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How do households make financial decisions while juggling competing demands, having only limited resources and with incomplete access to finance? Given the ever-increasing complexity of financial lives for low and middle-income households, this area of research can critically guide the development of both financial markets and appropriate products that better serve the needs of customers.

Dvara Research’s Household Finance Research initiative aims to rigorously understand the financial choices and decisions of low-income or excluded individuals and households, and their relation to achieving households’ objectives. It has been our consistent endeavor to study financial inclusion as a gateway to a suite of appropriate financial services eventually enabling well-rounded household balance sheets and consumer financial well-being.

We believe that careful research and a comprehensive body of evidence can powerfully inform market practices and the design of financial sector policy to deliver comprehensive financial services for all individuals, households, and enterprises, and eventually serve to create a safe environment in which formerly excluded populations may fully experience the benefits of financial inclusion. This research initiative seeks to significantly expand the scope of India-specific and policy-focused household finance research that is timely and relevant to current financial sector development.

The Household Finance Research Initiative focuses on two broad themes. The first aims to generate a richer understanding of the goals and opportunities that households face in their financial lives and their use of financial and non-financial strategies to achieve these goals. The cumulative outcomes of these strategies or the results from the interaction of poorly designed or unsuitably delivered market-prevalent financial products can lead to sub-optimal portfolio allocations for households, also known as ‘financial mistakes’. Our second research theme aims to unpack the complex interaction of demand and supply factors that result in these mistakes, and to inform product design improvements or policy initiatives to minimize their incidence as well as mitigate their harmful consequences for vulnerable households.

Papers

This research seeks to understand what might constitute a loan mis-sale and to inform the use of suitability guidelines for lending to low-income households by MFIs, SHGs, and banks. To do so, we reviewed a diverse body of evidence on microfinance and addressed specific evidence gaps with a year-long financial diaries survey of 400 active borrowers in rural south India.

When Is Microcredit Unsuitable? Prathap & Khaitan, 2016

This research paper reviews the composition of asset portfolios of more than 1.5 lakh rural households served by an Indian rural financial services institution. We use this data to construct stylised asset portfolios that represent diverse sets of households and using the tools of Modern Portfolio Theory, we compare the performance of these portfolios against a hypothetical portfolio that includes a suite of standard financial instruments to manage liquidity, inflation, and risk. This comparison reveals that rural households could earn significantly higher levels of real returns (2-5 % higher per year) at extant levels of risk, and underscore the urgent policy imperative to enable wider access to a variety of financial instruments for rural and low-income households.

How Much Can Asset Portfolios of Rural Households Benefit from Formal Financial Services? Prasad, Sahasranaman, Sadhu & Khaitan, 2014

Projects

The NSE-Dvara Research (formerly IFMR Finance Foundation) Financial Deepening & Household Finance Research Initiative was a collaborative research effort that aimed to support high-quality research on household finance that is informed by the current financial landscape including barriers to access, and aimed to generate tangible policy and practice insights that contribute towards furthering financial outreach to low-income and excluded populations.

Research papers supported by the initiative: