2

Sa-Dhan Patrika

Volume 7,

Issue 2, December 2006

Inclusive Growth: Role of Financial Education

Ms. Shyamala Gopinath

I thank the Indian Banks Association and

However, the needs of a complex

hosts Andhra Bank for inviting me for this

country like India are very different and

Conference.

finding universal solutions to these could

be really challenging, particularly in

I am aware you have had illustrious

fostering a `financially inclusive growth'.

speakers and expert sessions on various

issues reverberating in policy conundrums

Financially inclusive growth straddles a lot

of `financial inclusion' and financially

of issues which have been deliberated

inclusive growth. Why I term these as

upon at length during the previous

conundrums is for the reason that on the

sessions. I intend to confine my address

one hand, everyone accepts that a

to one of the important facets of this

broad based access to formal financial

challenge - the challenge of financial

services is a sine qua non for the

education.

aspiration of growth in GDP and

Financial Education - the concept

economic development at large to be

fulfilled; while on the other, the initiatives

Financial

education

can

be

emerging in this direction have at best

comprehensively defined as "the process

been confined to small pockets. The

by which financial consumers/investors

problem is not specific to India and many

improve their understanding of financial

countries have been groping for the

products, concepts and risks and,

inflexion point in finding solutions to this

through information, instruction and/or

problem. At the macro level, it is perhaps

objective advice, develop the skills and

only in the recent past that this area is

confidence to become more aware of

witnessing the academic rigour of the

financial risks and opportunities, to make

scale seen in the mainstream finance. It

informed choices, to know where to go

could be due to inherent nature of the

for help, and to take other effective

issues we are grappling with. Most of the

actions to improve their financial well-

i n i t i a t i v e s have been `within the

being". Financial education thus goes

framework' solutions, which have

beyond the provision of financial

inherent limitations. This point comes out

information and advice. The focus of any

all the more starkly in the context of the

discussion on financial education is

explosion in financial innovations and

primarily on the individual, who usually

products witnessed in mainstream

has limited resources and skills to

finance.

appreciate the complexities of financial

dealings with financial intermediaries on

To elaborate this point, it would be

matters relating to personal finance on

interesting to look at the evolution of the

a day to day basis.

discipline of finance in general and

banking in particular. Till a few decades

Role of financial education vis-a-vis

back, the field of finance itself was, in a

financial inclusion

sense, second cousin to the domain of

`economics' and it was only the

In the context of `financial inclusion', the

revolutionary ideas and theories relating

scope of financial education is relatively

to asset pricing, particularly traded stocks

broader and it acquires greater

to begin with, that changed the

significance since it could be an

landscape. The subsequent academic

important factor in the very access of

contributions in the area of option pricing

such excluded groups to finance. Further,

triggered the revolution in derivatives

the process of educating may invariably

However, the

which has, in effect, commoditised the

involve addressing deep entrenched

needs of a

financing needs as well as options

behavioural and psychological factors

complex country

available to a certain segment of the

that could be major barriers. However,

like India are very

corporate and retail sector. The above

the  complementary  relationship

different and

advances in the field of finance have

between microfinance and financial

finding universal

evolved in response to a given set of

education is obvious and financial

solutions to these

circumstances in the industrial economies

literacy can increase the decision making

and the applications designed around

could be really

power and prepare them to cope with

these were aimed at a particular target

challenging,

the financial demands of daily life.

group. Most of the principles have

particularly in

In countries with diverse social and

gradually found wide acceptance and

fostering a

economic profile like India, financial

have been imbibed across the globe,

`financially

education is particularly relevant for

including India. We now need a similar

inclusive growth'

people who are resource poor and who

revolution in fostering financially inclusive

operate at the margin and are

growth.