On observing the lifestyle of the villagers, they seem to have no financial plans. They spend money right away, with no vision for the future, and are in no mood to open a bank account. This vividly represents the poor level of financial planning on account of poor financial literacy.
Financially literate means consumers are able to make wise choices in using financial products, make sound financial decisions, and optimize resources through better financial planning.
With sound financial literacy, individuals can eradicate financial distress in the future. It also means ensuring better financial discipline and making better use of scarce financial resources.
Studies indicate that financial literacy in Nepal is low. Only 45% of the adult population has a bank account, as per the World Bank report of 2017, which indicates a low level of financial literacy, though it could also be because of poor financial access.
Ensuring a greater deal of financial literacy in Nepal requires the active engagement of three parties - regulatory agencies, Banking, and Financial Institutions, and educational institutions.
Nepal Rastra Bank, as a regulatory agency, has shown ample interest in promoting financial literacy.
It has been organizing financial literacy campaigns throughout the country. Similarly, it has been organizing financial literacy programs, celebrating International Money Week, implemented a Clean Note Policy, developed promotional materials relating to financial literacy, adopted stringent Client Protection measures and formulated a financial literacy national strategy.
Similarly, a directive issued by the central bank provides financial literacy and financial consumer protection. It has instructed licensed entities to practice simplified and transparent banking practices and mandatorily organize financial literacy programs.
Following the instructions by the bank, BFIs (banks and financial institutions) have been allocating some of their resources for financial literacy campaigns as part of their Corporate Social Responsibility (CSR).
Similarly, the regulator of the securities market in Nepal, SEBON, is also promoting financial literacy.
Recently it took membership of OECD INFE (International Network of Financial Education), making it the first organization from Nepal to forge such a partnership. It has also organized an international conference on Financial Consumer protection and financial education in coordination with the OECD.
Another regulatory body in the financial sector that looks after the insurance sector, Rastriya Beema Samiti (Insurance Board), also has financial (insurance) literacy in its agenda. Similarly, insurance companies licensed by the board have also been found organizing insurance literacy programs in the country as part of their CSR initiative. However, the education sector has lagged behind in imparting basic financial knowledge to the students.
It is important to include financial education in the syllabus of the educational institutions as knowledge and skills transferred at a young age will come handy throughout life. As such, students have little knowledge about general banking skills. They are not taught about saving, investment or entrepreneurship. They don’t have proper knowledge of what the BFIs do. Even though commercial banks have reached almost every local level, people prefer to keep money at home. When the salary gets credited into their account, they rush to the banks the very next day and take out all the money to the last paisa.
The onus lies on the educational institutions to impart financial knowledge to the students. A coordinated approach must be taken by the central bank, Ministry of Education and educational institutions to develop a financial literacy curriculum so that students are not shut out from another life-saving skill. For the time-being educational institutions can launch financial literacy programs themselves, or take the help of the BFIs, which are now present in almost all the local levels. Such initiatives should also be a priority of the local level Gaupalikas and Nagarpalikas. Local-level bodies can inculcate financial literacy not only to the school level students but also to every household by setting up various groups.
Financial literacy is a must for society’s upliftment. The government has made financial literacy and financial inclusion a priority. In addition to bank branches, it has also given priority to use of alternative channels to increase financial access. Likewise, the use of IT-based channels like mobile banking, internet banking, and branchless banking has been gaining popularity in Nepal. All these reveal an increase in financial service access to the customers.
However, supply requires a demand for service delivery to be effective. Stakeholders should consider imparting financial literacy to the targeted customers to ensure that the customers receive the services well. This not only ensures the financial well-being of the customers but also ensures market expansion, capital formation and proper use of scarce resources while strengthening the economic sector and stability. All these help in the sustainable growth of the economy.
Studies indicate that financial literacy in Nepal is low. Ensuring a greater deal of financial literacy in Nepal requires the active engagement of three parties — regulatory agencies, Banking, and Financial Institutions, and educational institutions.
Dhungel is Assistant Director at NRB and Regmi is Assistant Manager at Rastriya Banijya Bank
