Independent Research and Policy Advocacy

Why customer protection is central to financial inclusion

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India needs a robust and comprehensive financial customer protection regime, which it currently lacks.

Imagine the following scenario. Raja and Rani are a low-income householder couple with two children in elementary school. They also take care of Raja’s ailing mother. The household’s monthly income is ₹20,000. They have some post-office savings, and Rani participates in a group savings-and-loan scheme with some other women in her community.

An insurance agent persuades Raja to buy an endowment policy — an insurance-cum-investment product. Raja must pay a premium every year for a certain number of years. These premiums will be invested in some securities which will earn a certain rate of return. The policy has a maturity date, and on that date, all premiums will have been paid up by Raja, and because they were invested in securities, they will have attained a certain value greater than what Raja had paid up. Raja can “cash out” and receive the value of his investment, but then he will forfeit the life insurance amount that his family would have earned upon his death. Or, he can continue to hold the policy until he dies, and his family will then receive the value of his investment upon his death.

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