Financial Literacy
For Risk ManagementIn Financing Agriculture
Expert MeetingManaging Risk in Financing
Agriculture
April 1 – 3, 2009
Johannesburg, South Africa
Mr. Charles Mutua
www.sccportal.org
• The Swedish Cooperative Centre (SCC) was founded in 1958 by the Swedish cooperative movement.
• The overall goal of SCC is poverty alleviation, which is expressed in the organisation’s vision of“a world free from poverty and injustice”.
SCC
SCC’s priority sectors and cross-cutting thematic areas
Rural Finance
Housing Finance
Micro-insuranc
e
Financial Educatio
n
Presentation Outline
– What is Financial Literacy?– What is Financial Literacy is not– Why Financial Literacy?
• Justification• Importance
– What Risks?– Financial Literacy along the Value Chain (VC)– FL Methodologies & Approaches
WHAT IS?
• Financial literacy is “the ability to process financial information and make informed decisions about personal finance…”(Asian Development Bank)
• Financial Literacy is a situation which “empowers consumers to make informed decisions” (skills, attitudes, knowledge and understanding) enabling the consumer to act accordingly
• Financial literacy/education “seeks to strengthen and change behaviors that lead to increased incomes, better management and protection of scarce assets, and effective use of financial services…” (Microfinance Opportunities)
– It uses Adult learning principles and practices– Brings learners own experience to a learning event
What is not!
• It is not Marketing (publicity, sales or advertising)
• Financial Literacy is not just raising of awareness and providing information
Why Financial Literacy?Justification:
• Kenya for example: 38% of the population is excluded from financial services (unbanked). Only 19% uses financial services from formal institutions like banks, 8% uses semi-formal institutions (SACCOs) while 35% uses informal systems (ROSCAs, ASCAs etc)(Financial Access in Kenya 2007, FinAccess)
• South Africa: Only 34% of survey respondents knew the correct word to describe ‘annual price increases’. (ECI Africa 2004, FinScope)
Formal 19%
Formal Other8%
Informal35%
Excluded39%
Why…Cont’d
Importance:
• At the individual level - the lack of financial literacy makes people more susceptible to the devastation caused by emergencies, over-indebtedness, over-zealous retailers or fraudulent schemes
• At the institutional level - the lack of financial literacy generates misinformation and mistrust of formal financial service providers
Misinformed consumers make poor clients, who in turn represent increased risk for financial institutions and contribute to a weaker bottom line.
• At the market level - uninformed consumers cannot play a developmental and monitoring role in the market to weed out bad practices and providers.
“Financial literacy is a win-win proposition for clients and institutions”
“An informed customer is a good customer”
What Risks?
•Production Risks
•Credit risks
•Payment/Sales Contract Risks
•Price Risks
•Currency Risks
•Diversion Risks•Buyers Risks
•Non Compliance/Client Integrity
•Customer Performance Risks
•Transactional Risks
•/ Payment Risks
•Country / Political Risks
•Warehouse Merchandise
Risks on value, quality..
Inherent Risks in Financing Agriculture Associated Risks
Fin
an
cia
l Lit
era
cy
Financial Literacy Along the VC Flow
Medium and LargeExporters and Wholesalers
Processors
Collector/Traders
Farmers & Producer Groups
Input SuppliersFin
an
ce a
nd
Su
pp
ort
ing
Serv
ices
SavingsInvestments
CreditBanking ServicesRisk Management
(i.e. Insurance)Planning
Etc.
FL Methodologies
•Speeches and discussion forums•Radio and TV programs•Articles and advertising campaigns•Print material (posters, leaflets)•Competitions•Expositions•School events•Road shows
•Study Circles•Organized visits to financial institutions•Involvement of multipliers (e.g. priests, trade unions, teachers)•Training of trainers•Mentoring, use of corporate volunteers•E-platforms
Awareness and Information Learner-Centered
Learner – Centered Methodology: Key Principles that must be taken into account
Relevance
Dialogue
EngagementLearning must involve
learners through discussion, small groups and
learning from peers
ImmediacyLearners must be
able to apply the new learning immediately
20/40/80Rule
We remember 20 percent of what we hear,
40 percent of what we hear and see, 80 percent of what
we hear, see and do
Cognitive, Affective, and Psychomotor Interaction
Learning should involve thinking and emotions
as well as doing
Respect Learners need
to feel respected and like equals
Affirmation
Learners need to receive praise, even
for small efforts
Safety
Learners need to feel that others value their ideas and
contributions, that others will not belittle or
ridicule them
Learners learn best when
drawing on their own knowledge and
experience
Learning must be two-way
Adapted from: Adult Learning Principles and Curriculum Design for Financial Education, MFO, FH, Citigroup
Approaches:
• At the Individual & institutional level– Choose a sustainable
methodology (one-on-one, TOTs, study guides etc)
– Develop/adapt a relevant curriculum e.g. Swedish Cooperative Centre, Financial Literacy Study Circle Guide
Cont’d…
• At the country level– Craft national strategies for financial literacy– Create partnerships– Integrate financial education and insurance in
curricula of public education system– Code of Ethics, e.g. Uganda Microfinance– Financial literacy emphasis days/months using a
combination of instruments– Target group specific activities (children, youth,
women, entrepreneurs)– Indirect learning as part of other campaigns (health,
finance in general
Approaches: Kenya’s Example (Adapted from: Financial
Education in Kenya, FSD Kenya, MFO, 2008)
ActorsoGovernment (Ministries)oRegulators and supervisorsoPublic learning institutionsoParastatals
Roles and ResponsiblitiesoPolicy developmentoPolicy enforcementoFacilitate entry (to schools)oDisseminate informationoAssess impactoStaff time and funding
ActorsoIndustry players and theironetworksoCivic institutions (NGOs,churches, consumeroprotection associations)
Roles and ResponsiblitiesoLeveraging client baseoIncorporate FE activititesinto service deliveryoHost FE ProgramsoStaff time and funding (CSR)oFinance FE campaigns
Vision• Champion FE initiative;• maintain singular focus;
• maintain neutrality &credibility;
• quality control on content;• market FE to stakeholders;
• policy advocacy;• identify and co-ordinate
working groups,• facilitate research and
monitoring and evaluationactivities
Financial Education Partnership(Public/Private Partnership)
Cont’d…
• At the global level– International Network on Financial Education
www.financial-education.org – Yearly conference: www.FinancialEducationSummit.org – Global Training Program: www.GlobalFinancialEd.org – Financial Education Fund (FEF) - FEF is a new fund
which will support innovative projects in Africa that improve financial capability: www.genesis-analytics.com
– Working group “Insurance education” www.microinsurancenetwork.org
Merci! Gracias! Ke a Leboha!
Ngiyabonga! Ndoliboa!Nakhensa!
Thank You!
Mr. Charles MutuaSenior Programme Officer – Financial ServicesSwedish Cooperative Centre & Vi Agroforestry
Regional Office for Eastern AfricaP.O. Box 45767 – 00100, Nairobi, Kenya
Tel: +254 20 4180201/37Fax: +254 20 4180277
Web: www.sccportal.org Email: [email protected]