Spreading financial literacy among the poor people and use of microfinance

The concept of microfinance started getting popularity as a successful poverty alleviation tool since 1904. More than 100 years later, it is now being used as an effective mechanism to reduce poverty of the poor, the ultra-poor and the marginalised people. Bangladesh has made commendable progress in alleviating poverty and hunger in the country as it is maintaining satisfactory economic growth since 1991. The country now needs to ensure equal economic opportunities for all to ensure sustainable development.
Experts opined in a seminar titled 'Dynamics of overlapping in microfinance market of Bangladesh' held recently in Dhaka that the microfinance market has matured in the country in recent years increasing competition among major microfinance institutions (MFIs). The keynote paper noted that many borrowers are involved in overlapping of loans in case of repayment. Economists and bankers at the seminar stressed the need for improving financial literacy in the country. Most of the poor people do not have adequate knowledge of financial services, which eventually discourage them to be involved in economic activities.
Addressing the seminar, the Governor of the Bangladesh Bank (BB) stressed the need for expanding financial inclusion and financial literacy programmes. He said these two programmes can play a vital role in building a sustainable financial system by bringing all people into the mainstream of the economy.
We should inculcate financial literacy among the poor people in rural and urban areas, which will encourage them to be involved in various financial activities. A large number of low-income people in rural and urban areas have still remained un-banked because of their insufficient knowledge of financial activities. Microfinance has been introduced to ensure access of un-banked rural and urban people to financial services to eliminate their poverty. But overlapping of loans is hampering and harming smooth access of poor people to financial services.
Financial literacy can play an important role in enhancing economic activities. Insignificant number of rural and urban men and women has access to financial services because of their inadequate knowledge on banking and economic activities that are going on in the country.
Some maintain that overlapping of loan in some cases are helping borrowers to repay their loans and it also is boosting their economic activities, which help them become self-reliant economically.  On the other hand, some experts are concerned about overlapping of loans for loan repayment as it may perpetuate the poverty situation of the borrowers.    
While the poor people have more choices from which MFIs to borrow money, the number of people who use multiple loans from various MFIs has been increasing. In the case of enterprise loans, the practice of overlapping is gradually increasing. As a result, there are even more heavily-indebted people in Bangladesh, and this is beginning to pose a threat to MFIs and the microfinance industry also.
Finally, the concept of financial literacy has spread across the world following global financial crisis to ensure financial stability. Financial literacy on the part of rural and urban low-income people is essential for them to become conscious about the perpetual debt-trap that may harm them to the extent of losing whatever resources they have in repaying loans. It is alleged that micro-credit receivers often have to sell their resources to repay loans or become fugitives out of fear of the micro-credit givers when they fail to repay loans. Financial literacy may help the rural and urban poor to come out of facing such a miserable consequence by taking micro-credit loans from MFIs.        
The writer is a retired Professor of Economics, BCS
General Education Cadre.
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