Chapter: 9

Conclusion and Policy RecommendationsFinance has become a very specialised area of applied field of

knowledge, and in this the Banking is the oldest and complicated. No

one can avoid dealing with banks, as its merchandise is ‘Money’. The

special mention of banks is necessary because it is sine-qua-non for

Financial inclusion in the country. As on date financial inclusion is most

wanted result, which goverments/ central banks and development

economist’s desire for which banking is most essential financial service.

Financial Inclusion (F.I.) has no definition per se, and International body

like World Bank found it difficult to define. Most of the

Internationaldefinitions project it as a contra to Exclusion. Financial

Exclusion was part of social Exclusion in past, and Inclusion went with

social status in western civilization and being a customer of a Bank was

a matter of prestige. The definitions of financial inclusion where

attempted in terms of Inclusion, predominantly talk about basic Banking

services like Savings, credit, remittance and encashment of Funds,

exchange and security lockers etc. Facilitating these, Financial Advice

was also seen as part of Inclusion and a method to avoid Exclusion. In

due course, some thinkers added Insurance also, as it is seen as a long

term Savings- credit combination, dependent on a specified pre-

determined mutually agreed event between two parties. The use of

words ‘Finance” and “Banking” is confused and has been used

interchangeably.. Finance has wider connotation including all sectors-

Banking/ Insurace/capital/M.F./Pension etc. Main reasons for Exclusion

are, -lack of access due to Geographical reasons or inadequacy of

Formal financial Institutions; and/or restrictions for entry into such Fin.

Inst. where available , for any reason causing adverse motivation by

action of self or other’s( including rules/regulations/policies/ authorities

etc,). Yet, now it has been recognized that Lack of information and

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knowledge i.e. lack of Financial Literacy about above factors, in itself is

a potent factor for Financial Exclusion. It is the finding of this research

that lack of grievance redressal Mechanism in Financial area/ Banks; or

lack of knowledge about it if it exists on one hand , and/or lack of faith in

its effectiveness is a cause for Exclusion, especially in less

economically developed community/group. Converse is equally True.

This finding applies in the State of U.P., the geographical domain of this

study, and best thing which can happen to improve the Financial

inclusion here is an effective and strong Banking Ombudsman and

effective means of financial literacy. Effectiveness of Banking

Ombudsman depends on support it receives from RBI, which is fountain

head of its powers and prestige. To maintain this, some sort of solidarity

with B, O, has to be shown by RBI. During the research following

disclaimer was observed with reference to cases decided by B.O.:

The Reserve Bank of India does not vouch the correctness,

propriety or legality of orders and awards passed by Banking

Ombudsmen. The object of placing this compendium is merely for the

purpose of dissemination of information on the working of the Banking

Ombudsman Scheme and the same shall not be treated as an

authoritative report on the orders and awards passed by Banking

Ombudsmen and the Reserve Bank of India shall not be responsible or

liable to any person for any error in its preparation.” The Overcautious

attitude of R.B.I. in giving above disclaimer affects, effectiveness of

institution of Banking Ombudsman. It is better not to put the

compendium on R.B.I. site, if there is doubt about its veracity. If central

Bank itself is non-believer, why will the target group of F.L. /F.E will

have faith in it and adopt desired change in attitude? That too when

Appellate Authority for cases decided by B.O. is the Customer Service

Department of R.B.I. itself, and that means one or the other Executive

Director or Deputy Governor of R.B.I.(Look at above Disclaimer, at

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rbi.org .in. in the end of one of the annexures to the Annual Report of

Office of B.O., published by Customer Service Department of R.B.I.)

Broadly, Financial Exclusion is construed as the inability to

access necessary Financial services in an appropriate form due to

problems associated with access conditions, prices, marketing or self –

exclusion , in response to discouraging experiences or perceptions of

individuals/entities”Measurement of Inclusion / Exclusion is an issue . It

is often seen that apparently there are no barriers for access to

people ,but they do not wish to use the financial services available.

These are called “ voluntarily excluded persons. These can be called as

“included” for the purpose of “access” of course. However,this argument

has peripheral weaknesses e.g. if someone can use but does not use

the service because he is lazy or egoist or simply abhorrent to it or for

any other reason with absence of any slur on the service provider , then

of course it is really voluntary exclusion by self and can be added/

subtracted, to/ from Inclusion /Exclusion measure; but if there is

probability of existence of certain circumstance emanating from service

provider or due to any law/rules /Regulation/ public policy statement that

becomes a reason (explicit/Implicit) for someone to avoid using the

financial service then it cannot be called ‘voluntary’ exclusion.(It has to

be treated as “ exclusion” only in the opinion of author of this thesis and

victims of subtle malpractices /misbehavior in the bank often suffer from

this syndrome). One’s ability to use knowledge of a Subject, according

to his/her requirement is, intrinsically co-related with the level and

proficiency of Literacy and education, one has in any Subject/

Discipline.( It appears to be an obvious and long held belief/premise,

which is foundation of this study.) Hence, it can be conclude that formal

literacy, may expand the possibility of becoming financial literate, much

faster and effectively;but it(formal literacy) may not be essential to

become financially literate, which can be done through oral /

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experimental means of processing of the information by the mind,

(Irrespective of formal “Literacy”), provided one is willing and there are

opportunities available or provided which are not “Formal literacy”

dependent.

Almost 54% respondents in the survey settled for meaning of

literacy as ‘awareness’ about any subject in question. Peculiarity of

impression obtained, post this Survey, was, that very large segment of

the common man did not distinguish between literacy and education.

The original approach in 2006 onwards was to focus on banking

services through financial services, as was the trend all over the globe

with reference to definition of financial Inclusion / Exclusion. That means

basic banking services like Savings / loans / Payments and Remittance

services as well as some basic Insurance products. Financial literacy

was treated as one of such services ‘only’, by original thinkers, but an

essential part of financial Inclusion. Now in 2012, the Financial Literacy

appears to have been recognized as an independent field of activity

compared to financial inclusion and hence it is sermonized that both

should go together. Thus financial literacy is now an independent area

in the mind of R.B.I. , but an essential element for Financial Inclusion.

This conceptual development is result of R.B.I.’s association with

O.E.C.D. since 2010.

Analyzing further, it appears that there is shift in understanding

of financial literacy in India and Probably world over due to overriding

role being played now by O.E.C.D.. As already mentioned above the

word literacy has changed to ‘education’ in the language used by

O.E.C.D. and literacy is now goal rather than process. The “Financial

education is the process in lexicon of O.E.C.D. . It becomes important

because in 2012 , Dy governor R.B.I. is telling that there is a ‘National

Strategy on Financial Education’ is being prepared.

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Impact on this strategy is not of definitions given by “United

Nations” “World Bank” “Asian Development bank” and Dr. C.

Rangarajan committee, where by financial literacy about savings /

loans/ payments and remittance as well as basic insurance product,

would have been sufficient , but impact is now of O.E.C.D. , which is the

effect after the “R.B.I.-O.E.C.D. workshop on delivering financial

literacy” held in march 2010, whereby the F.I is to be achieved through

F.L., which apparently is standing on its own leg now, rather than being

part of set of Financial Services( F.S.). The peculiar thing in the

approach enunciated by Dr. chakrabarty ,in 2012 as compared to

approach adopted immediately after 2005-2006, monetary policy

statement introducing the term “financial inclusion” in India, is widening

the field of Financial Inclusion from banking alone, to Insurance and

Equity / capital Investment sector also (in 2012). Dr. K. C. Chakrabarty,

Deputy Governor of R.B.I., in his lecture dated 8th June 2012, described

many initiative and progress made in spread of financial Inclusion. He

also refers to financial literacy and said that “Financial Literacy(F.L.) and

Financial Inclusion(F.I.) should go together”.

Apparently, comic books of RBI have not become popular due to

uninteresting story line and probably unattractive characters.. One of

the reasons, also appear to be their not being available on bookshops

and outlets etc. on station/ bus stand. R.B.I. used to have stalls in melas

and exhibitions but general complaint was that enough nos. were not

available for being taken away by general public. Common feeling was

that these could be more popular if priced but lowly priced and written

by good writers and not like an advertisement. Free distribution takes

away its value, according to many students- (a surprise finding). It can

be concluded thus that while rationale of using this method is not wrong

but effectiveness in creating learning or motivating (to the extent that

one goes to bank asking for some banking service), may not be as

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expected/desired and improvements in writing/presentation are needed.

Noticeably, the Post offices are well known amongst general public-

especially the rural segment and considered more approachable by

common man compared to banks; i.e. more accessible and hence more

competent to include people financially anytime compared to banks.

Postman”, who visited them on doorsteps, was considered as one of

their own and what he said, was the only financial information which

prevailed in decision making by the illiterate but perceptive rural people

and the post master was the ultimate friend , philosopher,& guide in the

matter whenever the postman arranged meeting between the two

parties .The Postmaster, though respected “Babuji”, was still a friend

more than the high official of the Post office. Analysis of the situation,

indicates towards the fact that the only differences and material one at

that( compared to banks), the post man interacted with the people at

personal level,and in capacity of a trust worthy person- a Government

employee, who had no selfish motive,as he delivered letters and

brought money to the people as a service to them; and in that

circumstance he was face to face while contacting people. He also did

handholding in the post office in transacting their business, be it a/c

opening or operating it or any other matter. It gave him immence

confidence and credibility with people and made him a very influential

vehicle of needed financial Literacy, which people “Trusted”, although

there is a distinct possibility that the postman may not really be knowing

much himself about all postal banking products. But he made sure that

whatever he informed was either correct or if wrong anywhere it could

be corrected in presence of postal authorities and the potential client, in

a manner and in time that no loss was caused to the customer. That led

to Financial Inclusin in post offices, better than banks.

In the opinion of Researcher, Financial Literacy/ Education can

not have a base if it does not cater to target’s one or the other need/

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curiosity which should relate to financial matter. As far as banks are

concerned, Statistics of F.I. figures are on rise and awareness programs

have surely taken up the level of acceptance of banks in rural and urban

areas both, with the change in people’s perception about banks in

positive direction, which can be said to be positive impact of F.L./F.E,

proving a point that corelation between f.l./f.e. and F.I. is positive.

However, nearly half our population still lacks access to banking and

other financial services. If we can redress that and provide this ‘left

behind’ population access to the entire gamut of banking services, we

could raise household and overall domestic savings even further, and

that will fulfill one of the necessary conditions to achieve the double-digit

growth that we aspire to. To make that happen, we need to deepen the

penetration and expand the coverage of financial services to all sections

of society and to all regions of the country in a meaningful way,

particularly to those at the bottom of the economic pyramid. Lack of

financial awareness and literacy is one of the main reasons behind lack

of access to financial products or failure to use them even when they

are available. In case F.L./F.E. is likely to increase the growth in

economy, as one side of the coin there is another side of coin too.

Absence of F.L./F.E. can likely cause systemic disasters too.An NCAER

and Max New York Life study shows that in India, around 60 percent of

laborers surveyed indicated that they store cash at home, while

borrowing from moneylenders at high interest rates - a pattern which

increases their financial vulnerability. Presume for a moment that all

these people, if they suddenly and simultaneously take a financially

disastrous decision and come in a crisis, it will not be an individual’s

misfortune alone, but a systemic crash, which could be avoided if they

are appropriately and sufficiently aware about financial facts.

Financial literacy and awareness are thus integral to ensuring

financial inclusion. This is not just about imparting financial knowledge

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and information; it is also about changing behaviour. They will know

enough to demand accountability and seek redressal of grievances.

This, in turn, will enhance the integrity and quality of financial markets.

One big lesson which has been learnt in the outreach programmes is

that financial literacy is not just a public good; it is a merit good. What

this means is that by deepening financial literacy, not just individuals

and households, even the society at large stands to benefit.

Observably, the level at which the delivery of Financial Literacy/

Education had started in 2007 with the launching of Project financial

Literacy by R.B.I., Its direction has taken definite form and focus is

becoming financial system oriented, rather than being individual/entity

centered alone, by March 2010, when joint RBI-OECD workshop has

taken place. Clearly, the stage where F.L./F.E. followed F.I. had been

up scaled to the stage where F.L./F.E. & F.I. go side by side supporting

and complementing each other. At this juncture, it will be appropriate to

see, as to what has been content of the messages of day today finance,

disseminating Financial Literacy ,during 2007-10.

RBI in its out reach programs, took the theme, meant for general

public i.e. ‘Know your Bank Notes’. Short films were shown on security

features of high denomination notes,eg Rs, 100/- and Rs.500/-( old and

new series). ‘Do not staple notes,’ was also an Audio visual. A game

was also devised to be played on computer dealing with the same topic.

For student population, the comic books were brought out in 2 series

Money Kumar & Raju series. These are 6 books.

An important observation is that in the entire developmental

phase with reference to F.L./F.E the products and services of the

Central Bank viz. R.B.I.,with which the Project Financial Literacy was

Launched in 2007, has been allowed to vanish from the seen i.e.

currency/coins and its exchange and distribution in outreach programs,

overtime. It is a fact that all developed Economies have less cash to

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handle. In India where currency in circulation is touching almost 12% of

GDP and whooping illiteracy of formal and alphabet type, besides

poverty, large rural population, and employment of large numbers in

unorganized sectors; currency and coins, and exchange functions can

not be ignored. The information about these becomes very important as

part of Financial literacy/ Education movement. In case R.B.I. takes an

ostrich like approach towards this situation in the country, to be seen as

being in pace with the developed economies, it would not only be

negating an obviously present fact , but the problem of counterfeiting

within the country would increase besides threatening the F.L./F.E.

movement itself. Now, with the above two workshops with OECD/ World

Bank, their, influence has grown in the country, and with National

Strategy for Financial Education in place in India also, which carries no

particular strategy for currency and coin in its ambit for making it part of

financial education as is seen from the core components of its trilogy i.e.

continuum of F.L-F.E- Consumer Protection. There is no mention of

cash or monetary instruments any where, rather Financial products and

services have only been mentioned . Seeing from the perspective of of

state of U. P. this is very important that all financial Literacy programs

must have the information about currency and coins. Actually, Financial

Literacy operates at various levels. It is required by the Institution

purveying the Finance, its functionaries, operations, its products and

services, How to use these?, Risks and Rewards, and utility for the

users etc. are the different levels at which one may have to operate.

One may become literate at some level yet will be illiterate for another

level. It is truth at global level .In India the problem may be severe and

at other places it may not be so severe , but the situation technically is

same. One has to continuously be in life long process of learning and

one has to accept it. This is not a one time business/ activity which will

work wonders and for success of F.I. It may so happen that all

parameters fixed for identifying some one as financially included, these

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having been completed, it may be certified that financial Inclusion is

complete but whether he has also become Financially literate/educated,

it not necessary. In India ,by opening an account with zero balance/ No

frill Account belonging to a family, with some overdraft, small Insurance

and opening for sending remittance will make that family Financially

included but they may not be financially literate at any appreciable level.

This fact came out very clearly in the survey conducted in U.P. People/

places have been declared financially included but they can operate an

A.T.M. or make a complaint in the bank in case of deficiency of Service.

Thus, at any time in the present phase of drive for Financial Inclusion in

U.P.( and most likely in the most part of the country) the Financial

Literacy /education will lag behind the percentages of Financial

Inclusion. Like it is said that “King is dead, long live the King’” we can

say regarding state of Financial literacy/illiteracy ,in view of above

discussion, Every body is trying to define Financial literacy also. From

financial Advice to components of such advice, related to banking

initially and now enveloping. Whole of financial sector, the term

Financial literacy often being confused with education was seen as a

facilitating component of Financial Inclusion. Then slowly it got

upgraded to complementary mode of F.I., getting promoted further

where by authorities whose words matter called it standing on its own

legs like F.I.’ Enter OECD inti India and now OECd’s definition much

more clearer of course, has made it into a Goal to be achieved through

the process of Financial Education. Thus, Financial literacy of Indian

Thought Process is now Financial Education in Lexicon of OECD- an

International Body, which has been dealing with issues of Literacy since

1961 and now plush with funds and influence drawing up National

Strategy for Financial Education for individual countries. India is now

one of them as of 2013. Now truly F.L. and F.E are interchangeable.

From objective of supporting F.I. it carries the burden now to achieve

financial good of the consumer of banking (or any other Financial

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Services). An analysis shows that whatever definitions either in India or

by OECD donot cover the entire gamut banker –client relationship

because of dynamic nature of concepts of F.L/F.E. and F.I., both. Under

NSFE umbrella the trilogy which is Financial Literacy---Financial

Education—Consumer protection, which is Essential. As an aim earlier

F.L. was for enabling the individual to take financially sound decision

but OECD has brought in the task of achieving individual financial well

being. Dr. Rajan present Governor of R.B.I. has used the words that

bankers should move ahead of opening a/cs and ensure that consumer

is protected and he can be confident and comfortable in dealing with

banks. All these elements which are emerging lately are not being

addressed by the existing definitions or explanations. Based on

research work and practical interaction with large sample of the survey ,

following definition is being attempted: “Financial illiteracy is that state of

mind when one gets stressful, while dealing with a Bank (or any other

Financial Institution); or its product and/or services; remaining almost

blind to any beneficial consequences which may be there. Contrary to

aforesaid, financial Literacy/Financial Education is bundle of that

knowledge/ skill/attitude,which, in dealing with banks and its banking

products and /or services, post such dealing, generates confidence of

mutual nature( banker-client)& feeling of Goodness as well as being

secure , in a backdrop, where there is a Grievance Redressal

Mechanism provided in the system, ready to hear,insulate and

determine compensation ,in an inexpensive,quick and just manner,for

the customer & the bank, alike, providing protection from loss. Mental

agony, and Humiliation”. The rational of above definition is inspired by

definition of development give by Noble Laureate Professor Amartya

Sen. He holds the view that Development is not to be seen in material

terms alone, but in terms of ‘Enabling some one to make one’s own

choices and through that to have “feel Good” feeling. This he calls a

‘good change’. F.L./F.E. as an element of F.I., has same impact, as F.I.

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has due to its potential for Development. F.L. is a sine qua none for

Development and sustainable Banking.

Financial Literacy is important but its effectiveness depends on

methods used for communication of messages forming content of

F.L.This aspect was investigated in the field work done for the

Research. Every traditional method or all the methods put in use during

outreach program done by RBI, had a limitation of ‘Reach’. Impact of

any method depends on personal Interest level of audience and its

constituents.How much the audience is able to recognise as their own,

any such message / content. Attractive Presentation and common

credibility of source play a vital role. Letters with information on

cover/leaflet are taken as Advertisement and level of faith in such

messages will not exceed, whatever faith one has in Advertisement.

Cover pages with celebrities smiling out of it, per se, do not help much.

Post offices carry more credibility and considered more accessible for

rural Population, compared to a bank brach. On a scale of 1—100, for

assessing impact of a message, it came out that comic books of RBI

type were given 30 on the scales, posters got 17 and oral lecture in an

exhibition got only 10. Audio- visual got 40, while combined methods

scored 55. Personal consultation and interaction with bank employee/

representative of a organisation, which customer trusts or finds credible,

was rated as 75. A film with good touching story line was rated at 80. A

religious preacher or a political leader having trust of listener scored 95

and 85 respectivly. A close kin like son/daughter/ spouse, if working in

area of finance/administration/Legal then they carry maximum weight

with 99 on the scoresheet.

Recommendations:

There is need of a law to compel bankers to open a Savings

Account for every body. It should be transferable from bank to

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bank and place to place. This account should serve as a K.Y.C

norm in public domain.

Banks should be sufficiently staffed if Goals of F.I. has to be

achieved. It should be duty of bank to make proactively every

one in its Service area.His performance appraisal to have

especial incentive/ disincentive for the work done in this area.

Central Government can have central registry of such accounts,

open for Inspection on payment of prescribed fee. Each bank

branch should have a dediated person to guide customers and

F.L.kiosk. . RBI under provisons of RBI Act can set up a financial

literacy promotion Fund and banks can be reimbursed cost of

maintaining this dedicated staff in part or full based on banks’

performance in achieving FL/FI.

Anonymous complaints may be encouraged to gather

information on malpractices in the banks. Moneylenders can

never be removed totally. What can not be removed should be

managed. A separate financial law called Developmet Law

needs to be developed after broad study of problems in this area.

Moneylenders can be covered in it.

Like Arjun award, which is for sports, an Award for Financial

Inclusion and Financial literacy can be instituted to be given to

banks and its chosen employees who do exemplary work.

Effectiveness of financial inclusion/financial literacy to be tested

on no. accounts opened and no .of transactions in it and

performing credit asset. Government can issue tax free bonds for

exclusively fund use for financial inclusion/financial literacy

related work.

To reduce dependence on electricity, Solar energy Charging

points or wind energy generator can be provided in each

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panchayat. Government can give Long Term low interest loan

out of above mentioned Fund.

Especial facilities to any one including Retired people, who

undertake to do financial literacy work including preparation of

reading material. Financial Inclusion and financial literacy to be

made subjects of study and testing in banking related academic/

competitive exams/management courses/ compulsory subject

atleast upto High school under State boards/ICSC/CBSC.

MFIs are doing Good work and need support. Banks can

introduce MFI specific group accounts having sub accounts of

MFI aided groups accounts, which can be used as security for

lending to the MFI. Banks to do regular CSR work in their

neighbourhood.

Financial inclusion along with the Governmental developmental

programmes will lead to an overall financial and economic

development in our country and as in the case for most

developing countries, extending the banking services to

everyone in the country will be the key driver towards an

inclusive growth.

It is important not to introduce electronic payment system for

poor class because majority of the population in this category are

illiterate and the cost of deploying electronic payment services

for the large number of account having lower deposit would not

be profitable.

All the Government welfare programmes targeted for the poor

should be linked with banks. All the monetary benefits should be

routed through banks only. Any government or social security

payments or payments under all the government schemes

should be strictly routed through the service area bank account.

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This will make people in rural areas to compulsorily have an

account in their service area branch to avail the government

benefits.

The solutions for financial inclusion lie in channelizing existing

resources and building up a platform for public–private

partnerships using technology.

The existing Indian Post Offices are strategically perfect source

available to promote inclusive financial growth especially for poor

population. Its connectivity enables us to reach the remotest

corners of the country. By utilising existing Post Office’s

infrastructure, developing technology and connecting existing

user with technology and expanding user base would be one of

the solutions for financial inclusion.

Infrastructure development is an essential prerequisite for

attaining greater inclusive growth. Adequate rural infrastructure

facilities and improvements in terms of availability of electricity,

improved connectivity through provision of rural roads and

telecommunications, construction of warehouses and market

infrastructure are expected to lead to efficient supply chain

management in agriculture and hence greater demand for

banking activities in rural areas.

Lack of knowledge is an important reason for financial exclusion.

Financial education is required to ensure that large sections of

population in urban and rural areas that do not have access to

formal banking and financial services are educated of the

advantages of coming into the fold of such services. It would help

in building informed consumers and would result in a win- win

situation for all. Setting-up of credit counseling centre by banks,

which would advise public on gaining access to the financial

system, would help in this regard.

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The banks need to aggressively adopt mobile banking as a

strategy for increasing their outreach in the rural areas. This

would offset the decline in number of rural branches of schedule

commercial banks, a trend visible post 1995. In our country

where the majority of the population lives in rural areas, the

mobile phone can be converted into a ‘virtual bank’.

Tailor made financial products that suit the requirement of bottom

of pyramid should be designed at affordable cost. The survey

must be conducted to understand the requirements and needs of

bottom of pyramid. Availability of Prepaid card at nearby grocery

shop could be one tailor made product. In such case people can

deposit amount equivalent to the value of prepaid card to grocer.

In return he will receive a card to incur expenditure.

It is becoming increasingly apparent that addressing financial

exclusion will require a holistic approach on the part of the banks

in creating awareness about financial products, education, and

advice on money management, debt counseling, savings and

affordable credit. The banks will have to evolve specific

strategies to expand the outreach of their services in order to

promote financial inclusion. One of the ways in which this can be

achieved in a cost-effective manner is through forging linkages

with microfinance institutions and local communities.

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