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A Whole New Personal Finance System

The contours of whole new personal financial services system are now becoming clearer--and it's something that could have a transformational effect

As far as personal savings go, the Union Budget has turned the spotlight on to the National Pension System (NPS) and that's a very welcome thing. However, much of the conversation has been on aspects of the NPS that are of exclusive interest to relatively prosperous parts of the NPS' target audience. That is, people who are either already part of the organised workforce and will soon have NPS as an alternative to EPF, or are prosperous enough to fully utilise their tax-saving investments. There's a lot of no doubt necessary conversation around NPS taxation at the time of exit.

However, what we are forgetting is one of the original goals of the NPS, which was to create a pension system for the unorganised sector. While the budget will put into place the Atal Pension Yojana, which will cover the bottom of the pyramid with a guaranteed pension, it's the layer above that the NPS has to reach. These are people who make a living but are not part of the financial system. They may or may not have a JDY bank account now, but whatever they save to invest, has a high likelihood of falling prey to high-risk unorganised schemes, including small ponzi schemes that seem to flourish unnoticed. Above that level, there is another problem. Above that level, there is yet another problem--the formal personal finance system is not all that much better. A saver who falls into the clutches of the financial services industry may not be as badly off as the one who gives it to the ponzi operator, but he's not all that much better.

With the JDY, Aadhar and the NPS, there is now a perfect platform to create a low-priced, accessible alternate personal finance system. There's a huge challenge in incentivising the providers and the customers to come together, but at least it's doable.