Speaking of financial literacy, I wanted to bring up two different but clearly inter-related themes that are often mistakenly grouped under the same heading: financial literacy and financial awareness.
Financial literacy tends to be associated more with numeracy skills and also the ability to understand more complicated products. Financial awareness on the other hand would indicate a cursory understanding of what instruments are out there and which one can take advantage of. We often bemoan low levels of financial literacy and sometimes blame the failure of many government initiatives to increase financial inclusion (eg: financial inclusion drive, low account usage by accountholders through the Business Correspondent model). However, in many cases, particularly the two I have mentioned, the lack of information that the target beneficiaries display may be the result of lack of information or lack of financial awareness. While studies show mixed results in the long term impact of financial literacy training, lack of financial awareness should be much easier to correct.
Specifically in the context of the financial inclusion drive, media reports have pointed towards the low levels of financial literacy as one of the reasons why the drive has failed. While ensuring that the entire unbanked population of
Anyway, the point I am trying to make is instead of making low-income households reach up to a certain level of financial literacy, what we need to concentrate on is how to explain products, especially simple ones, to people in a manner that they can understand it and make an informed choice about whether or not to use it.
I should point out that that this doesn’t mean financial literacy isn’t important. While small borrowers such as microfinance clients typically use very simple products, there are other low-income groups such as sub-prime borrowers who become the target clientele for complicated loans which may require a much level of sophistication. Just that making people financially literate takes time, doesn't always work and in the meantime, just by giving people information in a form that they can use, you could be providing them with a very real service.
2 comments:
I think creating financial awareness in micro finance clients is something we can actually achieve. I also opine that most of the times when people use financial literacy they actually mean financial awareness and numeracy skills. The later however comes with basic literacy or education.
Over-all I believe it is an important post and people can really benefit from the differentiation you discussed.
I'm also really glad that you followed up the previous entry with this one. Where I am located in Thanjavur, I would say that more than 90% of the clients have already been availing loans from various sources. Some of them have been in SHGs for more than 5 years. When speaking with clients it is immediately obvious who has prior experience (as opposed to financial training) because they're the ones that initiate the questions and want to know the details of alternate financial services. Many of them are also pushing for business training (they imply, "how can we save up when we don't generate any additional income?"). Clients may believe that there will never be a day where they or their children won't have to take out a loan, but they know their preference for a long-term relationship with a financial institution that offers services that really fit their needs so they never need to revert to a money lender with impossible interest rates again. Factors such as interest rate, savings availability, and flexibility in repayment are the most frequently asked.
Aside from client awareness is the awareness of competition. IFMR Trust's KGFS branch base model makes its competitors to be well aware of its presence. It has been discussed that moneylenders in one area are now willing to lower their interest rate. So, now that clients are aware of what constitutes a superior financial service, their source of demand can force competitors to better meet their needs. Hopefully financial training would only benefit them more as any resource that lessens information asymmetry should.
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