Nitin Rao

MFI Sponsored Financial Education

Microfinance India 2Most schools in developing economies do not offer any financial education. Those who do, offer it as an optional course. Those who do, like India’s CBSE offer an overview of financial markets and share capital.

Last year alone, according to Business Today, more than 15 million Indians borrowed about $1.45 billion in micro loans. These numbers will only grow. It occurs to me that even as a micro loan revolution is sweeping emerging markets and indeed, the world, microfinance institutions (MFIs) could be losing out on a massive opportunity.MFIs, as an industry, could sponsor a course on financial education in schools, particularly in rural areas. I believe that many Indians still have a wrong or misguided notion of credit. Perhaps we are influenced in historically believing that borrowing money on a loan is associated with bad circumstance. Likewise, selling an asset is seen as the seller being in dire need. In short, the concept of entrepreneurial capital is alien to us. I recognize that some of this has changed in recent years.

Educating people on the positives of entrepreneurial capital should start at the school level. A more sound understanding of capital and its costs will make these students more employable and less vulnerable to exploitation.

Microfinance organizations have seen scorching growth rates, even in excess of 200%. With such growth, investing in this form of education could prove critical to sustaining the extremely low rates of default.

Understandably, many microfinance organizations have found it a strategic niche to lend only to women. SKS Microfinance, for instance, claims that women “tend to use resources more productively than men”. It is important to bring these virtues to men as well.

Consider an instrument like microinsurance. Many are not aware of it as a concept. This is changing with large international players entering virgin territory and convincing a predominantly rural audience to protect their assets. This exercise can help make these students financially aware.

With the advent of new and innovative concepts like “The Fortune at the Bottom of the Pyramid”, the poor will find themselves suddenly hounded by large international firms offering to fulfil their aspirations and transform their lives. In this milieu,it become critical for these students to be able to evaluate their options and make choices in their interest.

Knowledge is Power. Such an investment in our nation’s future could do far greater good than excessive regulation by the government. Sponsors should recognize that this is not a marketing tool or a branding initiative. It is an investment in the impressionable minds of future clients.

In a recent interview, a woman entrepreneur helping HLL serve rural areas said, “My daughters will get married. They will live happier lives”. I believe that initiatives of this sort will help ensure that businesses aimed at the Bottom of the Pyramid become not just another fad but a sustainable opportunity.

While this has particular relevance in rural areas, the concept can be implemented in cities as well.

India prides itself on its high savings rate–but to my mind, there is a big distinction between being prudent and simply risk averse. Arbitrary choices based on blind fear, ignorance and discretion can at best be foolhardy. Here is an opportunity to overcome this.