If the India long-term growth story is intact and the Indian market so attractive, why is the penetration of financial products so low? As a case in point, life insurance penetration was at an abysmal 4.1 per cent in 2006-07, while non-life penetration was even lower at 0.6 per cent. Only around 6 per cent of household savings are invested in mutual funds while a meagre 3.9 per cent of household savings head towards equities.
The approach towards the spread of financial products has to be like any other large scale social change which essentially entails increasing predisposition towards financial planning, creating enablers to improve affordability and accessibility, share the success with people at large to give a positive thrust towards the cycle of social change. Thus, governmental agencies, regulators and service providers will have a large role to make this change.
But more important than all those, improved financial literacy will be key. Until now, consumers did not have sufficient enough surplus to start thinking seriously about financial planning. In addition, many consumers are still not comfortable investing in equities and prefer traditional forms of investments like gold, property and fixed deposits. By and large, people in our country are encouraged to have a better-safe-than- sorry approach in money matters.
On the part of service providers which includes producers and distributors of financial products, we need to engage better with our consumers and help them articulate their long term financial goals. The need to tailormake the approach from a community and neighbourhood perspective will make it easier for customers to see success stories and experiences in their own social setting making the whole movement more believable.
The next step is to provide credible product and solution offerings across loan products, investment products and protection products of life insurance and general insurance. Consumer confidence will be enhanced with the help of hands-on training and guidance. His convenience will be enhanced by easy access to physical branches, user-friendly online access and better use of technology to reach out to a larger base.
To improve affordability it is critical that customers understand their need across various life stages — childhood, education, career, marriage, parenthood, homeownership and retirement planning. An improved financial literacy will help them negotiate these needs, and use financial products efficiently and move towards financial independence.