A Pathway To Repayment: Education And Financial Responsibility Among Microfinance Clients: Conceptual Study

Abstract

Microfinance encompasses wider financial services given to the poor and low-income groups that do not have access to commercial banks. Microfinance has alleviated poverty, especially in developing countries after the establishment of the Grameen Bank in Bangladesh. However, a reasonable number of borrowers of loans from microfinance institutes (MFIs) do not repay the loans and become defaulters, leading to disturbances in the microfinance system and frustration among the needy borrowers. Existing literature shows that repayment of loans is affected by numerous factors, such as age, employment, and distance from MFIs. Interestingly, these parameters affect the loan repayment positively and negatively. In the present study, a conceptual study based on ‘desk review’ was conducted. A database consisting of 120 investigations was created. The study was focused for four years, between 2021 and 2024, on peer-reviewed articles. The important parameters considered were education level and financial literacy of borrowers. The database shows that 90% of the reviewed literature recommended that the borrower possess education and adequate financial literacy. It was observed that such borrowers were able to repay the loan promptly. Also, borrowers with education and financial literacy were able to adopt innovation in MFIs. Thus, education and financial literacy lead to savings of transaction costs and precious time. In addition, importantly, undesirable arbitration is avoided. Due to these benefits, it is recommended that MFI policymakers provide education and financial literacy to the borrowers.