Question

what is the role of financial literacy in microfinance

Answer 1

Microfinance, by giving access to financial services to people originally excluded from the mainstream financial market, is particularly concerned by the level of understanding of its clients (and potential clients) of such a market. In recent years, faced with the growing complexity of financial services, more and more microfinance programmes have started to realize that providing their clients with good financial literacy was essential to help them succeed in their integration into the mainstream economy and society.
“Financial education enables individuals to improve their understanding of financial products and concepts, and develop the skills necessary to improve their financial literacy; i.e. to be aware of financial risks and opportunities and to make informed decisions in their choice of financial services”1 . Financial education can thus address topics ranging from the practical, such as operating a bank account, to the more conceptual, such as understanding income/expenditure and long-term planning, and the more general, such as the principles of consumer protection and ethical consumption. It is clear that financial education, if very relevant for microfinance operators, has a much broader scope and does not concern only people excluded from the mainstream economy. If it definitely assists in the better integration of sociallyexcluded people and the fight against poverty, it can also play an active role in promoting an active citizenship, and benefit the society at large.