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The Reserve Bank of India (RBI) recently launched a “Financial Inclusion Index,” or FI-Index, to monitor and improve the country’s financial inclusion access, usage, and quality. According to the RBI, the overall digital transaction volume increased from Rs 3412 crore in 2019 to Rs 4371 crore in 2020-21 because of the Covid 19 pandemic.

Moreover, during the pandemic, cash transactions at business correspondents’ outlets via micro-ATMs increased dramatically, with over 94 crore transactions worth Rs 2.25 lakh crore in 2020-21. Banks hire business correspondents to provide banking services at locations other than a bank office or ATM. They’re basically bank representatives who help people, usually living in rural areas, open bank accounts and provide access to other financial services.

What is financial inclusion?

By now you’ve probably figured out what financial inclusion entails. Financial inclusion essentially means that everyone, including individuals and businesses, have equal access to banking and financial services. It strives to provide all individuals and businesses, particularly those who are denied services by the mainstream banking system, with affordable and efficient financial products and services (loans, insurance products, equity, and so on).

Why is it so important?

• Financial inclusion increases the availability of economic resources and encourages people to save.

• It is a critical step toward more equitable growth.

• It contributes to the overall economic development especially for people with the low-to-no access to financial services.

• It’ll help the rural population to use fingerprint authentication to conduct banking transactions such as cash receipts, cash payments, balance inquiries, and statement of account requests.

• Through financial inclusion, instead of physical cash payments, beneficiaries will be able to receive direct cash transfers to their bank accounts. This also ensures that the funds are delivered to the intended recipients rather than being diverted along the road.

How proliferating innovation in financial education will aid Financial Inclusion?

People need to be educated enough that they are able to comprehend the basics of money management in order to make effective use of financial service. Basic financial education entails learning about financial planning, debt management, investing, interest rate mechanics, etc. so that people are aware of the dangers of taking on too much debt or buying the wrong insurance policies. Therefore, educating about prioritising needs over wants, using credit cards sensibly, minimising waste, and paying bills from savings rather than borrowing is crucial for financial inclusion.

Financial education and innovation, both are extremely important. As per OECD, digitalisation can aid in the effective delivery of financial education and can assist policymakers in developing personalised methods to meet the demands of target audiences. They can help consumers improve their money management abilities while reinforcing financial literacy fundamental competencies, as well as address some of the most prevalent behavioural biases they face while making financial decisions.

Financial innovation increases access to financial education for both individuals and trainers who may be unable to access high-quality learning opportunities due to location, time, or pace constraints. Not just that, policymakers can reach target populations that would otherwise be unable to receive financial education due to geographical constraints through digital delivery of financial education.

Countries have been taking crucial steps with respect to financial innovation. For example, The Reserve Bank of India (RBI) created the MANI (Mobile Aided Note Identifier) software to assist visually and hearing-impaired individuals in identifying the denomination of Indian banknotes.

Furthermore, the Financial Markets Commission of Luxembourg produced FinGol – The Financial Game of Life, an educational game with a chatbot created by students at the Luxembourg Tech School.
It is undeniable that the advent and expansion of fintech has aided in the expansion of financial inclusion. It has dramatically increased access to financial services while also significantly lowering the cost of many of them. For instance, Robo-advisors, which offer fees that are significantly lower than those charged by personal financial advisors, are now able to deliver expert investment advice to a larger number of people at a lower, more affordable cost.

Besides, face-to-face financial education training can be costly for governments in terms of resources and time, as well as difficult for consumers to obtain. Another factor to consider is that COVID-19 fueled the demand for online learning. Physical constraints forced government agencies to adapt and make programmes that were previously only available in person available online.

Despite the growing use of digital tools, digital delivery of financial education is not a cakewalk. One of the most major challenges to financial inclusion is extreme poverty. People who have little to no money cannot afford financial services. Not just that, many poor and low-income people are unaware of how to access or use financial services. Thus, there is a need to overcome these challenges in order to strengthen Financial Inclusion in the economy.

(The author is founder and CEO, LearnApp.com. Views expressed are personal)