginalised. Bringing together all the
population of a country under the ambit of banking services through opening up of bank
accounts might seem as a fulfilling and end task, the process of financial inclusion does not
get a conclusion at this juncture. The important process of enabling the next level of financial
inclusion is making these opened accounts being operated and persuade the users to utilise
these services on a frequent basis. The next key and important aspect of facilitating financial
inclusion is to have financial deepening among the user base. The government and regulators
of various countries have strived hard to concentrate on this wholistic concept of financial
inclusion, for which financial literacy can be viewed upon as a key tool of changemaker. The
following article would elucidate on the various important documents that speak of using
financial literacy as a potential agent of enabling financial inclusion, followed by a short brief
on a hypothetical strategy plan that discusses about achieving financial inclusion using
financial literacy initiatives. The linkage between financial inclusion and the concept of
resulting inclusive economic growth is also discussed in brief.

According to the National Strategy for Financial Education (2012) developed by the Reserve
Bank of India, the role and necessity for having financial education is becoming increasingly
important in order to enable the consumers and clientele base to make well-informed
decisions. The document talks of the need for having a tiered structure of imparting financial
education to the existing users of the services alongside covering the unbanked or the
segments of population which are out of the ambit of financial services. The document talks
of some very significant measures which focus on consolidating all stakeholders from
government and service providers side and engage in a strategic plan of disseminating
knowledge and other crucial information pertaining to the products and services that are
being taken up by the consumers. It further elaborates of the role to be played by the different
regulators and ends with a synopsis of a proposed strategy of imparting financial education in
the country among all the population and make the country financially literate and thereby
empowered. Set on a very high target vision, this document has been prepared on developing
a strategy that is systematic with good recommendations. While the mode of implementing
certain guidance are vague, efforts could have been made to clearly delineate them rather
than giving a birds’ eye view of the idea.

Also, the decisions that are taken by individuals and also as a household is said to be largely
influenced by various biases and certain behavioural and social influences on the person.
“Mind, Society and Behaviour”, a report released by the World Bank in 2015 talks about this
aspect of financial inclusion. It speaks of how enabling a proper financial education initiative
and imparting the same on the individuals would enable them to overcome the various bias
which may include a pressure that mounts cognitively, advises and concealed persuasions by
agents, even social peer pressure of advises and various other cases of necessity. The
document talks about using different methods of microfinance financing, soft methods of
reminders, emotional persuasions in order to overcome those constraints pertaining to
psychological behaviour. The important highlight feature of this document is its
recommendation of making the financial strategy plans on a field that covers all the aspects f
needs than focussing on a narrow specific situation.

Going forwarding with financial inclusion, the same is said to have multiplier effects in the
economy in terms of increasing the volume of savings and investments in the formal financial
institutions, thereby contributing to inclusive growth and economic development. A policy
research working paper titled, “Financial Inclusion and Inclusive growth” in 2017 talks of the
need to have a greater financial inclusion and focuses on the different linkages between the
financial services and the growth output on empirical basis. While most of the financial
inclusion outcomes achieve on the goal of enabling greater saving and credit access to
households and reducing the intensity of poverty, the data on microcredit financing shows of
a rise in business entrepreneurship, but rather a limited impact in terms of enabling profits
and growth of the same. The large need as rightly pointed out by the report is in utilising
consumer education to persuade people to shift to formal financial institutions and make
every individual household financially stable, thereby reflecting the multiplier effects on a
macro-economic level, stimulating the economic growth and decreasing the extent of
inequality.

On similar terms, Vijay Khelkar’s lecture on Financial Inclusion, titled “Financial Inclusion
and Inclusive Growth” in 2008, he speaks of the neutral patterns of the market and elucidates
the nature of financial inclusion as a quasi-public good due to its implications of enabling
advantages at a macro level and increasing the efficiency of monetary policy in the country
on a fuller term. He further elaborates on the successes of the regulators and services
providers in attempting a wider outreach through different financial products and highlights
the need to fill in the gaps of the existing systems. He concludes on the necessity of
integrating a unique and innovative element in promoting financial inclusion and links it to
the drastic change making potential it has in the lives of farmers in terms of reducing their
indebtedness. The most important point about this particular work is at the wholistic analysis
it makes and a perfect critique of the present scenario and calling for a equitable development
and financial growth that hits at the last mile.

While these are the different documents that speak about financial inclusion and how it can
promote equitable and inclusive growth in the society, a brief strategy of imparting financial
education through a literacy program is present below in a hypothetical manner.

Demirguc-Kunt, A., Klapper, L., & Singer, D. (2017). Financial inclusion and inclusive

growth: a review of recent empirical evidence. The World Bank.

Kelkar, V. (2010). Financial inclusion for inclusive growth. ASCI Journal of

management, 39(1), 55-68.

Reserve Bank of India. (2012). National Strategy for Financial Education.

World Bank. (2015). World development report 2015: Mind, society, and behavior. World

Bank Group.