Principal Investigators: Santosh Anagol (Wharton School, University of Pennsylvania), Anandi Mani (Warwick University)
Research Team: Parul Agarwal
LEAD Centre: Centre for Microfinance (CMF)
Focus Area: Credit
Project Geography: Uttar Pradesh, India
Partner: Sonata Finance Private Limited
Status: Completed


As the microfinance sector grows, pressure mounts on microfinance providers to demonstrate social impact. Many providers refrain from offering non-financial services, claiming that these services are too expensive and outside their area of expertise. However, even microfinance institutions that do integrate social services with financial offerings have little idea about whether these interventions are effective. In this study, researchers aim to determine whether providing financial education to rural women increases the impact of microfinance.

Academic literature on poverty and debt traps suggests that the poor may be stuck at low levels of income because they are too poor to save. Recent work has challenged this perspective by showing that the poor do in fact save. In fact, some academics think that the poor may borrow at rates far higher than would be justified by returns when they could simply increase savings, reducing their dependence high-interest credit. The financial decisions made by low-income households show that they may be paying dearly because they have not thought through simple issues related to borrowing and saving (Ananth, Karlan and Mullainathan (2007). One explanation for these suboptimal decisions is that the poor lack the skills and financial acumen to work out financial issues on their own. Cole et al (forthcoming) study the effect of a financial literacy program on probability of unbanked households in Indonesia to open a bank account. They find this program has a small, positive effect on probability of opening a bank account for those who had low levels of financial literacy at baseline. The current intervention, conducted by CMF researchers in partnership with Sonata Finance Private Limited in Eastern Uttar Pradesh, provides financial literacy training to rural microfinance clients with the aim of changing their financial behavior.