3

Theme - Issues and Challenges in Governance of microFinance Institutions (mFIs): Indian Experience

vulnerable to persistent downward

initiatives operating on the `group

financial pressures. With no established

liability' concept it could be a great

banking relationship, the un-banked poor

challenge to drive home the very basic

are  pushed  towards  expensive

rationale for such an arrangement,

alternatives. The challenges of household

starting from inculcating the habit of

cash management under difficult

small savings to appreciation of the

circumstances with few resources to fall

concept of `collective responsibility'.

back on could be accentuated by the

A study regarding Mexican experience

lack of skills or knowledge to make well

has highlighted that the social and

informed financial decisions. Financial

cultural factors embedded in the

education can help them prepare

financial landscape greatly influence the

ahead of time for life cycle needs and

ability of individuals to use financial

deal with unexpected emergencies

services effectively. Results indicate that

without assuming unnecessary debt.

in addition to material resources, the

As per an OECD study, the provision of

inherent nature of social relations and

education programmes for the un/

community links played a crucial role in

underbanked groups can play important

improving access to and use of financial

roles:

services. The transformation of financial

information, knowledge, experience,

they

can encourage un/

attitudes and social relationships into

underbanked consumers to

financial education and sophistication

enter into or make better use of

constituted a cognitive resource to

the financial mainstream,

reducing vulnerability. This leads us to

suggest that a culture of finance is an

they

can help to retain them as

important catalyst for individuals' change

successful account holders in

and development.

the short term and

It is also important to note that financial

they

can contribute to keeping

When people are

education may contribute to behavior

them as savers for the long-term.

struggling to

modification, but many factors lend to

make ends meet

influence a person's financial behavior.

they

can contribute to asset

on a day-to-day

Contrary to common belief, motivation

building among households

basis, good

is cultivated internally and rarely can be

Challenges in devising a financial

money

cultivated--sustainably, at least--by an

education program

external factor. The biggest obstacle to

management

financial education is motivating

becomes a daily

Devising financial education initiatives for

individuals to pursue it. In other words,

challenge

the un/underbanked has to take into

financial education does not necessarily

account the existing financial landscape,

motivate individuals; motivation brings

the social economic realities of this class

individuals to financial education. Here

and the fact that invariably, such groups

the role of banks assumes importance as

are beset with low literacy levels.

financial counselors of the clients.

The main difference in the financial

Possible themes

planning for the poor families is that they

have fewer resources and opportunities.

Inspite of the above challenges, it should

When people are struggling to make

be possible to arrive at a set of basic

ends meet on a day-to-day basis, good

themes/issues that could be addressed

money management becomes a daily

effectively through a financial education

challenge. While they use many creative

program. As per a study conducted by

ingenuous strategies to manage their

the under the project `Financial

money, these often develop through trial

Education for the Poor' by Microfinance

and error rather than by design. Financial

Opportunities, a microenterprise resource

education has a role in `building the

center, a consistent demand was found

capacity of the poor to gain control,

for the following broad themes of

become proactive, use information and

financial education:

resources to enhance their economic

Money

Management: How to

security and more effectively use

proactively manage money

financial services'. When better-informed

clients become better consumers of

Debt

Management: How to

financial services, financial institutions

control debt and avoid over-

benefit.

indebtedness

Further, as already mentioned, the

Managing Savings: How to save

process of educating may invariably

regularly and in a safe location

involve addressing deep entrenched

behavioural and psychological factors

Financial

Negotiations: How to

that could be major barriers. For example,

strengthen clients' bargaining

in case of many of the microfinance

position vis-à-vis input suppliers,