Financial Literacy – Who’s Responsibility? (Benita Sarah Matthew)

By Microfinance Focus, on October 14th, 2010

Benita Sarah Matthew

Microfinance Focus, October 14, 2010 (Colombo) : An essential determinant of inclusion is the capacity of clients to fully engage with financial institutions and having a full understanding of both money management and the products being offered, such as being educated about savings. While the number of MFIs providing financial literacy education programs to clients is increasing, there remains the belief that providing these programs is costly and not the core business of financial institutions. The benefits of financial education to clients include better household financial decision-making and better capacity to manage loans, savings and other financial services, while giving institutions the benefit from lower default rates and client growth. This session will discuss more broadly, the role and responsibility of MFIs in providing or facilitating some form of financial education around their products.

Moderator of this session’s panel, Paula Bennett, is the Director of Corporate Citizenship, Citi Asia Pacific. Paula is knowledgeable in the various materials available for educating the poor about finance.

Benita Sarah Mathew, Manager of Research and Development ESAF (India) began her presentation with an update about the work in India, “I am glad to see how financial literacy is relevant and how it contributes to financial inclusion. We cannot deny the fact that as practitioners, non profits and government bodies, we are into human development. To summarise, we are trying to improve all living standards and create informed services for the poor. In relation to financial implications, various factors include different levels of education among members, globalization which leads to migration, the higher disposable income and the bridging of urban and rural divide – all these makes people ponder about their rights, whether it is consumer rights or human rights etc.

Worldwide 3 billion people live with less that US$2.50 a day. Furthermore, the Literacy rate in India is 64.84%. We need to create awareness, knowledge, and skills for the poor to make informed decisions in savings, investments, borrowings and expenditure. There is a need for MF clients to be aware of their rights in order to free them from ubiquitous money lenders and also to manage the larger amount of money and groups. ESAF in an NGO MFI established in 1992, and started lending in 1995. Now it has included financial literacy into its services, as well as education scholarships, disaster mitigation programmes etc. Our Portfolio is 48 million dollars as of today. In 2008, we established a ESAF trust, where members are grouped under a federation which enables equal and democratic participation from clients.

Structure of SHG Federation

Federations (top) –> RGB (Representative General Body) –> BAC (branch) –> Cluster (52 Sangams) –> Sangams (similar to SHGs) –> Groups –> Members (base of pyramid)

Objectives of the SHG federation was to strengthen SHG performance and allow members to share their concerns freely. Also, to ensure loan imbursement is done without delay in the groups and ensure the members will support their cluster leader (whose leadership changes from year to year). Recently we also formed blood donation drives as well as provide mitigation allowance in case of spouse’s death, loan wipe out, and also emergency loans. There are 2 types of clients – we have entrepreneur clients who require more training and technical assistance, and non-entrepreneur clients who mainly need the loans for house budgets.

What are the components of financial literacy? – Giving members proper concepts of savings, of managing expense, of loan management, and teaching them slowly rather than imposing them.

Financial literacy is also about teaching them how to make financial decisions and how much debt one should take. Few years back, they accepted loans from multiple MFIs but things have changed now. It is also about offering them counselling to help women fight social concerns within the family and society (especially during the death of a spouse).

Financial literacy is a rather new concept to address, especially after the increased facility of savings through SHG federation and increased number in clients taking insurance.

As for the way ahead, we are working towards preparing a family financial literacy handbook, using innovative mobile solutions, and getting banks to provide more customer friendly interface.

Presentation example – A Success Story

Featured Client in SHG Federation: Najeeba, who joined ESAF in 2004, and after 5 years of business in creating ornaments and handicrafts, she has so many orders now that she has employed 125 trained workers.”