Inclusive Growth

In India, Access to Finance Isn't Enough

Behavioral economics may lead to more effective financial education.

In India, Access to Finance Isn't Enough

October 05, 2016

As India’s middle class grows, so does the need for stronger financial literacy. Yet in many regions in India, traditional methods of teaching people how to handle money are met with a shrug.

Thanks to a government push, bank accounts have proliferated. The portion of people in India who are “banked” rose from 35 percent to 53 percent between 2011 and 2014, according to the World Bank-Gallup Global Findex Survey 2014. However, access does not equal use. The same survey found that India has one of the highest rates of dormant banks accounts in the world. One reason, say researchers, is a lack of understanding about how banks work, and a lack of innovation in how financial literacy is taught.

That situation, however, could be turned around, say researchers at the Center for Financial Inclusion(CFI) at Accion, who studied financial capability-building efforts in India and Mexico.

“You’ve got all these people using financial services who are new to using them,” said Elisabeth Rhyne, managing director of CFI at Accion. “It’s a prime moment to be saying, ‘How do you help the new customers get up to speed?’ ”

In 2012, the Reserve Bank of India advised banks to hold “financial literacy camps” at least once a month at their central sites and rural branches. Often, however, banks used the sessions simply to promote a specific financial product, Accion found. The counselors leading the sessions are often former bankers instead of neutral educators.

At the camps, “there’s a lot of rote, blanket information delivery, disconnected from delivery of services,” Rhyne said. Once the information is delivered, there is no guarantee that people will act on it.

Sonja Kelly, director of research at CFI, likens the financial literacy camps to a dental exam. Typically, the dentist espouses the virtues of daily flossing. The patient vows to change her behavior. What happens when she gets home, though, is another story.

Changing that intention into action is key, and Rhyne and Kelly say behavioral economics can help.

“The behavioral economics piece is what gets people beyond knowing they have to do something to actually doing it,” Kelly said.

Behavioral economics, most famous for its “nudges,” works to change the choices people face in a way that makes them more likely to opt for beneficial decisions—be it signing up for a retirement account or reading to children. In the former, it might mean changing the default option to “sign me up” instead of making the person physically opt in. In the latter, it might be an encouraging text message to parents.

Accion has attempted to “demystify” what it means to employ a behavioral approach to financial capability building.

“A lot of it is common sense,” Rhyne said. “They’re pretty simple ideas. We just want to popularize them.”

The researchers devised a list of seven “behaviorally-informed practices for effective financial capability interventions”:

  • Create teachable moments
  • Learn by doing
  • Use nudges, reminders, default options
  • Use rules of thumb (heuristics)
  • Make it fun
  • Customize it
  • Make it social

One approach, developed by Marina Dimova and her ideas42 team, is simplifying the content of financial education programs for small-business owners and delivering them through mobile phones. They are testing whether these mobile-based “financial heuristics”—advice like keep two drawers, one for business one for personal, or if you borrow from the business, pay it back—helps customers make better decisions.

In another example, an independent service,, provides free financial advice and consultation. Customers can call the service and leave a voicemail question. A financial advisor—called a “wealth doctor”—returns the call, so the customer is not charged for it.

Not all goes smoothly. Accion has discovered that in some cases, family traditions can stand in the way. In some rural families, for example, the oldest male typically makes the financial decisions. The younger members of the family often have no decision-making power, and instead follow in the father’s footsteps, unlikely to break financial traditions. As a result, change may come slowly.

In the interim, Accion and others will continue to innovate to ensure that the new financial security of a growing middle class leads to greater mobility.

Featured Caption: Woman stall holder wearing traditional clothes counting bank notes in fish market, Udipi, Karnataka, India (Credit: Getting Images)