Around the world, millions of people live every day in poverty. A University of Kansas professor recently authored a study showing that income-poor individuals in India faced significant challenges in achieving financial capability, even among those who work and took part in programs designed to help their financial well-being. Identifying and understanding the barriers can help lift more people out of poverty and provide guidance in how social work as a profession can help as well.
Mahasweta Banerjee, professor of social welfare, conducted a study in which she interviewed and led focus groups with more than 650 residents in West Bengal, India. She found that 97 percent had an opportunity to earn an income and 55 percent earned through financial inclusion programs, but 87 percent were living on less than on U.S. $2 a day. And while nearly all saved and had to borrow money, only 46 percent were eligible for formal savings and 23 percent for formal loans.
India’s government funds several programs, one of which is Self Help Groups, to help individuals increase their financial well-being, and nongovernment organizations provide similar and other types of services. The findings can help both organizations, as well as social workers improve their efforts to help lift people from poverty.
“Clearly, there is a large overlap between poverty and financial exclusion, and both reduce people’s options for living,” Banerjee wrote. “Both poverty and financial exclusion create several stressors in life and are associated with risk factors in various dimensions — bio-psycho-social-spiritual-environmental — of well-being. Social workers help people in their environments and strive to identify protective factors to address these issues. However, few social workers address a core issue of ill-being: poverty and related financial exclusion. The findings should assist social workers to consider policy and program strategies to enhance financial capability of income-poor people in India.”
The study, titled “We Routinely Borrow to Survive – Exploring Financial Capability of Income-Poor People in India,” was accepted for publication in the journal Social Work.
The majority of respondents in the study had taken part in some form of a program to increase their financial capability: 304 were part of self-help groups; 140 took part in government-led programs; 164 participated in nongovernment organization programs, and 41 had taken part in microfinance programs. Yet, 87 percent were still considered low-income. Among the 12 percent of medium-income respondents, some had been able to get out of poverty by taking part in Self Help Groups.
The Self Help Group program consisted of financial education, skill training, access to loans and marketing assistance to help participants better understand finance and to provide them with skills to produce better products or better market their businesses. They also required participants to have a minimum savings of 30 rupees per month prior to getting a loan. However, many were unable to save that amount as their incomes were too small and regular expenses too high to meet the threshold.
“Some people were too poor even to participate in these programs designed to help,” Banerjee said. “Others said they borrowed money to get the initial savings. The reason they did was there was the hope that ‘if I save that amount I am able to take part.’ There was that hope that down the road they could make it.”
Banerjee found several other barriers to people improving their financial capability despite the programs. Many reported they feared loans, saying they were afraid that if they were not able to repay with loan with interest the government would crack down on them and their families. Even those who had successfully repaid loans and then qualified for larger ones hesitated to take out a larger loan as they were afraid to take on the greater risk. Micro-credit program participants complained that the loans required payments on a weekly basis, while some
reported that they had borrowed money simply to make payments that were due. There was also a lack of clarity among participants in how the loans were funded or how much had to be repaid. 25,000 rupees were loaned to a group of 10 members in a Self Help Group, out of which 15,000 was a bank loan and 10,000 was a government subsidy. But some didn’t realize they had to repay the entire amount.
“Many thought, ‘If I repay the bank loan that’s enough,’” Banerjee said. “But the government wouldn’t be able to give that amount to these programs without being repaid.”
Perhaps even more disturbing, banks were found to be charging interest on the entire 25,000 rupee amount, not just the 15,000 they loaned. Many participants didn’t realize banks were in the wrong due to a lack of financial education and understanding of how interest is calculated. And many reported suspicions of corruption in the lending process. Political parties — part of India’s multi-party system — controlled how money was distributed to the programs and to whom money was loaned.
“While there was a fear of political parties, because sometimes there is brutality associated with them, many said the parties controlling the credit was justified because credit requires trust,” Banerjee said.
The study also found those with higher income and savings had higher financial knowledge as well. That, coupled with the knowledge that the economic programs have the ability to help people improve their financial situations and a better understanding of the programs’ challenges and limitations can provide guidance in helping even more individuals. In India banks, policy makers and social workers can use the findings to improve their efforts to help those living in poverty work their way out. In the United States, it suggests the field of social work should continue its recent return to a focus on financial capability and developing programs to help individuals and families improve their financial well-being, Banerjee said.