[Guest Post]: Financial Literacy and Microfinance – New Research

Editor’s Note: Aparna Dalal works with the Financial Access Initiative, a research consortium between New York University, Harvard, Yale, and Innovations for Poverty Action. FAI is focused on finding answers to how financial services can better meet the needs of poor households. FAI aims to provide rigorous research on the impacts of financial access and on innovative ways to improve access. Aparna previously guest posted on health microinsurance models.

Last week I attended a conference on cutting-edge research in microfinance.  Philanthropy Action live-blog presents in-depth coverage of the entire conference (see posts on Oct 17-18).  Many projects were based in India covering areas like credit, savings, insurance, product design and impact.

One panel revolved around financial literacy and its impact on savings.  With everyone, from the World Bank, to Citigroup, to Freedom from Hunger to IFC talking about financial literacy, it is important to understand what financial literacy really means. Does financial literacy mean teaching someone how to create a budget?  Does it mean teaching someone how to cut back on unnecessary expenses?  Does it mean teaching someone how to compare an interest rate and an APR?  Does it mean teaching someone how to read a rainfall gauge to determine their insurance payout?

The idea of whether the poor need financial literacy has generated considerable debate within the industry.  Muhammad Yunus (and others) argue that poor are good money managers with great financial acumen.  Others argue that the past three decades of experience suggest that education programs could play an important role in helping households better manage their financial lives.  Persistent borrowing, low saving, dealing with frequent emergencies are all indicators of poor financial planning skills – skills that could be improved through well-designed education programs.

It is difficult to tease out the exact effect of these programs, which makes this type of research all the more challenging.  Further, the diverse nature of the programs (as indicated in the questions above) makes understanding the components and structures of the programs critical.

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8 Responses

  1. “Persistent borrowing, low saving, dealing with frequent emergencies are all indicators of poor financial planning skills”

    I don’t see how dealing with frequent emergencies is an indicator of poor financial planning skills. I would think these so-called ‘shocks’ is the fundamental culprit – and not financial illiteracy.

  2. You are right – in most cases, what is really needed is ways to protect against these shocks.

    My point though was that often in discussions with mfis, I heard that reoccurring expenses that are consistent in their timing and amount (such as school fees) are often thought of as an emergency. These are expenses that theoretically one should be able to plan and save for. However, we see that this is not exactly the case. It is very hard to delineate the exact impact of these shocks vs. lack of planning.

  3. In order to increase the access of poort on microfinance, more diversified small scale loan portfolio through rural banking without collateral can be initiated. Monitoring of financial progress of poor is essential.

  4. I am interested to attain the seminar on Social Entrepreneurship in India
    along with the gathering of leaders in the social change sector

    4TH – 5TH Dec 2008 at Dakshinachitra, near Chennai, India
    Dr. Narayan Prasad Paudel

  5. I inspired by Grameen system of microfinance. I am 44 , facinated by this approach, to support poor families, to improve their livelihood. I shared with the friends, I am able to mobilise worth of Rs.2 lakhs as initial social capital. This is start up MFI .. working in karnataka dharwad. we supported 40 families.. .
    It is good experience. I want to expand to cover more such families.. I request friends in this blog.. kindly help and guide how to go about …. my e.mail ID:seedamicrofin@gmail.co.in , cell NO; 9880226745

  6. I would like to participate in the conference. Please send me the details.

  7. Dear Satish & Dr. Narayan Prasad:

    Details of the information and registration information is available in the below link:
    http://www.unltdindia.org/conference.html

    Please feel free to contact us at info@thinkchangeindia.org if you are having any trouble–

    TCI team

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    I have very little knowledge of computer programming but I had
    been hoping to start my own blog soon. Anyway, should you have
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