How The Financial Health Approach In India Can Help Achieve Shared Prosperity And Sustainable Development And Why India Is Suited To Spearhead The Global Agenda On Financial Health!

Financial health is a more holistic approach for shared prosperity and sustainable development for India

Financial health emerges as an approach that focuses on ‘outcomes’ and seeks to understand the extent to which a person or family can smoothly manage their current financial obligations today and in the future. These outcomes are deeply rooted in consumers’ present and future lives and include the ability and agency to manage day-to-day expenses (financial security), cope with and bounce back from economic shocks (financial resilience), feel in control over one’s finances (financial control), and meet one’s financial goals and pursue choices (financial freedom).

1.   Financial health does not challenge financial inclusion, rather builds upon its achievements

The term financial health is rather nascent in developing markets. It is neither disruptive nor contradictory to the current work on financial inclusion and financial literacy. On the contrary, financial health aligns with and takes a holistic approach to integrating and facilitating financial stability, resilience, and growth, consumer protection and financial literacy and inclusion, which are also policy priorities for most governments.

In fact, the concept of financial stability and resilience has strong commonalities with financial health, except that financial health takes a microscopic view at the level of individuals and households.

By measuring, understanding and addressing individuals’ financial health, it signals financial stability at a much more granular level and in an acute manner, helping both crisis prevention and root cause detection.

2.   Financial health serves as an intermediate linkage between financial inclusion and the SDGs

Various studies[i] suggest that the COVID-19 pandemic has pushed millions of Indians back into poverty. Strengthening individual financial resilience can help ensure that low-income people do not fall back into poverty due to economic shocks and achieve improved mental health, work productivity, social relationships, and consequently overall wellbeing.

The financial health approach intersects with livelihood, healthcare, food security, education and climate change just to name a few. It connects financial services to broader social-economic concerns and debates and helps advance toward the universal goal of well-being.

For instance, it allows examination of smallholder farmers’ resilience when exposed to the disaster caused by climate change, ageing population’s access to affordable convenient healthcare and women’s capabilities for upscaling opportunities.

Financial health approach is inherently consumer-centric and facilitates the policy debate around social safety nets and consumer protection for vulnerable groups such as elderly, informal sector workers, and small businesses.

3. Financial health is rooted in consumer’s welfare and protection and offers ways to build a stable and resilient financial system

Financial consumer protection is a critical component of increased financial inclusion especially when it comes to fintech and digital finance.

Indian financial market regulators have taken important steps to lay the groundwork for a strengthened financial consumer protection framework covering key aspects of consumer protection, such as customer rights, service quality, and grievance redressal. However, experiences from previous financial crises suggest that a set of voluntary consumer protection principles alone are always not sufficient for providers to act in consumers’ interest.

Particularly in times when financial providers operate invisibly and products such as peer-to-peer lending and Buy Now Pay Later (BNPL) can both benefit and harm people financially. As a result, global action on customer protection, such as the proposed Consumer Duty in the UK, is aligning towards putting a significant burden on finance providers to deliver good customer outcomes.

The financial health approach is not a panacea, but it does assist in closing parts of the gaps in consumer protection. Measuring the end customer outcome applies to both traditional and digital financial service providers in the same framework, serves as a benchmark to evaluate whether consumer protection measures are effective, tracks the possible fluctuation for further supervision and inherently takes a cross-product view.

And as the Reserve Bank of India resonates that building a stable and resilient financial system is a collective effort of regulators, financial service providers, and financial consumers. The contribution of financial consumers towards a stable and resilient financial system can only be ensured by managing individual financial health.

4.  Financial health approach provides a strategic pathway to build consumer resilience

The customer-centricity nature of financial health ensures that private sector practitioners foster customer resilience by identifying customers’ needs before jumping into a certain pre-assumed product design and delivery method. This approach will foster financial service innovation as well as ensure that the consumers’ wellbeing is not at risk, increasing the quality and sustainability of financial services.

In fact, aligning business strategy with the financial health of customers can result in better financial and social returns for financial service providers and thereby contributing to SDG7[ii].

In a nutshell, the people-centered financial health approach will be a critical tool in leading the financial sector to achieve the milestones of wellbeing, shared prosperity, and sustainable development.

Why is India suited to spearhead the global agenda on Financial Health?

Despite the increasing number of studies, the concept of financial health is rather nascent in the developing country context and has not yet influenced financial sector policy dialogue in a big way, though this is beginning to change in countries including Brazil, Kenya, Mexico, Peru and the Philippines.

India today stands out with its financial inclusion infrastructure as a public good that is accelerating the development of services leveraging digitally enabled finance and providing the right balance of policy support, regulatory framework and innovation infrastructure. Due to the remarkable innovations, India has witnessed a significant increase in account ownership, from nearly 43 percent in 2014 to almost 80 percent in 2021 (Global Findex, 2021).

1.   India stack has accelerated the inclusion journey that is essential for social security benefits to reach the poor

This inclusion journey has been further advanced by India stack that has combined the digital payments setup and Aadhaar’s identity and authentication know-how to accelerate the process of opening new accounts and enabling mobile connectivity. This has allowed direct benefit transfers (DBT) by the government into people’s bank accounts creating ease of access and increasing efficiency, serving as an example worldwide. The impact of digital payments in DBT can be discerned from the fact that Rs 5.5 Lakh Crore was transferred digitally across 319 government schemes spread over 54 ministries during 2018-2020

2. A robust digital public infrastructure in collaboration with the private sector has created new opportunities for expanding livelihoods in the country

With the expansion of the digital payments infrastructure aided by policy actions such as the Payment Infrastructure Development Fund (PIDF), citizens can now make payments with just their biometric Aadhaar identifier making domestic remittances effortless especially for the low-income segments. In Financial Year 2022 alone, UPI processed more than 46 billion transactions amounting to over Rs 84.17 trillion indicating an upward trajectory mirroring the recovery in the broader economy.

At the same time, the digital infrastructure creates the opportunity to digitize transactions for small business operators allowing them to access loans using their transaction history, expanding access to not only credit but also other financial services.

3.  Regulatory measures to deepen financial inclusion add much needed value for small businesses, marginal and small farmers, and unorganized sector workers

A differentiated banking license for Small Finance Banks (SFBs) since 2015 provides a savings channel and supply of credit to otherwise underserved low-income populations of the country through high-technology low-cost operations. Taking this forward, The National Strategy for Financial Inclusion 2019-2024 (NSFI) and National Strategy for Financial Education 2020-2025 (NSFE) provide a future road map for advancing financial inclusion and financial literacy to achieve financial wellbeing, prosperity and sustainable development.

4.    Measurement and monitoring of impact on policy and consumer outcomes

At the institutional level, the Financial Access Survey (FAS) of the International Monetary Fund (IMF) collects annual time series data on access and use of basic financial services around the world. The World Bank conducts the Global Financial Index Survey every 3 years to understand the way people are using financial services and their financial security to provide insight to policy and services on enhancing people’s financial outcomes. At the national level, in India, RBI has constructed a financial inclusion index which quantifies the extent of financial inclusion and is responsive to availability, ease of access, the extent of usage, inequality and deficiency in services, the extent of financial literacy and consumer protection in the formal financial system; and captures the expansion of banking, investments, insurance, postal as well as the pension sector[i]

Findings from the FI index recognize the need to go beyond the access to financial services and examine deeper aspects such as regularity of income, design of relevant financial products, enhancing financial knowledge and addressing infrastructural gaps that inhibit improved financial behaviors. Such measures indicate the presence of data-led systems approach toward financial security and protection of its citizens that paves the way forward for evidence-based policy formulation.

Backed by its robust digital infrastructure readiness and policy framework, India is a leading global voice on financial inclusion and financial literacy, and is extremely well-positioned to lead further in the global financial health agenda.

The existing financial inclusion infrastructure sets a great foundation to reach mass customers, experiment with both objective and subjective measurement methodologies, and design innovation interventions to identify financial health best practices for global, and especially south-south learnings.

[1] The Impact of COVID-19 on Poverty Estimates in India: A Study Across Caste, Class and Religion - Krishna Ram, Shivani Yadav, 2021 (

[2] Building Valuable Customer Relationships Through Financial Health — Financial Health Network (

[3] Reserve Bank of India - RBI Bulletin

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