Examining Financial Capability of the Clients of Micro Finance Institutions

Abstract

Abstract: According to their level both poor and rich people require money for fulfilling their wants and desires of life. Managing money and getting access to available financial services and required capital at correct time is really a complex and almost unachievable especially for poor people. The objective of this study is to understand the financial behaviour of low-income people by looking at their own perceptions as users of money and financial services. The approach used in this study has been inspired and guided by the Financial Capability Index (FCI) methodology developed by Microfinance Opportunities (MFO). As per definition of Financial Capability, it covers four domain of human nature related to money. They are Spending Money, Estimating Cost, Choosing Products and Staying Informed. The present study wants to create a scoring mechanism by using factor and cluster analysis to examine and analyze people’s nature related money in the four financial-capability areas. It has been found that out of all a person is able to manage one area but incapable to execute other things judiciously. The result shows that women obtain better scores than men on using, estimating and keeping track of their monitory matters. In most cases there is a significant impact of age and level of education to for defining Financial Capability. This paper points to the need for increasing financial awareness and literacy of low-income households as well as provides some suggestions for improving the Financial Capability of these people.