In India there are hurdles to financial participation due to various reasons.
A flexible environment is needed to develop solutions to address such issues.
What are the concerns with household finances?
Financialization has not been easy, Indian households face considerable hurdles in implementing even simple changes.
In India there is a strong tendency to keep wealth in physical assets, gold and property.
Levels of pension wealth are worryingly low, as is take up of all types of insurance, even in areas which are prone to natural disasters.
When emergency expenditures are necessary, for example, for health reasons, there are high levels of reliance on unsecured debt from non-institutional sources.
Indians have traditionally shunned pension plans in favour of traditional arrangements in which the younger generation takes care of their elders.
But these traditional structures are under increasing pressure, putting families in a potentially vulnerable position.
What are the disquiets with government policies?
Recently union budget announced a universal health insurance, but it is yet to be drafted efficiently.
Union government introduced the long-term capital gains tax is a step backwards, given how responsive Indians are to tax incentives.
Government provides only a basic information about myriad services and providers which is best for each family, and how one can transition between them if necessary.
Onerous bureaucracy, a scepticism of organised financial institutions, significant problems with trusting a financial system are also being concerns with the government.
Entrepreneurial solutions are facing the hurdle of inflexible regulation, particularly where several regulating bodies might be involved.
All of these problems can contribute to a sense of embarrassment and even the fear of exploitation in lower-income households in particular, who often report believing that financial products are for the rich.
What measures needs to be taken?
Innovations in financial technology will surmount many of the challenges associated with helping Indian households to more efficiently use formal financial systems.
Technological solutions can help bypass issues of embarrassment and the tedium of bureaucratic processes.
By moving to paperless KYC requirements, for instance, customers could relatively easily sign up and switch between to new products without having to go through a cumbersome process.
Financial education and explicit opt-ins for access to more complex products, either at the point of e-KYC completion, or at the point of PMJDY account opening is needed.
A “regulatory sandbox” needs to be created, this institution could kick-start a dialogue between regulatory bodies, households, and the financial technology industry.
To address challenges in Indian household finance, customised and scalable solutions, in a controlled environment of flexibility and experimentation is needed.
