The Organization for Economic Cooperation and Development (OECD) defined Financial Literacy as ability to grow, monitor and effectively use financial resources to enhance well-being and economic security of one self, ones family and one’s business.
Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players. The economic crisis has brought into sharp focus that financial literacy is an important element for promoting financial inclusion and ultimately financial stability. Lack of basic financial skills contributes to personal hardship and broader economic risk.
Ironically, India still needs to do a great deal of work in Financial Literacy. According to a Standard and Poor’s (S&P) survey, basic financial literacy in India is sub-par. The good news is that, driven by the government and regulators such as the Reserve Bank of India (RBI), as well as voluntary efforts by companies through Corporate Social Responsibility (CSR) programmes, this is changing quite rapidly.
Benefits of financial education for the unbanked (in 2005, the OECD noted several direct and indirect benefits of financial education for the unbanked):
Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.
In recent times, agrarian distress in India caused by the splintering of agricultural land holdings into unviable sizes and by un-remunerative prices for Agri-commodities has led to calls for the waiver of farm loans. At best, this can only be a short-term solution. The way to address this issue is by providing rural communities with additional and alternative income streams. This can only be done by greater financial inclusion. Micro-credit products, for example, have the potential to transform the financially weak into micro-entrepreneurs, as well as create jobs in the local community.
India has the world’s largest share of young people – half the country is below the age of 25. They are no longer satisfied with the status quo, and have soaring ambitions. Financial inclusion will necessarily have to be at the core of any economic strategy that the nation puts in place to meet these aspirations.