A step towards financial inclusion

“My neighbour once convinced me to deposit some savings in a bank scheme every month (similar to a ‘recurring deposit’) that offered a higher interest rate than any other bank. I do not understand these things, but I trusted her. I cut down my spending each month to save Rs. 1,000 and deposit it into the scheme. I wanted to save for my daughter’s education, or for an unprecedented family emergency.” — Jyotiben, our home cook.

“That’s great! How much have you saved until now?”, I asked.

Badha gaya! (it’s all gone!) One day, that neighbour came crying to me. She said she could not withdraw her savings. She could not reach the bank representative and did not know any address or physical trace of the bank. Our money was gone. I had saved for three years — with interest, it must be over Rs.40,000. Badha gaya!” she laughed. But I could see the pain behind her laugh. It’s been a year to this incident but they have still not received their money back.

A social class always ignored, but in need

This is not the first time I had heard such a story of low-income families or economically weaker sections being tricked and cheated. Although on a decline, such Ponzi schemes are still prevalent in India. And worse, they are targeted at the low-income social class due to the general lack of financial knowledge among its people.

When it comes to finances, the lower income groups have always been ignored in India. Any financial advisor or intermediary catering to only low-income class of people will not be profit-making for a long period of time. Catering to this class is filled with innumerable challenges in India — from not owning a bank account to fear of malicious schemes. Why would anyone take the pain of hard-convincing a low-income family to invest 36 monthly installments aggregating to Rs.36,000, when one can get Rs.36,000 from an upper middle-class family in just one month? Moreover, the commissions involved would be too low to squeeze out any profits from such a venture.

When I asked a friend who is a full-time financial advisor why he does not cater to such people, he was quick to remark, “Good thought, but who will go through the hassle?”

That said, no one can deny the need to cater to this class of people. Lower income entails lower savings. They are generally living hand-to-mouth. Very few recognise the importance of saving for the future — something that can be taught and needs to be taught. The select few who understand the importance of financial savings fall prey to such malicious schemes. Working women generally do not wish to give their hard-earned money to their husbands fearing wasteful spending in alcohol and bidis. Financial literacy about savings and investment avenues is the need of the hour. This class most requires the biggest bang for their buck — the rich can afford to lose some extra cents for each dollar invested.

From a nation’s perspective, financial literacy of low-income groups and economically weaker sections is essential to achieve last-mile financial inclusion. As per a global survey by Standard & Poor’s Financial Services LLC (S&P), less than 25% of adults are financially literate in South Asian countries. For an average Indian, financial literacy is yet to become a priority. India is home to 17.5% of the world’s population but nearly 76% of its adult population does not understand even the basic financial concepts. Most people resort to investing more in physical assets and short-term instruments, which conflicts with the greater need for long-term investments, both for households to meet their life stage goals and for meeting the country’s capital requirements for infrastructure.

The Goal

‘To achieve last-mile financial inclusion by encouraging savings of low-income groups into mutual funds.’

In order to serve the low-income class, I have decided to start a venture to achieve the above goal. This will involve three primary tasks –

  1. Financial education: Importance of saving; imparting knowledge on investment avenues, basics of money management and operating a bank account; help combat fear of malicious schemes.
  2. Conversion to investments: Achieve conversions to actual mutual fund investments
  3. Communication: Follow-up and regular communications

Why mutual funds? Because of the following advantages –

  • Disciplined savings through systematic investment plans (SIPs)
  • Higher returns than fixed deposits
  • Tax-efficient
  • Liquid investments

With this, I take a step towards serving the underserved and help them attain financial security. A step towards providing financial education, better access to financial products and eventually, better living. A step towards financial inclusion.

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