Opening a no frills account is by itself not financial inclusion: RBI Deputy Governor

Microfinance Focus, Nov. 30, 2009 :Opening a no frills account is by itself not financial inclusion but it is just the beginning. Financial inclusion is a much broader term which can be construed as the process of ensuring fair, timely and adequate access to financial services, said Dr. K.C.Chakrabarty, Deputy Governor, Reserve Bank of India at the launch of Federal Ashwas Trust in Kochi, Kerala today.

“Lacks of literacy in general and financial literacy in particular, are the main hurdles in expanding the coverage of financial services to the poorer segments of society. Notwithstanding the initiatives taken so far, given the large magnitude of the problem, concerted efforts need to be made in this direction. Banks should, therefore, come forward to set up literacy centres and guide their clients about the features, benefits and risk of various financial products. With no well established banking relationships, the un-banked poor are pushed towards expensive alternatives. These centres can educate the people about proper financial management tools, inculcate saving habits and generate demand for financial products and services which in turn will boost financial inclusion. This process of education could benefit the banks as the centres while interacting with customers would be in a much better position to understand their specific requirements, which could then be a critical input in appropriate product design, he added.

He further added that, the financial markets offer a variety of both simple and complex financial products. It is difficult for the common person to grasp the downside risks associated with financial products especially if he or she is confronted by a blitz of clever advertising.  Despite concerted efforts, the current levels of transparency coupled with the difficulty of consumers in identifying and understanding the fine print from the large volume of information, lead to an information asymmetry between the financial intermediary and the customer. Hence, financial education is also an integral component of customer protection.

He later emphasized on importance of Credit Counseling, that it serves three purposes. First, it examines the ways to solve current financial problems. Second, by educating about the costs of misusing a credit, it improves financial management. Third, it encourages the distressed people to access the formal financial system.
The clients could be encouraged to avail of credit on the basis of their repaying capacity. Preventive counseling can be through the media, workshops and seminars. In the case of curative counseling, the clients may approach the counseling centres to work out individual debt management plans for resolving their unmanageable debt portfolio. Here, the centres could work out effective debt restructuring plans that could include repayment of debt to informal sources, if necessary, in consultation with the bank branch, He added.

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