Risk management and the role of financial literacy

Globally, a large chunk of people are living below the poverty line. The banks do not have information about their creditworthiness, capacity, and capability to repay loans. Moreover, these people do not have any physical collateral, due to which the banks are not ready to provide them with loans and credit. However, the self-help group programme, through the social capital, i.e., the existing relationships among the members of the poor, enables them to mobilize their savings to facilitate financial inclusion. Despite a lot of research in this domain, the role of voluntary associations like self-help group promoting institutions, such as MYRADA, making financial inclusion for the poor a reality, is not a well-researched domain. The field research highlights that only collective social identity and social capital are not enough; there is a need for creating structural changes. These structural changes include the creation of the institutional governance mechanism to ensure the financial inclusion of the underprivileged members of society. These structural changes could be in the form of cooperative structures, registered group structures, or legalization of the groups through the articulation of the group norms in financial contracts. This chapter, using a hermeneutical approach, aims to look at the aspect of financial contracting to facilitate access to finance for people at the bottom of the pyramid. The self-help group promoting institutions have come to play an extremely important role in ensuring financial inclusion of the poor by providing them with hand-holding and initial support in creating self-help groups. Moreover, these voluntary associations have also come to play an extremely important role in providing financial intermediation and hand-holding for the upliftment of the poor from poverty. This study aims to explore the role of voluntary associations, such as self-help group promoting institutions, in ensuring financial inclusion of the poor from the bottom of pyramid.