Financial literacy, we all know, plays an important role in an individual’s life by boosting self-esteem, affording better choices, and also training them about the economy by way of making higher savings and investments. However, studies show a mere quarter of our population is financially literate. In comparison to other major emerging economies, the financial literacy rate of India is the lowest.

Basic concepts of inflation, compounding of interest, spreading risk, KYC, etc. are alien to the people. Unable to make informed decisions, the poor households and small entrepreneurs, in particular, cannot manage their income, debt, or plan their finances. All this has led them not only to lose returns on their savings, if any, but to traps of debts taken from money lenders, big farmers, commission agents, and MFIs, at a usurious rate of interest.

While many fall prey to the machinations and frauds of these players, some others fall victims to dubious chit funds/Ponzi operators. Some others lose money even to banks and insurance companies by way of paying higher transaction fees, loss of paid premiums, or lapse of policies etc.

Digital illiteracy

With the advent of digital platforms and online transactions, particularly during the last decade, another challenge of addressing digital illiteracy came to the fore. The poor digital dexterity coupled with the absence of online/internet education and discipline, people are getting duped through various kinds of false messages on the internet/social media, job offers scams, fake lottery notifications, thefts of card details, etc.

Without basic awareness about password protection, suspicious emails, the sensitivity of card details, etc., lots of people are losing heavily their hard-earned money in online transactions.  

The toxic mix

Now, we are witnessing situations where a dangerous mix of both types of illiteracies- financial and digital- is posing serious challenges. Instant loan apps are the new emerging menace. People, irrespective of age, gender, location, social standing, or financial status are falling prey to the nefarious designs of these rogue firms operating the apps. Lending money at sky-high rates, they soon resort to savage recovery processes, subjecting their borrowers to extreme humiliation, harassment, physical abuse, and even suicides.  

While some symptoms of financial illiteracy like ignorance or un-mindfulness on rate of interest, compounding of interest, processing charges and taxes applicable, penalties, documentation, or doing due diligence on the firm, etc. are evident, some symptoms of digital illiteracy are glaring too. Lured by the glitz of the platform,  faceless nature of transactions, and the promise of instant-ness, ease, and convenience in access to finance, they give away sensitive personal data online, cede access to phone contacts of family members/photo gallery and blindly give consent to unfair terms and conditions.

Abetting factors  

Though often greed, haste, and poor sense of judgment, even amongst the educated, are some individual frailties to blame, we cannot ignore regulatorily, policy and governance vacuum.

Absence of sustained awareness and communication campaign, inaccessibility to institutional credit, lack of the agility of and coordination between government/law-enforcement agencies, the unfinished task of financial inclusion, and want of clear regulatory framework are the primary factors facilitating such predatory lending offences.

It is rather odd that even the otherwise comprehensive and progressive National Education Policy NEP-2020 has not focused on the issue, apart from briefly dealing with adult education. Given that sensitization of basics of financial literacy must start early, this aspect of education must be a part of our school curriculum through the design of age-specific, jargon-free courses.  

For the individual, institutions, economy, and the nation, the poor state of financial knowledge (concepts), financial behavior ( diligence, prudence) and financial attitude (long term view on money, savings, investments) is a serious challenge, as these naturally lead to poor outcomes, be it financial resilience, financial inclusion or financial well-being. Digital dimension has accentuated the challenge manifold.

Way forward

All this, now, warrant a sort of national movement to spread financial literacy in general with a focus on digital financial literacy. Some suggestions may be worth considering:

Effective regulatory framework: The Central Bank should frame clear rules for the players operating on digital lending platforms at the earliest. Tie-up norms with NBFCs (non-banking financial institutions) should be framed in detail. It should also consider a dedicated cell for close supervision and ensuring strict implementation of its rules.

The dedicated national institution for financial education: There should be an exclusive national institution, under the umbrella of the Ministry of Finance, dedicated to financial education in the country.  The institution should coordinate all activities of Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), and also Banking Codes and Standards Board of India (BCSBI), National Centre for Financial Education (NCFE), Fin-techs other NGOs in the matters of financial/digital literacy to avoid overlapping and for better coordination and outcome.

Roping in teachers and community service providers: We need to impart well-designed short-term training on financial education to all school teachers, Anganwadi workers, people engaged with common service centers, banking correspondents, postmen etc.  This in turn will help in spreading awareness and will sensitize the students/people they teach/serve.  

Setting up credit counseling centers:  At all the Panchayat level, credit counseling centers should be set up/strengthened, with regular sessions, with involvement of professionals, to educate farmers and marginalized sections on savings and debt management, and basic concepts of finance and mobile banking transactions.  

Provision of pro-bono services: there are many organizations, practitioners, researchers, associations, financial professionals, and counselors who may like to provide pro bono assistance and lend a guiding hand to those needing help. Ministry of Human Resource Development may help coalesce and coordinate such efforts and actions.

Expanding access to institutional credit: The pandemic has exacerbated financial distress without proportionate institutional credit support for young, migrant, cash-strapped people. A special non-collateralized loan scheme for small loans with softer repayment period and interest rate should be launched.

Geo-tagging offices: To tame the fly-by-night operator/firms, uploading /geo tagging photos of office premises and promoters of such companies on their website should be made mandatory.

Indeed, to make this movement a success all of us should pitch in and do our part. 

(The writer is a former bank executive who has authored the book X Factor @Workplace. The views expressed are personal. He can be contacted at rkrishnasinha@hotmail.com)