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MICROFINANCE CLIENTS’ AWARENESS INDEX: A MEASURE OF AWARENESS AND SKILLS OF MICROFINANCE CLIENTS

Vinita KALRA, H. P. MATHUR and P.V. RAJEEV            

Microfinance has emerged as an important sector in many countries for creating social benefits and promoting financial inclusion among the poor and vulnerable groups of society. Literature review suggests that low levels of money management knowledge may deter clients and potential clients of microfinance from understanding and utilising the range of products and services available.

To enable microfinance clients to choose the right product after evaluating alternatives, the unified Code of Conduct created by MFIN and Sa-Dhan,  the two national self-regulatory associations of microfinance institutions (MFIs) in India,  emphasises that MFIs must have a dedicated process to raise clients’ awareness of the options, choices and responsibilities vis-a-vis financial products and services available, and they must ensure regular checks on client awareness and understanding of the key terms and conditions of the products or services offered.

Although, arguably, MFIs had been providing comprehensive group training to their clients with the objective of helping them understand how to calculate interest owed, repayments, or basic terms of their loans or savings products, MFIs are equipped with no measure to evaluate the effectiveness of the financial education programme they carry out for their clients.

Therefore, the need of the hour is to develop a comprehensive tool not only to measure the level of financial awareness of clients but also to facilitate the comparison of several MFIs with respect to their clients’ level of financial awareness at a particular point of time.

This paper proposes Microfinance Clients’ Awareness Index (MCAI) to determine the level of financial awareness of microfinance clients. This index is a comprehensive measure that incorporates information on several aspects of financial awareness in one single number lying between 1 and 2, where 1 denotes complete ignorance and 2 indicates complete financial awareness of the microfinance product.