Skip to main content

Finance-wise, how wise?

Ever wondered if the rural poor who took loans actually understood interest rates in the first place? Well, how often do most of us can say the same about ourselves in the first place? The term financial literacy has been a buzzword in social science research in recent times, however, the objective of this two-word mission as per many is to help enhance the financial well-being of people - especially those who hail from rural backgrounds or the poor in general ...

Financial literacy has been defined as the ability to process financial information and make informed decisions about personal finances. In the last few years, with increasing focus on access to finance as an important determinant of household-level economic development and its accompanying positive consequences for empowerment, financial literacy has become an important issue for practitioners and policymakers alike. A question that remains unanswered and perhaps will remain so is would the situation remain the same had the poor or the people from rural backgrounds were financially aware if not literate about the various financial services they were beneficiaries of? Would there have been lesser exploitation and thus more transparency? Expecting all this to have existed early on may sound Utopian, however, a lot of the crisis that some of us speak today about the lack of credit availability and thus people resorting to informal sources of credit could have been avoided.

Very often, when any of us head to an electronics store, we inquire about the desired product and even compare with its counterparts under other brands!! We ought to do the same when it comes to availing ourselves with financial services. Don't you think even the poor and illiterate deserve to know what they are getting into when a loan is disbursed to them or when a bank/savings account is opened for them? Isn't that what financial literacy must strive to achieve?

I recently compiled a factsheet on financial literacy based on past and current studies of CMF on the subject. The direct link to the factsheet is here. You will find the entire factsheet section here. Here's hoping that financial literacy programmes not only educate people but also make them aware about how they can use financial services to enhance and complement their livelihoods...

Comments

  1. Hi Kenny,

    Thanks for your post. I think some of the evidence that we have would support the claim that financial education (under certain circumstances) boosts the takeup and usage of financial products. The question is whether providing financial education is more efficient than creating simpler, more effective products, another way of boosting takeup. I think paying lip service to the need for financial literacy often gives financial services providers like MFIs an excuse to shirk their responsibility to design better financial products and mechanisms. I think we should be skeptical about the rhetoric about financial literacy and focus on:

    a) making products more suitable to the needs of low-income households
    b) building basic financial infrastructure.

    ReplyDelete
  2. Agree with you Shardul. Its hard to fathom why companies with such potential do not realize that they have to try understanding their customers first before they launch a product onto them. Product design somehow seems to be lacking focus among practitioners at large but I think lack of take-up will force them to relook at their strategy and then work towards providing a hit product ... lets hope they realize they can do much more than they think are doing right now.

    ReplyDelete

Post a Comment

Popular Posts

Vocationalisation of education in India: Current Scenario, Key Challenges and New directions

“Every handicraft has to be taught not merely mechanically as is done today, but scientifically. This is to say, the child should learn the why and wherefore of every process.” - Gandhi’s Philosophy of Education

The greatest challenge in Indian education system today is to provide skill based education to the youth. This is exacerbated by a mismatch in demand and supply for the skilled workforce. The penetration of vocational education and training remains poor not only in rural areas, but also in urban regions where there is a higher installed capacity to impart the same. This post is an attempt to make the readers understand the need of vocational education in India. Also, this is an attempt to summarise a few recommendations on the same. 
A recent survey (61st round) conducted by the NSSO found that:

1. The percentage of population that completed primary education was 70%, but less than 10% went on to complete a graduation course and above. Almost 97% of individuals in the age bracket…

Rockstar of Financial Inclusion: Business Correspondent Model of India

About Author:  Jatinder Handoo is a social business enthusiast and a branchless banking practitioner. Currently works at FINO PayTech Ltd and is based out of Mumbai. He is reachable at jatinder.handoo@fino.co.in
India is a hot bed of financial exclusion. A country which houses nearly 16% of the global population  has more than 65% of its people outside the formal financial system (Global Findex 2012). The Indian banking system has adopted multiple approaches to make universal financial inclusion a reality right from early days Indian post-independence banking system. Be it bank nationalization in 1969 or formation of Regional Rural Banks. Formation of NABARD or fostering microfinance through Bank-SHG linkage programme in early 90’s. A shimmering ray hope was rekindled with the growth of JLG based microfinance, however later studies made it clear that the model is credit led, concentrated predominately in the southern region of India thus could not be seen as painting complete financial…

A Platform for Knowledge - Enabling people to learn ..

I received a rather interesting link/website via my email today. The link read as MR University and all I could think of was, "Ok, this must be another website portal of some university or college". Well, on clicking the link and looking through the contents of the site, I was pleasantly surprised. The site http://www.mruniversity.com/ is an online education portal or platform that allows users or teachers to upload short videos on topics or lessons they wish to impart. First topic that I come across is Development Economics.
The intent of the website is eloquently put out by the two economists, Tyler Cowen and Alex Tabarrok in the intro video. What started as a blog focusing on economics and its various implications in understanding why things are the way they are around us, has now an interesting addition. A video portal titled MRUniversity or Marginal Revolution University that focuses on online education with subjects pertaining to economics. It brought back to my mind,…