significant investments in financial literacy. This assumes relevance if the poor are to make effective use of various initiatives towards fostering financial inclusion. This should include not only basic financial literacy, but also sector-focused financial literacy or, even for that matter, product-driven financial literacy so that the poor are not short-changed. Efforts to promote financial literacy need to start early and include both conventional (e.g. school curriculum, dedicated websites, self-help groups) and unconventional (e.g. time slots during high-impact TV programs, toll-free helpline) delivery channels. The funds set aside by various regulators for this purpose need to be seamlessly integrated as part of the overall agenda.
Grievance redressal for customer complaints in banks also need imaginative thinking. Despite repeated exhortations, banks often penalize customers for minor violations, whereas any deficiency in service on their part are often not addressed expeditiously. The challenges in decoding and understanding the fine print from the large volume of convoluted information leads to an unequal relationship where the principal (i.e. the depositor) is actually far less powerful than the agent (i.e. the bank). The significant volume of complaints received by banks in regard to basic areas such as deposit accounts and even failure on non-observance and non-adherence to defined practices is ample testimony in this regard. As of end-March 2017, a total of 119678 complaints were received at Banking Ombudsman Office, of which 68 % pertained to public sector banks. Across ownership, issues relating to ATM/Credit and Debit cards were the most common, accounting for 13% of the complaints in public banks and 7% in private banks. The problem is all the more imposing for less sophisticated rural consumers, who are often unaware as how best to quickly and efficiently obtain a fair and cost-efficient solution to their grievances (Box 4).
Box 4: Consumer protection and financial literacy: What does global evidence suggest?
In collaboration with FinCoNet, an international cooperation platform for supervisory agencies in the area of financial consumer protection, the World Bank in 2013 conducted a Global Survey on Consumer Protection and Financial Literacy for 114 economies. The Report was published in 2014. India was not included in the Survey.
The survey covered four main areas: (1) legal and regulatory framework, (2) institutional arrangements, (3) disclosure practices, and (4) financial education.
Regarding the legal and regulatory framework, five areas were addressed: whether a country has a general consumer protection (CP) law, whether the CP law has explicit reference to financial services, whether the country has separate financial consumer protection (FCP) law, whether CP regulations exist within the framework of financial sector legislation, and finally, whether there exists other FCP laws. While only 35% of the 114 countries had a separate FCP law, the overall evidence indicated that a basic legal framework for consumer protection was in place in most countries, although it might not be very pertinent in terms of its coverage of the issues relevant to financial services.
As many as 29 items were included under institutional arrangements (Table). The evidence indicated that in countries with broad consumer protection legislation in place, the agency responsible for implementing this legislation also had the responsibility for consumer protection in financial services.
The survey examined 28 facets of disclosure practices, including among others, general disclosure requirements at the account opening stage, regardless of account type, including: (1) plain language, (2) local language, (3) a standardized format for disclosure, and (4) disclosing recourse rights and processes. There were also questions on the annual rate or yield, the method of compounding, minimum balance requirements, fees and penalties, and early withdrawal penalties (for deposit services). For credit services, among the included categories were annual percentage rate, fees, and computation method regarding the average balance and interest. Overall, disclosure requirements at opening of loan and deposit accounts are focused on rates and fees, and to a lesser extent on the manner in which these rates and fees are computed.
As regards financial education, a major focus was to understand whether there existed any dedicated agency to implement/oversee financial education. More than half (55%) of the countries had an agency that had the responsibility to implement/oversee any aspect of financial education/literacy.
The findings suggest that although some form of consumer protection legislation is in place in most countries, it does not necessarily include provisions specific to the financial services industry. Vast differences can be detected for the different income groups. Second, enforcement powers of supervisors are often limited, especially in lower middle-income and low-income countries. Third, regulations on financial consumer protections are of recent origin, and several countries of all income groups are pursuing this area with great vigor.
Notes: Numbers in brackets under each head indicate the number of included sub-categories. Numbers in each column indicate the number of countries complying with at least 50% of the subcategories.
We classify the countries based on their income as per the World Bank methodology. The analysis provides several insights. First, as one moves from high- to low-income countries, the proportion of countries compliant with the various sub-categories declines. Second, while higher income countries have, on average, achieved a higher levels of consumer protection and financial literacy (measured in terms of coverage of all sub-categories), this does not necessarily imply a causal relationship. This calls for greater research in this area, particularly concerning which item is inducing higher levels of financial inclusion, in order to inform policymaking on financial inclusion.
Although there is a lot of discussion on financial literacy in India, evidence on the ground is quite limited. The recent Financial Inclusion Insights (FII) survey of more than 45,000 respondents across 22 states in India provides some initial insights as to the status in this regard (Box 5).
Box 5: Financial literacy in India: What is the evidence?
The Financial Inclusion Insights (FII) survey contains a section on financial literacy, although the survey focused mainly on access to finance and mobile money (Intermedia, 2014). The Survey focused primarily on financial knowledge (Panels A and B) and financial behavior (Panel C), but did not touch upon the issue of financial attitudes (see Box 6). Considering the expected divergence in the extent of financial inclusion in urban and rural areas, the analysis differentiates between the rural and urban areas.
Panel A, which asks questions about basic knowledge of calculus that is needed for financial matters, indicates that India’s urban population performs slightly better as compared to their rural counterparts. Yet, people appear to be financially less literate when asked a three-fold set of questions on how interest rates impact their money over time, especially when taking into account the inflation aspect.
Panel B enquires about financial knowledge by asking respondents who currently have a loan (formal or semi-formal/informal) whether they know what interest rate they pay. While the results could be driven by a rural bias in the data (69% of respondents are defined as rural dwellers), the interviewed rural population performs noticeably better. Informal financial services still seem to dominate, consistent with the AIDIS data.
Finally, Panel C indicates that the surveyed urban respondents have adopted a slightly prudent financial behavior, or in other words, are better at managing income and expenses and take long-term financial considerations on board. This emphasizes the fact that access to finance in rural areas might not alone suffice but behavioral constrains also need to be considered in order to achieve greater progress on the financial inclusion front.
Utilizing data from the survey, Gunther and Ghosh (2018) focus on evaluating financial literacy in India. They categorize financial literacy into three sub-components — financial knowledge, financial attitude, and financial behavior — akin