The ongoing pandemic has had a drastic impact on the economy and people across the strata of society. With new reforms, policies being announced regularly, a large section of people are left unclear and confused about their various financial aspects. Financial Inclusion is critical to the success of every nation and Financial Literacy is an important step towards being an inclusive nation.
Home Credit India, a local arm of the international consumer finance provider with operations spanning over Europe and Asia, conducted research across 7 cities, to understand the levels of financial literacy amongst the borrowers. Close to 1,000 respondents were interviewed in the survey.
The research revealed that 52% of the borrowers understand what a CIBIL score is and its importance. CIBIL score is a parameter that helps in understanding borrower’s eligibility for loans. Interestingly this group has already taken a loan and is still not in knowledge of CIBIL. Despite this, 68% of the respondents did not know their CIBIL score. The numbers were lowest than the country average in Patna with only 22% of borrowers aware of their CIBIL score, followed by Kolkata (25%) and Mumbai(25%).
The research also revealed that 76% of the borrowers did not know the interest amount on their loans. They are only interested to know the EMI amount to be budgeted monthly but were found to be unaware of the interest amount separately. Only 17% of borrowers in Delhi, 19% in Jaipur, and 24% in Mumbai knew the interest amount on their loans, on asking.
On enquiring about the calculations of interest, a close majority of 43% across the 7 cities said that they only had partial knowledge of how their interest on the loan was calculated. The respondents were concerned and kept track of their EMI amount while the knowledge of the rate of interest charged and amount of interest was low.
Speaking about the research, Marko Carevic, Chief Marketing, and Customer Experience Officer said; “Financial Literacy is imperative for any country’s economic progress. This research on Financial Literacy is aimed to understand our customers’ know-how of their financial management better. The research revealed that a majority wants to understand their finances better and are keen to take financial literacy lessons. This helps us draw a meaningful financial literacy program that will help our people build an understanding of the basics of Personal Finance like budgeting, good debt vs bad debt when to borrow, etc. As a responsible lender, we regularly engage with our customers and the community at large to educate them about important aspects of financial management and borrowing. Our financial education program Paise kePathshala creates an ecosystem where people can make informed, thoughtful, and beneficial financial choices at every stage of their lives. The program is aimed to encourage people, to set life and financial goals, and provide them with the basics of money management to increase their financial awareness and success. We wish to broaden financial inclusion in India.”
Research also revealed that 50% of the respondents were found aware of Mutual Funds. 66% of people of Kolkata are aware of Mutual Funds followed by 61% in Delhi, 53% in Mumbai, 50% in Patna, 43% in Bhopal, 41% in Hyderabad, and only 37% in Jaipur.
A whopping 95% of the borrowers said that they fully understood their Bank Passbook and it’s elements. Bhopal leads this trend with 98%, followed by Jaipur (97%) and Delhi (96%).
Given the low awareness rate, it was heartening to learn that74% of the respondents would like to receive financial literacy lessons to be able to manage their finances better. Interestingly, only 44% of respondents understand the difference between Credit and Debit cards. Given the frequent visits to the bank branch, using passbooks 87% know the meaning of savings account and 80% understand the meaning of a current account. The women interviewed in the research were found to have a lower understanding of finances as compared to men.