Fintech Win-Win: How Digital Financial Literacy Drives Stable Growth

While digital innovations are transforming financial services, making them available, accessible, and affordable, they can also lead to irresponsible consumer borrowing. India witnessed significant growth in unsecured personal loans, which pose a systemic risk to the financial system but could also impact borrowers' financial well-being. RBI responded by increasing risk weightage for unsecured personal loans to curtail unsecured personal loan growth. Interest rate change is a supply-side intervention that yields immediate effects. However, have you wondered if any long-term sustainable intervention can mitigate systemic risk in the financial system? Since financial well-being results from financial resources and appropriate capacity/ skills, i.e. financial literacy, to manage those resources, enhancing financial literacy may provide an alternative mechanism to ensure responsible borrowing.1 In today's digital context, financial literacy must be supplemented with digital skills, which is termed digital financial literacy (DFL). A recent research paper articulates what digital financial literacy is and analyses its components.2 This essay unpacks the elements of digital financial literacy and explores the policy implications in the Indian context, which is relevant to policymakers, financial institutions and NGOs working in the area of financial literacy.