There were several underlying reasons for the crisis in the microfinance sector last year; however, over-borrowing by customers and over-lending by MFIs were at the base of the problem. This led to defaults on loans and some instances of coercive collection practices by some MFIs. The problem of over indebtedness of customers or over extension of credit by MFIs can only be resolved jointly by the customers and us (MFIs). That is why we have introduced Diksha, a Financial Literacy Program on Debt Management.

This would help customers avoid financial distress arising from excessive borrowing and sub-lending, and train them to manage debt prudently based on their financial capacity

This would help customers avoid financial distress arising from excessive borrowing and sub-lending, and train them to manage debt prudently based on their financial capacity.

The Program targets the following issues:

1. Excessive Borrowing – Individuals occasionally falls into the trap of borrowing more than their capacity to repay
2. Sub/Ghost Lending – A malpractice whereby loans are taken in the name of a customer but utilised by another individual. The customers in whose name the loans were taken are usually given commission for identity. In many cases, the person receiving the funds abandons the borrowers, leaving them in the lurch. The applicant customers who are responsible do not have the funds to repay and faces the repercussions of being a defaulter.
3. Impact of the Credit Bureau – With the advent of Credit Bureau, the customers need to be careful that their credit record remains unblemished in order to access loans in the future in favourable terms.

The financial literacy program is being executed in two stages:

1. Stage 1: Awareness Creation: Sankalp

The first part of the program is the screening of a 30-minute dramatized film (Sankalp) of two MFI customers who fall into the trap of excessive borrowing & ghost lending, and have to face the consequent dangers. This film is to create awareness of the problem among our million customers across the country and is available in 12 Indian languages. The film is screened at customer centre meetings, customer functions and even on local cable TV. We are also making this film freely available to any organisation that wants to use it for financial literacy.
(Watch a trailer of the film here)

2. Stage 2: Training on Financial Literacy through five modules: Diksha

To make a lasting impact on financial management, a follow-up training program will be conducted on voluntary basis for customers. This is a customer training program developed by Parinaam Foundation, based on their needs.

The Key areas covered through five training modules, include:

1. Importance of understanding & managing the family’s cash flows.
2. Basic numeric skills.
3. Budgeting & planning for expenses
4. The importance of saving, ways to save and where to save
5. Pro & cons of different types of loans
6. Dangers of ghost lending and excessive borrowing
7. Credit bureau, its functions, and its impact on the customer

This financial literacy initiative is supported by Unitus and Lok Capital.