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RBI releases draft for national strategy on financial education

RBI releases draft for national strategy on financial education

Mumbai: Financial literacy will no longer be a mere moral obligation for state-run banks. If a new government proposal goes through, it will become the official responsibility of industry stakeholders, including regulators.

The draft norms for the National Strategy for Financial Education were prepared by the Financial Stability and Development Council (FSDC), the apex regulatory body. They were released by the apex bank on Monday for public comments by 15 August.

The proposed national strategy suggests many changes in the way regulators, commercial banks and microfinance institutions (MFIs) approach financial literacy programmes.

Moreover, the strategy proposes to make major changes in the school curricula, including a range of topics beginning with basic financial concepts to fundamentals of macro-economics and foreign exchange. This will include investments, basic banking services, wise spending of money, financial planning and will even talk about scams, frauds and Ponzi schemes in the financial space.

India currently does not have a formal financial literacy programme at the national level, though some state governments such as Madhya Pradesh and Kerala have included some of the basic concepts in high-school classes in their curriculum.

About half of India’s adult population does not have access to formal banking services. They are dependent on informal sources such as moneylenders.

Some private entities such as Geojit BNP Paribas Financial Services Ltd and microfinance institutions such as Banglore-based Ujjivan Financial Services Pvt. Ltd have made efforts to conduct investor awareness campaigns at college level about savings and investments. But there is no nationwide initiative by the government.

According to the draft norms, the strategy will be implemented on multiple fronts under a newly set up institution—the National Institute of Financial Education (NIFE).

If the draft norms are accepted, all sectoral regulators, financial institutions, industry associations and self-help groups (SHGs) will have to submit reports to NIFE on a regular basis on the progress of efforts in financial education. SHGs refer to groups of women borrowers.

More importantly, the draft proposals suggest that all sectoral regulators should help NIFE to design content by deputing experts. They also need to create clearer guidelines for product development by financial institutions. NIFE will set up a website that will be linked to those of all regulators and ministries.

The new structure proposes to ensure active involvement of various government organs, regulators, commercial banks and industry associations in imparting financial literacy initiatives.

“It is an extremely important development as, across market segments, people do not know what finance is. That is the reason why non-financial investments such as investments in gold, real estate still exceed financial investments," said Mathew Titus, executive director at microfinance industries body Sa-Dhan. “Also, we have enough evidence that there has been misuse of financial products."

Satish Menon, executive director, Geojit BNP Paribas Financial Services, said: “India has 30%-plus savings rate, but it is not channelized to investment. Such an initiative could help improve that situation."

Officials operating in the financial education space pointed out the high costs they need to incur as the primary impediment to promoting such initiatives. “It costs a lot of money to impart financial education, hence it needs to be supported from the government level. MFIs should also be able to use extra funds for financial literacy programme," said Samit Ghosh, founder of Ujjivan Financial Services.


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