NexThought Monday: Changing Consumer Behavior Via Financial Literacy
After last year’s microcredit crisis in India, many microfinance institutions (MFIs) have reconsidered not only how they lend to customers, but also what responsibilities they have to educate their customers in financial literacy.
I recently interviewed Samit Ghosh, founder and CEO of Ujjivan Financial Services. Based in Bangalore, Ujjivan Financial Services began operations in 2005, and in the past six years has reached more than a million customers across twenty states in India. They have disbursed over $500 million in loans, and have attracted investors such as Sequoia Capital, Wolfensohn & Company, Michael & Susan Dell Foundation and Unitus Equity Fund.
Ghosh explained how an innovative financial literacy program developed by nonprofit Parinaam Foundation in collaboration with Ujjivan, which is available for any MFI to utilize, seeks to change borrowing behavior.
Shashwat Mody: Why were you interested in developing this training, both from your organization’s perspective, and the industry’s perspective?
Samit Ghosh: The crisis in microfinance highlighted the need to root out excessive borrowing (where customers take loans beyond their debt servicing capacity) and sub-lending (where borrowers take loans on behalf of another individual for a fee). We felt that a financial literacy program must educate our customers on ‘how’ to avoid over-indebtedness, and we are hoping that that greater awareness will reduce excessive borrowing and fraudulent accounts through practices such as sub-lending. This along with more disciplined lending from MFIs should reduce loan write-offs, and prevent extreme circumstances of over-indebtness that led to the crisis in the microfinance industry in 2010-11.
Upon talking to our customers, we received repeated requests to help them accumulate savings. Unfortunately, Reserve Bank of India (RBI) guidelines prevent microfinance institutions from collecting savings on behalf of our customers, which is why we were unable to roll out savings products. We thus rolled out a program called “Diksha” (meaning “knowledge” in Sanskrit), that provides customers with an overview of available savings instruments such as bank accounts, and best practices on how much they should save. We teach our customers that borrowing is not the only way that they achieve their goals; instead financial planning and saving a portion of their daily income can yield the same capital to help them accomplish their dreams. We also help our customers open a Zero Balance Savings Account with a local bank, something that our customers find hard to execute on their own, due to extensive paperwork requirements and red-tape at local banks.
SM: Can you describe the Financial Literacy program in more detail – its design, content, and distribution?
SG: In 2011, we partnered with Parinaam Foundation to create a cutting-edge innovative financial literacy program, which was funded by the Unitus Labs India Innovations Program. We developed this using a two-fold approach towards creating awareness – 1) a film, “Sankalp’, on dangers of over borrowing & sub-lending, and 2) a five module classroom training, ‘Diksha’, to help clients build their quantitative skills using calculators and financial management diaries.
1) Sankalp: This film contains two, 15-minute illustrative stories on excessive borrowing and ghost lending. We hired an external consultant who built the script using real life Ujjivan case studies. The films depict happy families whose lives eventually fall into peril due to over-borrowing and ghost lending. This documentary is available in ten (Indian) regional languages and screened for customers through large and small scale events like Ujjivan centre leader functions, cable TV shows and group meetings. An excerpt of this video can be viewed here:
2) Customized Training Module (Diksha): In addition to the film, we felt that a structured training module was necessary to drive home key topics of financial literacy training. Ujjivan & Parinaam Foundation analyzed current financial literacy levels amongst our clients, and then designed a classroom-style training that included pictorial stories, homework assignments, financial dairies and role-playing activities. Based on customer feedback and focus group discussions, this training was fine tuned and piloted to over 400 customers. We are looking to scale this to our entire customer base, with follow up training workshops for smaller customer groups.
SM: What were your key challenges and learnings from this initiative?
SG: A high quality production team and significant studies to understand our target audience helped us in building this top-notch program, where lessons resonated and built empathy amongst clients and contained unbiased views. We also noticed that having smaller groups of 20 – 25 customers allowed members to participate freely, and provided Ujjivan an opportunity to understand customer’s concerns and discuss resolutions.
A positive externality of this training was the impact on Ujjivan’s brand perception amongst customers, as a caring and community oriented organization. Eighty percent of customers opened savings accounts with local banks (some with the help of Parinaam & Ujjivan field staff), which led to further goodwill.
Logistical challenges proved to be the biggest hurdle during rollout of this program, with 20 percent of clients dropping out due to scheduling issues. A subset of customers also questioned the relevance and value of such a training, and found their other work and personal commitments to be more pressing in nature. Further, Ujjivan had to rework dubbing by external consultants due to sub-standard quality, which resulted in a longer execution period than initially forecasted.
Moreover, significant costs were incurred during the course of this rollout. Dedicated project managers at the regional level were hired to ensure quality control, and Ujjivan needed to supplement their own investments with grant funding to cover the cost of kits, trainer’s training and DVDs. However, with scale, costs of training each customer fell to a third of original levels to under $2 per customer, and in the future, Ujjivan plans to test the possibility of covering a part of this cost through fees charged to customers.
Shashwat Mody: How can other industry players benefit from Ujjivan’s financial literacy program?
Samit Ghosh: Initial results have been encouraging, with a direct correlation being noticed between our training and customers’ ability to manage household cash flows. The impact of such a program can be measured by tracking credit write-offs and savings volumes amongst our customers, though a long-term horizon will be needed to gauge this program’s true impact on customer behaviors. Other institutions can also potentially lower their portfolio risk if they rollout this training to their customer base.
These high quality materials have been made available for free and we hope that these financial literacy toolkits will eventually be incorporated within the compulsory group trainings that other MFIs conduct today.