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Microfinance Financial Literacy: A Cross-Country Study : Lucia Spagiarri - MicroFinanza Rating
Financial Education for Managing Risk : Zak Syengo - Rafiki
What impact of financial education interventions in Cambodia?: Yousra Hamed - ILO
Financial capability, Financial literacy, Financial education …
Financial education is a way to increase financial literacy. It
provides basic skills related to earning, spending, budgeting,
borrowing, saving and using other financial services such as
insurance, money transfers
Financial literacy is the ability to understand finance. It refers to
the set of skills and knowledge that allows an individual to make
informed and effective financial decisions, and understand the
financial services that are available.
Financial capability is defined as the combination of …
1. Knowledge (I know what a savings account is)
2. Skills (I know how to open a bank account)
3. Attitudes (I find it useful to have a bank account)
4. Behaviour (I’m going to the bank to open a savings account)
that a person needs to make sound financial decisions that support well being (center for financial inclusion)
What is financial capability ?
Access to credit and financial awareness
Microfinance Financial Literacy: A Cross-Country Study
Methodology
• Financial literacy: set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources (Giesler, Markus; Veresiu, Ela). One of the skills is interest rate awareness.
• Interest rate awareness: clients who know their nominal interest rate within 25% margin of error.
• Analysis (logit model) by the University of Reading, UK. • Limitations: only one measure of financial literacy; no causality,
only association.
Financial awareness of interest rate = α + β_1 x Sociodemograhic Status + β_2 x Financial Access + ε Research question 1: Where do we stand in financial literacy? Research question 2: What borrower profiles are more financially literate? Research question 3: Are borrowers with previous access to finance more financially literate?
Social Rating field surveys by MicroFinanza Rating
Data: 9,053 clients, 52 FSPs, 28 Countries
% Clients aware of the interest rate of their loan
Low client awareness of the nominal interest rate of their loan, indicating low financial literacy.
42%
33%
24%
33%
41%
31%
28%
45%
35%
No Saving
Low fin. intermed.
High fin. intermed.
Small scale
Medium scale
Large scale
Urban
Rural
Urban-rural
40% 40%
32% 34%
44% 32% 33%
14%
26% 48%
63% 30%
34%
MixedVillage B.
GroupIndiv.
NGOCredit Union
NBFIBank
AfricaSEAECALAC
Total
Dependent variable Client awareness of interest rate
Controls Country, survey year
Socio-demographic explanatory variables
Age***
Education***
Client household head***
Living in rural area***
Female
Financial explanatory variables
Annual interest rate on current loan***
Multiple borrowing from other NBFI, NGOs, Credit Unions (now)***
Have a saving account (previously)***
Have a loan from moneylender, family or friends (now)***
Have a loan from NBFI, NGO or Credit Unions (previously)
Have a loan from bank (previously)
***/** Statistical significance 1%/5% level. NBFI: Non Bank Financial Institution.
≠ literature
= literature
Communication transparency
Over-indebtedness
Remuneration not the focus
Awareness of interest % does not come automatically with access
Past stress experience
Association: positive; negative; none
Policy implication
Financial literacy is not automatically achieved with access to finance; deliberate financial education measures are needed to improve it.
Given the cost of education programs, it may be cost-effective to take financial education measures with target segments with especially low financial literacy.
Transparency culture and supervision could help improving client financial literacy.
Client financial literacy may be a necessary line of defence against over-indebtedness.
Hypothesis 1 Sociodemographic factors such as gender, age and education level are associated to the financial literacy levels of clients in the cross-country microfinance environment.
√ Age, education X Gender, rural
Hypothesis 2 Clients with previous access to credit and additional source of credit have higher financial literacy of interest rate.
√ Previous access to moneylenders, family and friends X Previous access to banks, NBFI, NGO or Credit Unions; multiple borrowing
Thanks
Guan Huang PhD Student in Finance, ICMA Centre, Henley Business School, Reading
Lucia Spaggiari
Business Development director, MicroFinanza Rating
See Financial Literacy insight
Zak Syengo,
Head of Marketing &
Corporate Affairs
Rafiki Bank
Financial Education for Managing Risk
A subsidiary of Chase Bank (K) Ltd and
regulated by the Central Bank of Kenya.
Rafiki opened it doors on 7th July 2011.
Currently we are the 3rd largest
Microfinance Bank in Kenya.
Institutional Background
Savings Facilities
• Savings Account
• Current Accounts
• FDRs
Credit Facilities
• Working Capital
• Asset Finance
• Mortgages &
Development
• Over Drafts
Trade Finance
• Bid Bonds
• Guarantees
Forex
Money Transfer services Micro - Insurance
PRODUCT OFFERING
Education Products
Education Finance These comprise of loan products that enable individuals pursue education at
different levels
Institution Finance
These loan products are offered to educational institutions to purchase necessities such as school vans, etc.
Training
We also facilitate training programs to individuals and educational institutions so as
to promote education in Kenya through committed champions
Training Initiatives
Chama breakfasts
Classroom trainings
Customer advisory
Customer visits
Open day
Partnership: Edulink International College
• Edulink International College offers global technical and graduate courses.
• Has partnered with several universities in the US, UK
• Partnership with the bank to have credit facilities availed to the students and
guardians
• Diversification of partnership to reach out to many more youth.
• The bank extends financial training module to students through regular sessions
facilitated by the staff trainers
OneUni MOBI DEGREE
• OneUni is a Silicon Valley mobile-first startup revolutionizing global higher education
• Offering a mobile learning platform that lets students access programs anywhere
• The monthly program fees even include the data plan — so students can get to work
wherever they are.
• In Kenya, OneUni is rolling out the first programs in partnership with Daystar University
• OneUni also chose to partner with Rafiki Microfinance Bank to offer school fees loans to
students enrolling in their programs.
• Challenges: Reaching out to individual students for personal finance training
Number of schools financed 25
Primary schools 14
Secondary schools 11
Total amount financed Ksh.70,122,563
Balance of these loans outstanding Ksh.56,772,171
PAR 0.63%
Educational Institution Finance
CASE STUDY 1:Tenacity Locks Ltd
• The proprietor, Ken Ndwiga is BCOM graduate
• He began specializing in locks in May, 2011 to take care of padlock security needs
• Enrolled in Rafiki Financial Education class in 2011(part of bank’s initiatives for training
entrepreneurs in personal and business finance through four sessions in a month)
• Uses social media as a key tool for advertising and marketing
• Currently planning to set up the largest show room in the Central Business District for
locks
• Current borrowing over Kshs 4,500,000
CASE STUDY 2: St. Francis of Assisi Academy, Nakuru
• St. Francis of Assisi Academy was 30th May 2006 by two directors
• Offers 8-4-4 system ranging from baby class to class 8
• Currently accommodates a total number of 707 students.
• Employed 28 members of teaching staff and 12 non-teaching staff
• Current borrowing over Ksh. 9,000,000
• School directors and management have benefited from Financial Education
training organized by the bank to enhance best practices in personal and
business finance
Number of groups trained 2102
Loan Book 469,354,000
Deposits 527,000,000
PAR 1.20%
CASE STUDY :CHAMAS
Education Vs Risk in Microfinance
• Access to information helps clients make informed decisions
• Bank monitoring makes clients prioritize-avoid diversion
• Financial access bridges expansion gaps
• Ultimate risk management-for clients and microfinance
• Challenge: How sustainable are FE initiatives by the microfinance bank?
Zak Syengo
Head of Marketing & Corporate Affairs
Rafiki Microfinance Bank
(+254) – 706 757 140
www.rafiki.co.ke
Rafiki House, Biashara Street,
P.O. Box 12755 – 00400
Nairobi, Kenya
Microfinance and risk management:
An impact assessment of a client training on financial education
AMK and VisionFund - Cambodia
Action Research Programme
Timeframe: 2008-12
16 partner-MFIs worldwide
GOAL: to measure the impact of decent work innovations on the welfare of microfinance clients
Microfinance for Decent Work Innovations
Formalization •Awareness raising and client sensitisation to benefits
•Introduction of business development services
Occupational
Safety and Health
•Client training on good working conditions and agreement on improvement
plan
•Specific loan product for work improvements
Job Creation/
Women
Empowerment
•Organisational restructuring: new SME lending window
•Client training on women‘s empowerment
Risk Management •Financial education - Entrepreneurship training for clients
•Introduction of insurance products: multi-risk for business loan clients,
health, credit life
•Introduction of individual emergency fund
•Introduction of leasing product
Child Labour •Awareness campaign
•Modification of existing health-insurance product
•Modification of existing health-insurance product
Microfinance for Decent Work Innovations
Formalization •Awareness raising and client sensitisation to benefits
•Introduction of business development services
Occupational
Safety and Health
•Client training on good working conditions and agreement on improvement
plan
•Specific loan product for work improvements
Job Creation/
Women
Empowerment
•Organisational restructuring: new SME lending window
•Client training on women‘s empowerment
Risk Management •Financial education - Entrepreneurship training for clients
•Introduction of insurance products: multi-risk for business loan clients,
health, credit life
•Introduction of individual emergency fund
•Introduction of leasing product
Child Labour •Awareness campaign
•Modification of existing health-insurance product
•Modification of existing health-insurance product
Risk Management cluster’s innovations
PRIDE Microfinance Uganda • Introduction of new leasing product (Mortgage Asset Financing
Loan)
Negros Women For
Tomorrow
Foundation (NWTF)
Philippines • Introduction of new entrepreneurship training to clients: using ILO
training modules “Generate and Start Your Business”
• Modifications to Individual Emergency Fund (= savings account for
emergency situations)
VisionFund Cambodia • Introduction of financial education to clients (direct client training)
AMK Cambodia • Introduction of financial education to clients (indirect approach
through educating client officers)
TYM Vietnam • Introduction of client training on risk management and
microinsurance
Finanziera
Confianza
Peru • Introduction of insurance “Multiriesgo de Confianza” and client
training to establish a “insurance culture” among clients
Banco Popular Honduras • Introduction of health insurance “Salud popular”
Risk Management cluster’s innovations
PRIDE Microfinance Uganda • Introduction of new leasing product (Mortgage Asset Financing
Loan)
Negros Women For
Tomorrow
Foundation (NWTF)
Philippines • Introduction of new entrepreneurship training to clients: using ILO
training modules “Generate and Start Your Business”
• Modifications to Individual Emergency Fund (= savings account for
emergency situations)
VisionFund Cambodia • Introduction of financial education to clients (direct client training)
AMK Cambodia • Introduction of financial education to clients (indirect approach
through educating client officers)
TYM Vietnam • Introduction of client training on risk management and
microinsurance
Finanziera
Confianza
Peru • Introduction of insurance “Multiriesgo de Confianza” and client
training to establish a “insurance culture” among clients
Banco Popular Honduras • Introduction of health insurance “Salud popular”
Findings from the diagnostic phase and choice «over indebtedness and vulnerability» - AMK
Almost 20% of respondents stated they had difficulties repaying their loan;
66% of respondents confirmed using financial services from other sources; among those clients, 8.8% stated that they took a loan to pay back their loan to AMK;
55% of respondents stated that they had been confronted with a large, unforeseen expense in the last year (mostly due to health issues);
65% of respondents explained that they covered large, unforeseen expenses by withdrawing savings; 60% took an additional loan, while almost 30% sold their assets;
Only 11.6 % of all self-employed respondents indicated that their business income covered their business expenses;
8.3% of respondents reported being unable to cover household expenditures.
ACTIVITIES OUTPUTS OUTCOMES
IMPACT
• Development of
training/new product
• Training of Trainers at
different organisational
levels (HQ, branch)
• Pre-selection of
clients
• Client training/
briefing
•MFI staff trained
(training department, loan
officers, branch
managers)
• FE manuals provided
(partially in local
language)
• MFI clients
trained/briefed
• MFI clients served by
capacitated staff
• Clients changed financial
attitude
• Clients took better informed
financial decisions and improved
risk management strategies
-Increased savings
-Improved planning
-Less withdrawals for
non-emergencies
-Increased use of insurance
• Clients built and maintained
assets (physical, financial, social)
• Clients improved
entrepreneurial skills
• Clients increased business
revenue/profit
• Client levels of
overindebtedness
reduced
-Multiple borrowing
reduced
-Late payments
reduced
-Use of loans to
payback loans
reduced
• Client vulnerability
levels reduced
-Planned and
unforeseen expenses
fully covered by
income
• MFI loan portfolio
improved
Implementation Results
Baseline survey and up to 5 follow-up surveys to track the impact
FE theory of change
Control and target group.
Panel data: Baseline with one to four follow-up surveys (depending on the
innovation).
Data sources: Questionnaires (clients) and Management Information Systems
(MFIs).
Assignment of innovation at branch level (Number of branches in samples: 2 to
29).
Typical evaluation methodology: Difference-in-differences (sometimes
supported by Propensity Score Matching).
Quantitative impact Evaluation: Basic facts on evaluation for MF4DW Action Research.
Risk Management
Groups of outcome variables:
Financial attitude
- Debt-related attitudes
- Precaution-related attitudes
Financial behaviour/risk management
- Planning horizon
- Setting money aside etc.
Asset building
- Insurance
- Savings
Over-indebtedness/multiple borrowing
- Borrowing from other informal/formal source
- Took loan to repay another
- Repayment difficulties
Vulnerability
- Expenses covered by income
AMK - Cambodia
Results
Strongest positive impact on the repayment behaviour of clients:
• Reduction of 3.4% in late payments
Significant and positive impacts on:
• Asset building through 10% increase of insurance uptake,
• Financial attitude through 8% reduction in clients’ believe that it is impossible to save, 1% increase in clients’ association of savings and security, through improved handling of debt, as well as attitude towards borrowing
AMK applied an indirect training approach focusing on increasing financial education and training capacity of staff and delivering key message in group meetings throughout the loan cycle.
Vision Fund-Cambodia
Results
Some impact on financial attitude and risk management
• 10% decrease of negative perception towards insurance
• Partially improved attitude towards savings
• 9% increase of setting money aside for future emergencies
• 22% increase in ability to put money aside for emergency expenses;
Little evidence with respect to asset building
(except for 8-10% increase of savings incidence);
Many mixed and counter-intuitive results for multiple borrowing/over-indebtedness and vulnerability.
VFC applied a direct training approach and implemented training sessions with clients (2 days course).
Thank you !
Yousra HAMED
Social Finance Programme – www.ilo.org/socialfinance
International Labour Organisation
See also ILO’s financial education page
More results on the MF4DW report
Thank you
Lucia Spaggiari - [email protected]
Zak Syengo - [email protected]
Yousra Hamed – [email protected]