After Modi’s JAM; now let’s teach them how to make money





The real purpose of financial inclusion is that every citizen should have at least an elementary understanding of and access to formal banking and financial system for savings and investment to get optimum returns. By Harshita Jain

Prime Minister Narendra Modi announced a nationwide mission to drive financial inclusion, on Independence Day in 2014. 3 years and 30 crore new Jan Dhan bank accounts later, one can say the mission has been quite successful. However, this success should be viewed with a word of caution as very little benefits will percolate to masses unless they are financially literate. Financial inclusion without financial literacy is like handing over keys of a new car without teaching how to drive.

The unprecedented and rapid increase in number of people covered by financial inclusion (or people with bank accounts) has made financial literacy the need of the hour. Consider some facts thrown by a survey done by S&P- nearly 76% of Indian adults are financially ‘illiterate’ which means that they are unable to use skills and knowledge to take informed and effective money management decisions; about half of the people who have a formal loan, do not understand compound interest and only about 14% of adults in India save at a formal financial institution. Is that not alarming?

The real purpose of financial inclusion is that every citizen should have at least an elementary understanding of and access to formal banking and financial system for savings and investment to get optimum returns.

Also, more importantly, people should have access to the least cost borrowing options from banks or other financial institutions. We can not expect masses to understand Internal Rate of Return (IRR) or Capital Asset Pricing Model (CAPM), but we can certainly make them understand that if their money lender is charging Rs. 36 for a Rs. 100 loan, they have an alternative to borrow from bank by paying Rs. 9. Similarly, their savings in cash stowed under the mattress earns them nothing, while savings in bank deposits or mutual funds can fetch Rs109 for Rs100 in a year.

They should also be educated on how much premium can cover their crops or their families in case of a sudden event such as flood, disease or demise of bread-earner. They should also be made aware of their rights and benefits under government schemes available for different strata of population. At a more elementary level, underprivileged women should be taught how to make a simple budget on a piece of paper in order to plan savings by mapping their expenses against monthly wages.

Government has made commendable efforts towards financial inclusion through JAM trinity- opening Jan Dhan bank accounts, creating a biometric signature through an Aadhaar ID and linking it to PAN card to get direct benefits and Mobile- banking services. The government is targeting to cover one billion people through JAM trinity.

Spreading financial literacy is a gargantuan task, which may be best accomplished with the collaboration of public financial institutions, regulators and the private sector. Financial literacy should be inculcated in school curriculums from an early age. Technology also offers low cost options to reach out masses through videos, interactive sessions and practical workshops. This is opportune time for government, regulators and private firms to come together and magnify benefits of financial inclusion for masses through financial literacy.

(Harshita Jain is a fund manager at IIFL Wealth & Asset Management and Founder of Kala Akshar, an NGO promoting financial literacy, which works extensively in Rajasthan.)




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