In Collaboration with:

Access to Finance for the Poor Programme

Financial Capability Needs Assessment

Deliverable A3.1

December 2014

DISCLAIMER The Access to Finance for the Poor Programme in Nepal is funded by UK aid from the UK government; however the views expressed in this report do not ecessarily reflect the UK government’s official Policies. This report, including any attachments hereto, may contain privileged and/or confidential information and is intended solely for the attention and use of the intended addressee(s). If you are not the intended addressee, you may neither use, copy, nor deliver to anyone this report or any of its attachments. In such case, you should immediately destroy this report and its attachments and kindly notify Louis Berger. Unless made by a person with actual authority. The information and statements herein do not constitute a binding commitment or warranty by Louis Berger. Louis Berger assumes no responsibility for any misperceptions, errors or misunderstandings. You are urged to verify any information that is confusing and report any errors/concerns to us in writing.

Contents EXECUTIVE SUMMARY .............................................................................................................................. i

I . Introduction ............................................................................................................................................ 1

A. Background ..................................................................................................................................... 1

B. Objective ......................................................................................................................................... 2

C. Scope of the Study and Limitation ........................................................................................ 2

I I . Concept and Definit ion of Financial Education ........................................................................ 2

A. Financial Literacy, Financial Education and Financial Capabil ity .............................. 2

B. Financial Education for Client Protection and Financial Inclusion ........................... 4

C. Elements of an Effective Financial Literacy Strategy ..................................................... 5

D. Scale, Sustainabil ity and Impact of Financial Capabil ity Init iatives ......................... 6

E. Financial Education Audiences ............................................................................................... 6

I I I . Global, Regional and National Financial Education Init iatives .......................................... 7

A. Global Financial Capabil ity and Literacy Init iatives ........................................................ 7

B. Regional Financial Capabil ity and Literacy Init iatives ................................................... 8

C. Financial Capabil ity and Literacy Init iatives in Nepal .................................................. 10

D. Impact of Financial Literacy Programmes: Lessons Learned ..................................... 13

E. Implications for AFP Programme .......................................................................................... 15

IV. Financial Literacy Delivery Channels .......................................................................................... 15

A. Frequently used Delivery Channels ..................................................................................... 15

B. Review of Internationally Adopted Financial Literacy Delivery Channels ............ 16

V. Assessment Methodology ............................................................................................................... 18

A. Conceptual Framework ............................................................................................................ 19

VI. Findings and Observations ............................................................................................................. 20

A. Household Level Incomes and Expenditure ..................................................................... 20

B. Reasons for Low Level of Financial Services Use ........................................................... 20

C. Financial Behaviours – Knowledge, Skil ls and Attitude ............................................... 22

D. Demand for Financial Education .......................................................................................... 28

E. Supply of Financial Education ............................................................................................... 31

F. Gaps On Financial Capabil ity To Be Addressed By AFP Programme ..................... 31

G. Summary of Key Gaps in Financial Literacy ...................................................................... 33

VII. Recommendations: ..................................................................................................................... 34

A. Macro level intervention that are around advocacy and lobbying to create conducive environment to roll out FE nationally ..................................................................... 35

B. Micro level intervention to support AFP partner to rollout FE effectively in AFP areas. ........................................................................................................................................................ 35

C. Helping partner organizations develop curriculum on Financial Education. ...... 36

E. Role of AFP and its Challenge Fund to effectively rollout the FE ........................... 37

VIII . Conclusion and way forward ................................................................................................... 37

Acronyms

AFP Access to Finance for the Poor Programme

DFID Department for International Development

DSS Dalit Sewa Sangh

FGD Focus Group Discussion

FINGO Financial Intermediary Nongovernmental Organisation

FSP Financial Service provider

GMUK Grameen Mahila Utthan Kendra

GON Government of Nepal

IGA Income Generating Activities

KM Kilo meter

LDO Local Development Officer

MFDP Microfinance Development Bank

MFI Microfinance Institutions

MFWR Mid and Far Western Region

MIS Management Information System

NGO Non-Governmental Organisation

NPR Nepalese Rupee

NRB Nepal Rastra Bank

POS Point of Service

RFP Request for Proposal

RMDC Rural Microfinance Development Centre

RSRF Rural Self Reliance Fund

SACCOS Savings and Credit Cooperatives

SRG Self Reliance Group

TOR Terms of Reference

VDC Village Development Committee

i

EXECUTIVE SUMMARY

The purpose of Inception Phase deliverable #A3.1 (Financial Capability Need Assessment) is to assess the level of financial literacy at the household and enterprise levels in selected priority districts of the AFP Programme, identify areas of potential interventions for AFP Programme and provide a framework for interventions in partnership with potential Financial Service Providers (FSP). Towards this objective, the AFP Programme Team conducted a qualitative assessment using different tools and methodologies, including Focus Group Discussion (FGD), Individual and Group Interviews, and written Questionnaire. The assessment was conducted in three AFP Programme priority districts, Dang, Salyan and Rukum of Mid-Western Development Region.

The report starts by defining the concept of financial capability (financial literacy) in the context of improving access to finance for the poor. It also provide an overview of key findings and recommendations of global research and studies conducted by multilateral institutions like the World Bank and the International Labour Organization (ILO). It also provides an overview of other projects being undertaken in different regions such as the Financial Education for the Poor project in Washington, DC; Financial System Development Programme by Bank of Uganda, and Financial Education Programme of the Opportunity International Bank of Malawi, and the lessons and international best practices learned from these initiatives.

The report will then outline major findings from the field assessment activities focused on key literacy indicators such as: i) financial goal setting, ii) knowledge of savings, iii) debt management, iv) household risk management, v) selection of financial service providers, vi) family budgeting, vii) financial negotiation, and most important viii) consumer protection. Based on the observations from the field assessment, the demand for financial literacy is being analysed and reviewed.

The report concludes with a number of recommendations to address the deficiencies observed through this study, highlight the perceived role and responsibility of AFP Programme’s prospective FSP Partners, the alternative delivery channels to be used to advance financial literacy and finally recommendation for a number of financial literacy initiatives to be rolled with potential FSP Partners.

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I . Introduction

Most of the people living in high hills and rural areas of Nepal have very low level of income, lack knowledge of basic financial products and the formal financial institutions. Most of them have burden of over-borrowing from informal sources mostly at exorbitant interest rate and migrate to India and other foreign countries to find job. They lack basic knowledge of money management practices. Few small entrepreneurs are emerging even in remote hills, but they lack growth opportunities because of the lack of financial resources, knowledge of formal financial services and coordination with formal financial service providers. Lack of access to financial services in Nepal has an adverse effect on economic growth, increased poverty and inequality, especially in the Mid- and Far- Western Development Regions (MFWDR).

AFP Programme will also initially focus its initiatives on eight districts of MFWDR, namely Kailali, Dadeldhura, Baitadi, Bajura and Achham (in Far-western Regions) and Dang, Salyan and Rukum in (Midwestern Region).

A. Background Nepal’s financial sector has grown rapidly over the past three decades due to financial liberalisation and favourable economic policies, increasing the number of financial institutions from only two in 1980 to 276 in 2014. Currently, there are 30 Commercial Banks, 84 Development Banks, 53 Finance Companies, 37 Microfinance Development Banks (MFDBs), 16 Financial Cooperatives (SACCO with limited banking transactions licenses), 31 Financial Intermediary Non-Governmental Organizations (FINGOs) and 25 Insurance companies operating in the country. In addition, there are thousands of cooperatives providing financial services all over the country. As a result of proliferation of financial services the access to financial services has improved, but many people in Nepal still remain excluded from formal financial services particularly people living in the remote hills and mountains. The latest Living Standard Household Survey (NLSS, 201/2011) reports that the portion of households taking loans from formal financial institution such as banks has increased from 16% in 1995/96 to 20% in 2010/2011. In Nepal, people often do not appropriately match their needs with financial products available. Many are susceptible to the devastation caused by multiple emergencies, over indebtedness as well as fraudulent schemes. The Government of Nepal has given priority to microfinance activities which can help improve the livelihood of the poor people. Meanwhile, many wishing to enter the formal financial space are often inexperienced with the formal financial services. Therefore, there is a need to improve the knowledge, skill and ability of the rural people to make use of financial services of their need. Rural people often use financial services from the informal sector which makes their economic life vulnerable. When these people develop their knowledge and skill to manage money and understand the use of available financial products, they can reduce their risk and expand their wealth. Informed client can manage their income, expenditure, saving and credit wisely to achieve their financial goal

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B. Objective The objective of the AFP Programme is to enhance access to financial services especially to low income households, excluded and vulnerable groups in a sustainable manner with a target of reaching 400,000 people with new access to financial services by the end of the project period. One of the initiatives of AFP Programme is to develop financial literacy materials that partner MFIs can use to acquaint disadvantaged households about formal financial institutions and their products, and basic money management practices. Financial literacy enhances skill and knowledge to individuals to enable them to make informed judgments about financial matter. AFP Programme Team designed a representative sample Needs Assessment survey in Dang, Salyan and Rukum to assess the present behaviour and knowledge of people about financial matters.

C. Scope of the Study and Limitation The study was designed to identify understanding of the financial matters of the rural financial clients and assess their knowledge and skill about income, expenditure, financial planning, saving, household risk management, financial institutions and their products. The quick survey has identified some gaps between the present behaviour and the desired behaviour of the people regarding money management practices. The understanding of the gaps gives us insights into the topics that AFP should include in the financial literacy materials.

This report is mostly based on qualitative information. Despite that information is collected and quantified most of the things were visualized and conceptualized while discussing with the group members and in personal interviews. There are many views expressed herein which cannot be quantified. This is a snap shot survey and therefore various attitudes of the people may still remain undiscovered such as their priority in spending money, women's life cycle events, spending behaviour of remittance income, health and maternity insurance and so on.

I I . Concept and Definition of Financial Education

A. Financial Literacy, Financial Education and Financial Capabil ity

Financial Literacy

Financial literacy generally means the possession of knowledge and understanding of financial matters. It is mainly used in connection with personal finance matters. Financial literacy often entails the knowledge of properly making decisions pertaining to certain personal finance areas like saving, borrowing, investing, insurance, financial planning. It also involves intimate knowledge of financial concepts of financial service providers and their products and operations. Financial Education

Financial education is by the definition of the OECD (2005) is a process where the user of financial services/investors improve their understanding for financial products, notions and risks and on the bases of information, instructions and objective advice develop the skills

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and confidence in strengthening information about financial risks and occasions, make decisions on the bases of good information, are acquainted with the fact where to find help and take other effective measures for improving their wealth. According to OECD, Financial education has always been important for consumers in helping them budget and manage their income, save and invest efficiently, and avoid becoming victims of fraud. As financial markets become increasingly sophisticated and as households assume more of the responsibility and risk for financial decisions, financial education is increasingly necessary for individuals, not only to ensure their own financial well-being but also to ensure the smooth functioning of financial markets and the economy. Financial Capabil ity

The Scottish Government's 'Financial Capability Discussion Paper' (2010) offers a definition of financial capability as:

• the motivation to efficiently manage finances and effect change • day-to-day management of finances, for example, effective budgeting and use of a

bank account • planning ahead for retirement, other life transitions and unexpected events, for

example, by saving • efficient selection of financial products and the ability to understand these products,

for example, by comparing repayment costs before taking a loan • knowing where, and how, to seek appropriate financial advice

What should a f inancial ly capable person be able to do?

At a basic level, a financially capable person will be able to:

• understand bank statements, bills, payslips and other basic financial records • understand the implications of borrowing money and that it must be paid back, usually

with interest • use cash and non-cash methods of payment • manage a day to day budget and prioritise essential and non-essential spending • understand why we pay tax and national insurance and how this affects wages • understand percentages and how interest rates have an impact on the amount of

money borrowed or saved • seek advice when needed, knows where to go to get it and has the confidence to ask

Context for developing l iteracy and numeracy ski l ls

Building financial capability often involves the development of the literacy and numeracy skills which underpin everyday financial activities, such as reading and understanding written and numerical information and filling in forms. Many of the individuals and groups for whom improved financial capability can have a significant impact may also be those in need of literacy and numeracy support.

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At the same time, money provides a context which is relevant to adults' lives and approaches to adult literacies in acknowledge that people are likely to learn more effectively if that learning is relevant and rooted in real, everyday contexts.

Strengthening communities

Financial capability work can have an important role in the development of communities too. The projects featured in the case studies on the website adopt many of the principles of community learning and development work. These seek to empower individuals and groups and to promote participation, inclusion and equal opportunities for those individuals and groups.

They also demonstrate the role of effective partnership working to achieve significant positive outcomes for individuals and groups, and in particular those who are at points of transition in their life, for example, starting or leaving work, having children, coming into the country as a migrant worker, going into or leaving prison, or being made redundant.

B. Financial Education for Client Protection and Financial Inclusion

Since there is an enormous influx of inexperienced and vulnerable customers in the financial market, attention to consumer protection is needed now more than ever before. We can build on the strong consensus about the principles of financial consumer protection. It is the responsibility of all the stakeholders, financial service providers, regulators and the financial consumers themselves, to protect the consumers. Financial service providers should make client protection a part of the core identity of the banking profession. Consumers will not be effectively protected without effective regulation. A promising opportunity exists to empower clients to protect themselves, through financial capability building, consumer organizations and means such as publication of complaints data.

A balanced vision for client protection in a state of financial inclusion means that the incentives for poor behaviour must be offset by an environment that gives consumers rights and protections.

Financial inclusion with client protection will occur when all clients can affirm the following: • He has a choice of a range of quality financial services and providers to choose from. • He has a right to get the information he needs to make a good decision. • The choices he has made are affordable. • He has trust and confidence that using these products and services will not cause harm. • The client is treated with respect. • He has rights as a client and knows the paths to resolve problems.

The following four levels can create structures that support client protection: • Financial Regulators, who are increasingly recognizing that client protection can

contribute to financial system stability, and that an orderly marketplace with strong client protection can benefit providers as well as clients. Therefore, they should realize implementation of a strong financial national literacy strategy.

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• Financial Service Providers, who must take an affirmative attitude toward client protection rather than seeing it as something forced upon them by regulators. Initiatives such as the Financial Literacy Campaigns, which build industry-based commitment and capacity, are encouraged.

• Clients and cl ient groups, who also have a responsibility to know their rights and responsibilities from financial education and to advocate for effective client protections

• Polit ical wil l . The world leaders also have a responsibility to set a global goal of implementing client protection in every country within a definite time frame.

C. Elements of an Effective Financial Literacy Strategy

The financial literacy programme should not just be balanced but also be comprehensive throughout. Effective literacy programmes are designed to give all participants equal opportunity to learn. Trainers need good communication skills. Additionally, trainers must be capable of mastering the methods, materials and media that will be used. They need to know how to:

• Listen well • Use easy language and vocabulary that participants can understand well • Use appropriate body language (e.g., how to stand and move around the room) and

make eye contact with participants • Be fair and respectful to participants • Encourage diverse points of view and participation from everybody • Be alert, notice and respond to participants' changing needs • Take control and let go as necessary.

Trainers also need to have good organizational ski l ls . Successful training requires careful preparation, organization and time management. (Source: Trainer's Manual: Financial Education for Youth, ILO Country Office for Nepal)

Important Principles to Remember • Create a safe learning environment • Give feedback to the participants and praise them for their efforts • Think about ways of making the topic useful to all the participants present • Let the participants know that you are a learner with them • Use small groups . Small groups help involve all participants, build a sense of teamwork

and create safety • Show respect by valuing the participants' knowledge and experience with the subject • Be sure that throughout the session there is an opportunity for thinking , acting and

feeling (Source: Implementation Guidance: K. Stack, Microfinance Opportunities, 2006) A financial literacy strategy to be effective must have a purposeful beginning of addressing the needs of the target audiences. It must begin with a vision of personal financial wellbeing for the clients. The mission that the participants of the programme are well-equipped with

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the tools and techniques of making sound financial decisions throughout their lives must be fulfilled. Everyone will use the loan rationally and will have a current financial plan, and is prepared for the unexpected happenings. Therefore, the focus should be on delivering quality, extending delivery and sharing what works and working together.

D. Scale, Sustainabil ity and Impact of Financial Capabil ity Init iatives

We need to increase the scale of financial access to the poor by evaluating the initiative in context to the poor rural women and men earning little income from different activities such agricultural occupation, small businesses, and goat rearing and poultry farming. If the financial capacity initiative has a positive impact to increase their incomes and wealth, we need to understand how we can increase the scale of financial literacy programmes by examining the effectiveness of delivery channels and methods of scaling up.

We have to identify whether the market and other environmental factors such as unpredictable macroeconomic variables, government policy and national strategy are supportive to make a financial education programme sustainable. It needs to understand what the financial education programme can do for these people and why. Does it improve financial capability and well-being of the target people?

The impact of financial education programme can be evaluated in terms of how the economic life of the poor people has changed. The effectiveness of financial capability initiative should be evaluated in terms of whether the poor people are aware of financial matters such as saving, goal setting and planning, whether they have the knowledge of available financial service providers around them and their products, do they feel free to ask the terms and conditions of loan with the loan officer of the bank, do they understand banking procedure, can they match a financial product with their need.

There is an interconnection among the scale, sustainability and impact of financial capability initiative. The programme can sustain only if it helps realize poor people that it helped them change their economic lives. It needs to increase the scale of the financial literacy programme when it has an appreciative impact on their lives. The programme must level them up from their bare subsistence level.

E. Financial Education Audiences

The target audiences, in developing countries, are young men and women, excluded and vulnerable groups and low income population. Most of them live in rural areas, have no or limited formal education and survive by earning on a day-to-day basis. Many face endless challenges because of their limited incomes. There are a large number of financial education audiences such as households, entrepreneurs, private sector and government institutions, NGOs and local development agencies. Banks, MFIs and Cooperatives will be the potential partner institutions of the AFP Programme. Therefore, their clients are the audiences of financial education. The typical MFI and cooperative target clients who are low-income persons and do not have access to formal financial institutions. Microfinance clients are typically self-employed, often

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household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as running small grocery shops, producing grains, green vegetables and fruits, food processing and running tea and snack shops. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income. Access to conventional formal financial institutions, for many reasons, is directly related to income: the poorer you are, the less likely that you have access. On the other hand, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance. As we broaden the notion of the types of services microfinance encompasses, the potential market of microfinance clients also expands. For instance, microcredit might have a far more limited market scope than, say, a more diversified range of financial services which includes various types of savings products, payment and remittance services, and various insurance products. For example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to save the proceeds from their harvest as these are consumed over several months by the requirements of daily living. Thus, the financial literacy strategy should be linked with these audiences to cater their financial needs.

I I I . Global, Regional and National Financial Education Initiatives

Managing money is a common problem all over the world. Financial education is designed for them who want to learn how to manage their money. The poor especially share the same goal- the economic security for themselves, their families and future generations. Careful management of their little money may help them meet their day to day needs, cope with unexpected emergencies and take advantage of any opportunity they come along. Financial literacy is critical for improving money management skills and promoting asset-building for the poor. Various studies on impact of financial education have been conducted and financial literacy models have been exercised in the global market. Here is the brief survey of those financial education studies and literacy models developed by various international agencies.

A. Global Financial Capabil ity and Literacy Init iatives

Financial Literacy around the World: An Overview of the Evidence with Practical Suggestions for the Way Forward: The World Bank, Development Research Group, Finance and Private Sector Development Team June 2012.

Financial literacy programmes are fast becoming a key ingredient in financial policy reform worldwide. Yet, what is financial literacy exactly and what do we know of its effectiveness?

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This paper collects insights from the literature thus far and summarizes global evidence on financial literacy. It concludes with a synthesis of policy advice and practical suggestions for the way forward in this fast growing area of research.

This paper surveys the evidence on financial literacy levels around the world, as well as the results of empirical studies on the relationship between financial literacy and various outcomes. This paper discusses what we have learned about making financial education programmes more effective, drawing lessons from recent impact evaluations of programmes for both consumers and entrepreneurs. Finally, this paper concludes with a summary of the literature’s lessons for policymakers, with the goal of improving the design and implementation of future financial education programmes, and identifying gaps in our knowledge which still need to be addressed.

B. Regional Financial Capabil ity and Literacy Init iatives

Malawi: Opportunity International Bank of Malawi, Financial Education, Apri l 2010

The Opportunity International Bank of Malawi developed its financial literacy contents based on the guidance from the Global Financial Education Programme. The financial literacy contents include Vision Building, Budgeting, Savings and Debt Management in its curricula.

One of the key questions that arise in developing countries is whether financial literacy and financial access are causally linked. In fact, in most countries surveyed by FinScope, the primary reason cited for not having a bank account is lack of income or the inability to maintain a minimum balance, rather than lack of knowledge. In Malawi, where only 19 percent of the population has a formal bank account, these reasons account for the overwhelming majority of responses. Less than 10 of percent respondents cite financial literacy-related reason, such as not knowing how to apply for an account. (It is possible, however, that perceptions of minimum required balances, for instance, may be incorrect.) At the same time, almost 80 percent had either never heard of savings accounts or did not know what they were, and the figure is lower for current or checking accounts. Income-related reasons are also predominant in Rwanda, Namibia, and Tanzania, although a higher percentage of adults in Tanzania (21 percent) also said that they did not know how to open an account. (Cited from the World Bank Research Paper No. WPS 6107) United States of America: Financial Education for the Poor Project, Washington D.C.

Microfinance Opportunities in coordination with Citi Foundation and Freedom from Hunger has promoted client-led microfinance programme. It helps poor people increase their access to well designed and delivered financial services. Microfinance Opportunities provides action-research, training and technical assistance in three areas focused on the clients of microfinance services; Financial Education, Micro insurance and client Assessment.

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A variety of market research techniques were used to elicit information and to allow all involved to develop ownership in the learning agenda. The findings informed designers about existing client behaviours, knowledge, skills and attitudes as well as how clients like to learn, how often they want education, for how long and where. It has series of financial literacy materials focused to micro-entrepreneurs and clients of microfinance programme. Financial literacy materials developed under Global Financial Education Programme by the Microfinance opportunities teaches people concepts of money and how to manage it wisely.

The market research generated information demonstrated a consistent demand for the following five broad themes of financial education: • Budgeting • Debt Management • Savings • Bank Services • Financial Negotiations

Uganda: Financial System Development Programme, Bank of Uganda

Bank of Uganda in collaboration with GIZ (Deutsche Gesellschaft fuer Internationale Zusammenarbeit) conducted a study entitled "Towards an Effective Framework for Financial Literacy and Financial Consumer Protection in Uganda" in March, 2011. The study traces historical development of financial literacy programmes in Uganda and focuses on need of strengthening of both financial literacy and financial consumer protection in the country. The researchers believe that the change will be in the interests of individuals, financial services providers and of the country as a whole. In particular, it would help individuals to manage their personal finances better; they would be less likely to suffer losses; they would be more likely to be financially included; and they would be able to choose from more competitively priced financial services and products. Financial services providers would have a larger market in which to compete; and their clients would be better informed. For Uganda as a whole, the implementation of the recommendations they have made would increase financial inclusion; help to promote a sound financial system; and would help to take the poor out of poverty.

It will be important to test (e.g. through focus groups and piloting with members of the target audience) programmes and resources before they are rolled out more widely and to use the results of this testing to improve the design and delivery of the programme or resource. Financial literacy programmes should be monitored and evaluated to enable informed decisions to be taken on which programmes should be continued as they are, which should be modified and which should be discontinued as they are not cost-effective. Lessons learned from monitoring and evaluation should also be taken into account when developing new programmes. Account should be taken of other countries’ experience: for example, consideration should be given to adapting resources produced overseas, where this is practicable.

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They recommend that a national strategy for financial literacy should be developed and implemented and that this initiative should be led by BOU, working in partnership with a wide range of stakeholders.

C. Financial Capabil ity and Literacy Init iatives in Nepal

Donor Funded Financial Literacy Init iatives in Nepal

Enhancing Access to Financial Services (EAFS) Project: Market Research on Financial Literacy EAFS project launched by UNCDF, UNDP and Nepal Rastra Bank, conducted a Market Research on Financial Literacy in September, 2012. The overall objective of EAFS project was to expand access to financial services (both in terms of quantity and quality), especially to small businesses and low income households (poor youth, excluded and vulnerable groups), in a sustainable fashion aiming to reach 330,000 new clients by the end of the project period. The project focuses on areas where there is no, or very limited, presence of financial institutions (known as “priority districts”). The project target is to reach excluded and vulnerable groups such as women, Dalits/ Janajatis/ Muslims and the like groups. Further, EAFS places a special emphasis on reaching the rural poor.

One of EAFS’s major initiatives was development of financial literacy materials that microfinance institutions can use to teach their clients about financial literacy issues. To help with the design of financial literacy materials, EAFS project commissioned market research study to look at knowledge, skills and attitudes around financial matters.

Financial Education for Youth - ILO Country Office for Nepal - Kathmandu: ILO, 2011

The training package developed by ILO Country Office for Nepal has an objective to address the specific needs of young women and men in Nepal. Young people are in transition from childhood to adulthood, from financial dependency to independence. Their role in society is changing and they have new economic responsibilities. It is essential to equip the youth with financial knowledge and management skills to enable them to set goals in life and make plans for realizing them.

The training package aims at assisting organizations reaching out for youth to teach them basic knowledge and management skills in finance such as financial decision making, earning and spending wisely through budgeting, and using financial services. As a result of this, young entrepreneurs can retain and maintain their micro-business for the longer period of time leading to increased employment for the youth.

This training package targets young women and man (18-29 yrs.) and is based on the trainer's manual "Financial Education, Cambodia" and the training package "Budget Smart: Financial Education for Migrant workers and their families" both developed by the ILO, as well as the trainer's guide "Youth people, your future and your money" developed by the

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Global Financial Education Programme. An assessment conducted in Parsa and Rautahat districts informed the adaptation to the context of Nepal.

Other Init iatives in Nepal

The commercial banks in Nepal started financing the priority sector in 1974 under the direction and supervision of Nepal Rastra Bank. Agriculture, cottage industry and service sectors were jointly called priority sectors. In 1981 these sectors were redefined under "Intensive Banking Programme" (IBP). As per the policy of the GoN, NRB regulated, supervised and made arrangements of trainings on priority sector and IBP programme. The programme stressed area development approach, project viability, regular supervision and the principle of lending on a group guarantee basis to those low income families which were unable to provide sufficient collateral to the bank. Since this was a new concept in Nepal, the need was to give sufficient training to the staff of IBP Programme. The training contents included were concept of IBP, group formation procedure, eligibility criteria, application and project evaluation procedure, cash flow projection and financial viability of the project. The IBP staff used to go to field location and explained the lending procedure and terms and conditions for loan to their clients. They helped their clients to form the group and fill up the forms for loan. This was the initial step of providing financial knowledge to the clients.

The Small Farmers Development Programme (SFDP) was implemented by Agricultural Development Bank as a programme to support rural poor in mid-seventies. This programme involved small farmers in group savings and lending through group guarantee basis. The adult education and trainings were designed to support the programme.

The Production Credit for Rural Women (PCRW) started functioning in Nepal with UNICEF support since 1982. This programme introduced women to the national banking system through the credit/saving activities. Women's linkage with commercial banks and involvement in regular saving/credit activities brought awareness among them.

The history of financial literacy is not very long in Nepal. In earlier days (around 1980s), banks and financial institutions developed curriculums based on specific banking programme such as priority sector credit, small farmers’ development programme and production credit for rural women. But the objective of all the programmes was to acquaint with the programme contents and operational mechanism to their own staff. These programmes did not focus on the financial need and demand of their clients. However the programme staff used to arrange meetings of their clients in field offices and make them aware of the objectives of the programme, group formation and lending procedure. These programmes focused on lending to landless and poor people for income earning activities based on group guarantee without physical collateral. The staff used to explain their clients the procedure of filling application, terms and conditions of loan and activities for which they could become eligible for loan. Their clients also started opening accounts in banks when they had to borrow money. These activities in Nepal brought a kind of financial awareness among the people and could in a limited sense, become an initial step of literacy in personal finance.

The financial literacy, for the last decade, has been gaining its popularity all over the world developed as well as developing countries. Many donor agencies have been working in

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Nepal making financial services available for the poor. They support financial institutions to make the financial services available to poor families at reasonable cost including savings, credit and insurance. But without financial education access to financial services does not empower them. Expansion of banking services and the financial education should go side by side in order to empower them, enable them to make informed decision and improve their economic condition.

Donor agencies such as UNDP, UNICEF, UNCDF, DFID and HELVETAS Swiss Inter-cooperation have been supporting financial literacy programme for the last few years through their various projects. Some NGOs and private institutions also have been making effort to offer courses on financial education.

Other Donor Funded Programmes in Financial Literacy

CECI (Centre for International Studies and Cooperation), CMF (Centre for Micro-finance), NEFSCUN (National Federation of Savings and Credit Unions in Nepal), Grameen Bank Nepal, Planet Finance, Ford Foundation, CCA, World Education Nepal-USAID, Save the Children US, Rural Finance Nepal (RFUIN)/GTZ have been supporting financial literacy programme in one way or the other, but most of them provide piecemeal education and not full package of financial literacy. FDC (The foundation for Development Cooperation), Australia launched a project, Banking with the Poor (BWTP), through Rastriya Banijya Bank in Nepal. This programme also linked the poor with commercial banks for increased access to credit. All these programmes were group focused member participatory programmes, but they did not have an all-inclusive curriculums to empower poor people make self-decision on financial matters. The following are the prominent donor funded agencies running financial literacy programmes in Nepal:-

Mercy Corps: It is a global aid agency engaged in transitional environments that have experienced natural disaster, economic collapse or conflict. It helps people to rebuild their economy with community-driven and market-led programs. Mercy Corps focuses on connecting to both government and business for the changes they would like to see. They focus on access to financial services as the critical element for helping to move people out of poverty. It has developed financial literacy curricula for its own use.

Mercy Corps, in the last 14 years, has founded 12 different finance institutions. Since 1979, it has provided more than US$1.95 billion in assistance to people in 107 nations.

SAMRIDDHA PAHAD - Building sustainable access to finance in Nepal (An Initiative of the Blueberry Hill Charitable Trust, UK): Samriddha Pahad's approach includes institutional capacity building, financial literacy, agriculture value-chain strengthening, market linkages and enterprise development support. It has developed its own financial education training curricula. It has a strong focus on working alongside existing development initiatives and private sector partners.

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UNCDF/UNDP/NRB: UNCDF, UNDP and Nepal Rastra Bank jointly prepared training manual on "Financial Literacy" under Enhancing Access to Financial Services (EAFS) project. Nepali version of this manual has already been published by Nepal Rastra Bank. This four year project (2008-2012) supported 17 financial institutions in enhancing outreach efforts, expanding operations, and introducing product innovation. The manual on financial literacy includes 5 broad chapters (14 learning sessions), 1. Understanding your money 2. Protect your family, 3. Borrow wisely, 4. Providers of financial services and 5. Know your rights and responsibilities. This manual is the adaptation of Microfinance Opportunities, Global Financial Education Programme.

International Labour Organization: ILO country office for Nepal has prepared manual on Financial Education for Youth to address the specific needs of young women and men in Nepal. The training package targets young women and men of age between 18 to 29 years. It is based on the trainer's manual "Financial Education Cambodia" and the training package "Budget Smart: Financial Education for Migrant workers and their families" both developed by the ILO, as well as the trainer's guide "Youth people, your future, your money" developed by the "Global Financial Education Programme".

Oxfam: Is an international confederation of 17 organizations working in approximately 94 countries worldwide to find solutions to poverty, which it considers as injustice around the world. In all Oxfam's actions, the ultimate goal is to enable people to exercise their rights and manage their own lives. Oxfam works directly with communities and seeks to influence the powerful, to ensure that poor people can improve their lives and livelihoods and have a say in decisions that affect them. It also uses its own financial literacy curricula.

CARE Nepal: Care is one of the first international aid agencies to work in Nepal. Today, it works to address the systemic and structural causes of poverty and social injustice, such as discrimination based on gender, caste, class and ethnicity; poor governance; and vulnerability from conflict and natural disasters. It has identified three core themes for its current programs:

• empowering women • securing livelihoods and effectively managing natural resources • addressing equity and social justice

CARE Nepal works with some of the poorest, most vulnerable communities in Nepal, focusing on Dalits (people deemed as lower class), socially excluded indigenous people, poor families, marriageable girls and boys, single women, people with HIV/AIDS, and people affected by conflict or disaster. It also works on micro savings and credit. It has developed its own financial education curricula.

D. Impact of Financial Literacy Programmes: Lessons Learned

Financial literacy has been a subject of interest along with the rapid change in the financial scenario in all the economies advanced and developing. Various studies have explored the

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impact of financial literacy programmes. Based on those findings the following lessons can be learned from the initiation of financial literacy programmes:

• Financial literacy helps in empowering and educating consumers so that they are knowledgeable about finance in a way that is relevant to their lives and enables them to use this knowledge to evaluate products and make informed decisions.

• Financial literacy prepares consumers for tough financial times, through strategies that mitigate risk such as accumulating savings, diversifying assets, and purchasing insurance.

• Financial literacy facilitates the decision making processes such as payment of bills on time, proper debt management which improve the credit worthiness of potential borrowers to support livelihoods, economic growth, sound financial systems, and poverty reduction.

• It also provides greater control of one’s financial future, more effective use of financial products and services, and reduced vulnerability to overzealous retailers or fraudulent schemes. Facing an educated lot, financial regulators are forced to improve the efficiency and quality of financial services. This is because financially literate consumers create competitive pressures on financial institutions to offer more appropriately priced and transparent services, by comparing options, asking the right questions, and negotiating more effectively.

• Consumers on their part are able to evaluate and compare financial products, such as bank accounts, saving products, credit and loan options, payment instruments, investments, insurance coverage, so as to make optimal decisions.

• Financial literacy helps to inculcate individuals with the financial knowledge necessary to create household budgets, initiate savings plans, and make strategic investment decisions. Proper application of that knowledge helps households to meet their financial obligations through wise planning, and resource allocation so as to derive maximum utility.

• Financial knowledge appears to be directly correlated with self-beneficial financial behaviour. Mounting evidence shows that those who are less financially literate are likely to face more challenges with regard to debt management, savings and credit, and are less likely to plan for the future.

• Regulators of financial services, have a responsibility to help consumers of financial services in making informed financial decisions so as to promote consumer protection, public awareness, and maintenance of market confidence. On the other hand, information asymmetry between financial service providers (FSPs) and potential users leads to weakened financial markets. It also denies consumers an opportunity to fully appreciate their rights and responsibilities, the financial risks they may be exposed to, and any other information related to the financial products. Financial literacy not only benefits consumers but also FSPs. Financially literate

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consumers pose less risk to the financial system due to their responsible use of financial services which help to underpin financial market stability, and contribute to increased savings, wider economic growth and development.

E. Implications for AFP Programme

Nepal offers immense opportunity to households and entrepreneurs for economic activities through varieties of value chain activities. The AFP Programme aims to support the rural poor of priority districts excluded from the economic mainstream through their involvement in economic activities. The market has become very competitive and volatile. They cannot enter and prosper in the market unless they have knowledge and skill of financial matters such as saving, credit, financial planning, financial service providers and their products and financial negotiation. However, the level of financial education remains low in Nepal.

Financial service providers are beginning to offer a wider range of products and services to their clients such as voluntary and optional savings, credit, insurance and money transfer services. To select the products most appropriate to their needs, clients need to understand how their features differ, how to calculate and compare their costs and how to determine what they can afford.

Therefore, the AFP Programme aims at providing access to finance in the underserved districts in Nepal, which can fundamentally transform peoples' lives, promote entrepreneurship, help bridge the urban-rural income divide, alleviate poverty and improve individuals' lifetime economic and social prospects by integrating them into the market economy. Improved access to finance can lower the cost of doing business and create incentives for moving out of the 'informal sector'. For Nepal, where fewer than 26% of households have bank account, improved access to finance can break down economic and social barriers to economic growth and development. (Programme Document AFP)

By focusing on informed and strategic decision making, the Access to Finance for the Poor Programme helps households and small entrepreneurs learn financial education which will lead to more competition in the market, increase output and improve consumers' outcomes. The goal is to strengthen those behaviours that lead to increased saving, more prudent spending and borrowing for sound reasons.

IV. Financial Literacy Delivery Channels

Financial Education can be imparted using various delivery channels. Recently, financial education through social marketing instruments such as television and mobile has been gaining popularity in the global market. Here is the review of how these delivery tools work to influence better financial management.

A. Frequently used Delivery Channels

Tradit ional Channels

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Class room Training: This is a face to face training conducted in a class room setting. Trainers use white boards, markers and wall charts to demonstrate the contents of training. The target group of this channel can be semi-literate community groups, MFI clients and BFIs staff. It is a popular traditional channel which can create safe learning environment and facilitates close interaction with the peers and encourages learning and information sharing.

Projected Channels: They are very simple and most popular method of communicating knowledge especially in the areas, where the power supply is regular and the required projector is available. However, the facilitator in order to use projected instructional media must know the use of projector, power point and transparent sheets. They are useful for all target groups rural/urban, literate and illiterate participants. Those who cannot read and write can listen, share and enjoy the sessions under these channels.

Innovative channels (technology-based channels):

Radio/FM, Community Radio: These channels are useful for all target groups rural/urban, literate and illiterate participants. Introducing FL Programmes through mass media enhances learning to a large number of rural people.

Video cassettes/Films: These channels are useful for all target groups rural/urban, literate/illiterate participants. These are effective methodologies to attract and communicate participants.

Mobiles: These days delivery of financial literacy has becoming popular through Mobiles in many countries of the world. For the use of this channel operation of network technology is required.

Only traditional channels are used in Nepal except some radio advertisements.

The use of Radios can be replicated in Nepal to facilitate financial literacy trainings. In the urban area even TV channels can be used to facilitate financial literacy information and arrange forums to discuss topics on financial literacy matters.

AFP Programme can best utilize these channels through partner financial institutions. But the use of mobiles, radio and TV channels depend on the availability of these facilities. In order to use mobile we need system network and similarly TV channels can be used in places where electricity is available.

B. Review of Internationally Adopted Financial Literacy Delivery Channels

1. The financial literacy materials were included in a popular South African TV channel called "Scandal!" in Television Soap Opera. The target individuals were low-income South Africans. The show was broadcasted on eTV, the second most popular station in South Africa. The programme aimed at enhancing knowledge, attitude and behaviour of individuals regarding sound financial decision-making with a particular focus on managing debt. The financial education storyline would stretch over a period of three consecutive months, a time that was deemed necessary for the viewers to emotionally connect with the soap opera characters. The storyline for the soap opera has been

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developed by the production company of Scandal together with a team of financial capability and social marketing experts. Financial education messages in the storyline were tested through focus groups.

2. In Kenya, a mobile text messaging app with the simple name of iCow is helping dairy farmers work more efficiently. 42,000 Kenyan farmers have registered their cows with the service. When they register their cows, they receive in return information on valuable data such as gestation cycles and feed quality. They can also access veterinary assistance through the service's data base and connect with other farmers looking to buy or sell cattle. The iCow creator Su Kahumbu also received requests to expand iCow from countries as near as Uganda and as far as Russia.

3. Rwanda launched the eSoko project, which provides market price information to rural farmers and cooperatives that suffered from lack of market price information and hence have been isolated or deprived from communications and trade across markets, across borders and in the region. The system has a cost of $10 million. It has a database which covers more than 60 agricultural commodities in the country's 41 markets, all accessible through SMS. Based on the message the farmer or cooperative can make an informed decision on where it would be most profitable to sell or buy that commodity.

4. Centenary Bank and USAID are working to improve mobile banking to farmers through a mobile banking unit in Uganda.

5. Grameen Foundation is using Mobile phones to provide agricultural information to farmers.

6. A programme, Banking the unbanked, was launched in rural southwest Nigeria showcasing mobile phones as mobile banks among farming households.

7. Mobile technology in fishing activities in Kerala, South India, has led to the reduction of fish prices dispersion and a decline in waste.

8. The introduction of cell phones reduced price dispersion across grain markets in Niger, with a larger increase for those markets that were farther apart and over time.

9. Mobile phone banking for clients of Rural Banks and Microenterprise Access to Banking Services Programme was funded by USAID in Philippines.

Examples of public awareness Campaigns 1. The Financial Services Authority (U.K.) commissioned a baseline financial literacy survey

to assess levels of financial capability in the UK. FSA provides information, generic advice, and education via booklets and leaflets, consumer helpline, interactive learning materials on its website. Works with financial services sector and government departments (post office) to distribute information.

2. In 2004 three of Australia's largest superannuation funds joined forces to launch a financial education and awareness campaign. Delivery channels included print, web, call

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centres, seminars, and workplace visits. Education materials developed to respond to different learning styles and life stages.

3. In late 2004, the Slovak government sponsored a 10-month public awareness campaign about pension reforms. Brochures mailed to all households and available at regional post offices. Print, TV and Radio advertisements. Consumer hotline set up. Pension calculator in government's website.

4. The Irish Pensions Board, the regulator for occupational pensions, has sponsored annual National Pension Awareness campaigns. Special focus on populations groups with low pension coverage. Uses a variety of delivery channels:

• media supplements • guest articles in national, regional, and industry representative media • radio, bus and supermarket receipt advertising • sports personalities • information booklets • website pensions calculators • road show events

The Organization for Economic Cooperation and Development (OECD) recommends the following as good practices:

Ø National campaigns to raise awareness. Ø Specific web sites should be promoted to provide relevant, user-friendly financial

information to public. Ø Clearly distinguish between financial education and financial information and

"commercial" financial advice. Ø Provide information at several different levels in order to best meet the needs of

consumers. Ø Regularly assess the financial information provided to ensure it meets consumer

needs. Ø Use all available media for the dissemination of education messages. Ø Create different approaches for specific sub-groups of consumers, relating to

individual experience.

A training to be effective requires number of alternative delivery channels. Depending upon the facilities available, we combine one channel with the other to make the financial education programme more effective.

V. Assessment Methodology

The needs assessment survey aims at understanding the present behaviour of people related to their knowledge of managing financial matters, compare the results of the survey with the desired behaviour of managing their savings, loans and borrowings and awareness about the financial service providers and their products, their knowledge about the risk, insurance and financial negotiation. The gaps were identified by employing Focus Group Discussion (FGD) tool supplemented by interviews with chairmen and managers of

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cooperatives and microfinance institutions. The target groups for the needs assessment comprised members of cooperatives and FINGOs and members of informal groups.

This knowledge gives us the insights into the contents that AFP Programme should include in its financial literacy materials.

Figure 1 below shows the number of FGDs and interviews conducted in each of the districts.

Research Tool

Number of Discussions per

Distr ict

Target Sample

Salyan Rukum Dang

Members of cooperatives, FINGO and Informal group

No. of FGDs 4 2 4 Women and Men members of cooperatives, Women members of FINGO, members of Dalit informal group

No. of Interviews

11 0 1 Chairman and managers of cooperatives, staff of NBL

Total 15 2 5

Figure 1: FGDs conducted per distr ict

The number of FGDs conducted in all three districts Salyan, Rukum and Dang was 10 and was composed of 27(31%) male and 60(69%) female. It was inclusive of Dalits 20(23%), Ethnics 22(25%) and others 45(52%). Diversity of opinions and views from all the sides has been respected. Majority of the participants in FGD groups were from the low educated or illiterate poor households. They were the members of cooperatives, FINGOs and self-help groups. In all the three districts Salyan, Rukum and Dang the common economic activity among the people is agriculture. Business activity ranks in the second position, and then comes economic migration and daily wage earning. Many of these people cannot have sufficient food from farming because of small holding of land. Therefore they are involved in two or more livelihood activities.

Distr ict Male Female Total Dalits Ethnics Others

Salyan 7 28 35 11 10 14

Rukum 8 14 22 4 7 11

Dang 12 18 30 5 5 20

Total 27 60 87 20 22 45

Figure 2: Distr ict-wise distr ibution of FGD participants

A. Conceptual Framework

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Needs Assessment for financial capability survey framework is composed of the following steps:

1. Drafting of a set of reference questionnaire to conduct needs assessment 2. Organising and facilitating the Focus Group Discussions based on reference

questionnaire to get the intended responses 3. Review participants' responses, interpret the results and identify gaps that need to be

addressed through financial literacy initiatives.

The draft questionnaire included questions on participants' sources of income and priority expense areas, their knowledge about saving, saving plan and saving products, their knowledge and skill on preparing financial plan and household budget, their awareness about risk and insurance, familiarity with financial institutions and their products, borrowings and their terms and conditions. Questions were also asked on the status of employment (domestic/foreign) of any of the family member of the participant and understanding the channels of obtaining remittance.

The responses of FGD participants were further supplemented by personal interviews of chairman, managers of cooperatives and microfinance development banks and other relevant persons.

VI. Findings and Observations

A. Household Level Incomes and Expenditure

Rural poor people do not earn money in lump sums at regular intervals. Most of the respondents said that they earned income from multiple sources such as sale of agricultural products, running small business or tea shop, goat rearing and poultry. Some of the respondents said, they received remittance from foreign employment of their family member. Among the respondents some landless people said that they earn income from daily wages or selling wood in the town. Some members of Dalit group also worked on daily wage. Agricultural income ranks at the top and business income ranks at the second followed by daily wage earning and remittance income.

They live a very simple life. Most of them have yet find it difficult to fulfil requirements of even basic need goods such as food, clothing, salt, edible oil, sugar etc. They said that their income is barely sufficient to maintain their livelihood. The life becomes even more difficult when one of the family members gets serious illness or has accident and the household has no money for his/her medical treatment. They do not keep track of their expenses and also do not prioritise the expenses. They maintain their regular household expenses unless some misfortunes arrive.

B. Reasons for Low Level of Financial Services Use

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Lack of Understanding of Financial Services

Banks and financial institutions have designed different types of products to cater the needs of various customers. Most of the respondents said that they have knowledge of saving and credit products, but no knowledge of other financial products offered by commercial banks and other FIs. Since cooperatives and FINGOs offer some customary saving products and loans, they have the knowledge of these products only. They are satisfied with the available saving and credit products offered by the cooperatives and FINGOs, because they do not know other financial products. Therefore, they cannot compare the relative merits and demerits of other financial products such as current account, production credit, business credit and consumption credit. Therefore they do not know which product offered by other FIs mostly suits their needs.

Weak Consumer Trust

Commercial Banks, MFIs, Cooperatives and FINGOs are the major players in the financial market. The FGD respondents held an attitude that the commercial bank staffs are not friendly to them. Therefore, they do not go there to open account and get their financial services. They feel comfortable to work with cooperatives and other groups. They feel that commercial banks do not pay attention to the poorer clients and therefore the rural poor hesitate even to enter the bank building.

Low Level of Famil iarity

In all the three districts none of the FGD respondents said that they have the knowledge of different types of financial institutions working in Nepal or even in their respective districts. 10 percent of the respondents named only two or three FIs other than the institution in which they are the member. In one of the FGDs in Salyan, one or two members claimed that they have some knowledge about other financial institutions, but they were unaware of their operational and legal aspects. However, they had some knowledge of the MFI/Cooperative/saving groups where they are the members. Other Constraints

Lowly educated or illiterate rural people are not familiar with the banking procedure and documents required to open a saving account or borrow money from the bank. They feel that commercial banks, staff are not friendly and cooperative to them. Despite various constraints, people need to go to commercial banks when other financial service providers cannot serve their purpose. A few respondents in Khalanga, Salyan, said that they had to go to the commercial bank for business loan, because their cooperative has limit on loan amount. They needed higher amount of credit to expand their business, which their cooperative could not provide. They were also asking a commercial bank branch for loan to buy a vehicle. They realized the limitation of cooperatives and showed positive attitude towards commercial banks and their products.

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When the service of a particular institution becomes inadequate to the client, he/she is likely to take service from other financial institution. For example, cooperatives are normally not dealing with the remittances. Therefore, when a member of the cooperative receives remittance from abroad he/she is compelled to go to commercial bank to open a saving bank account, where his remittance money is deposited. 20 percent of the FGD participants, all businessmen and remittance receiver, opened account in commercial bank.

C. Financial Behaviours – Knowledge, Ski l ls and Attitude

Financial Behaviour Knowledge Skil l Attitude

Financial Goal Setting Low Low Low

Saving Moderate Low Low

Debt Management Moderate Low Low

BFIs Moderate Low Low

Financial Products Moderate Low Low

Family Budgeting Low Low Low

Risk Management Low Low Low

Financial Negotiation Least Least Least

Figure 3: Financial Behaviour Matrix

Financial Goal Setting

Income can be earned from different sources such as by selling farm products or merchandise or by daily wages earned working outside in some work place. People working in foreign countries may send money to their family, which is called remittance income. The spending for day to day requirement is much higher than the income of the household. Meeting day to day expenses and at the same time saving some money creates financial pressures. People have to save regularly and make financial plan to manage the financial pressures. Financial plan requires goal setting. People have goals such as sending children to school, home repair, daughter's marriage, repayment of loan, expansion of business etc. If one cannot save he/she cannot set his financial goals. To save more, they have to prioritise spending for the future and maintain spending and saving discipline. A financial plan helps to decide on how to earn more, save more and use money to achieve financial goals.

Financial planning involves estimating incomes and expenditure for a particular period and estimating what one can save. It involves short run and long run financial goals. Financial goal motivates people to save. The rural people lack knowledge of financial planning. For the rural poor people financial goal means a part of conversation among the family members, what and how to do in the near future.

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FGD respondents in all the three districts said that they have no knowledge of family budget and financial planning. However, they have short term estimation of their incomes and expenditure in the family. When the financial pressure is high and their saving is insufficient to meet the expenses they go to cooperatives and groups to borrow. However, they have to prepare business plan while borrowing money from financial institution. They do not have the ability to understand the difference between own money and the borrowed money. But they showed their willingness to save and make financial plan.

Savings

Saving means money put aside to use in the future. The amount of money one can save depends on the amount of money he/she has earned. Spending less money than what comes in also results in saving. In all the three districts Rukum, Salyan and Dang people understand that money can be used in future when the need arises and therefore saving is necessary. But they do not have a committed saving goal and they do not know how to save money regularly for future contingencies. They do not have knowledge of preparing short term and long term saving plan.

They are familiar with the groups and feel comfortable to deal with the group members. When they assemble for any meeting they show group cohesiveness and decide all matters for their common interest. They lack knowledge of savings plan, but they are willing to do that.

Members are loyal to the group. They know that a fixed amount of money should be regularly saved in the group savings account or deposit in their compulsory savings account opened in their savings and credit cooperatives. The amount of compulsory saving ranges from Rs.10/- to Rs. 1,000/-. The Dalit group called Hariyali Samuha at Simkhark village, Salyan collects compulsory saving of Rs. 10/- monthly from its members. Normally the monthly compulsory deposit rates are Rs.100/-, Rs.500/- and Rs.1000/- in most of other cooperatives.

Some of the cooperatives have allowed members to open voluntary savings account. In that case they can also keep the money in that account. Therefore, at times when the income is more than their regular expenses, the surplus is deposited in that account. When the need arises they can withdraw the money from that account. As such they deposit money in their compulsory saving account because they can borrow from that account keeping a minimum balance as required by their respective cooperatives.

People also save money at home. The forms of savings are keeping cash in home under lock and key or buy gold ornament or invest in livestock and poultry. In times of emergency they can realize cash by selling these in the village/market.

They save money to meet the contingencies such as illness, marriage, cultural functions, festivals and rituals. They use the saved money when any of the family members falls sick and has to undergo medical treatment. In all the three districts, FGD participants mentioned that they also use the saved money in festivals, religious and cultural functions. They also save money to repay the loan.

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Many FGD respondents in all the three districts said that they save money with two or three groups, one as compulsory saving in their own savings and credit cooperatives, another in the group of FINGO and the third one in any of the informal saving groups. The objective of multiple savings was found to borrow money from multiple sources at times of their need.

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Knowledge about Saving

Where and why

people save

Advantages of Saving

Uses of Savings

Diff icult ies of

Saving

Saving Plan

Other learnin

g needed

for Saving

They have little knowledge of saving. However, they understand that money can be used in future, therefore saving is necessary.

They save regularly in the group's savings account. People also save money at home or invest in livestock and poultry. They save money to withdraw when need arises.

Saving helps determine the financial plan. It minimizes one's financial pressure. Saving is better than borrowing

The money saved is utilized to meet the contingencies such as illness, marriage, cultural functions, festivals and rituals. They also save money to repay loan

Low level of income does not allow them to save regularly. They have no idea of any saving plan.

They do not have committed saving goals. Therefore, they do not know how to save money regularly.

Financial literacy should be designed to make them aware of the various saving products, to develop skill to develop saving plan and manage fund for their long term needs.

Figure 4: Saving Matrix

Debt Management

Debt is money raised from external sources which people use for a particular period paying cost (interest) for it. Money can be borrowed from banks, MFIs, cooperatives, any informal groups, friends, relatives and money lenders for different purposes. It is not one's own money. One should use the borrowed money carefully because it comes with the obligations for the borrower to repay in time with interest.

It has been observed in the FGDs with group members of FINGO and cooperatives in all the three districts that they borrow money from multiple sources. Most of them are not only the members of one particular group. They are the members of one cooperative and also members of FINGO or other group. The objective of taking multiple memberships was

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observed only to borrow from multiple sources. They borrow from one source to repay loan from other source. In an interview the chairman of one cooperative said that the multiple borrowing is cross checked through telephone enquiries with major cooperatives before the loan is sanctioned. In one FGD in Salyan two participants said that they had to go to Nepal Bank Ltd. for business loan, because their cooperative could not satisfy their loan demand due to credit limit.

Group members in one of the FGDs in Rukum said that the MFIs provide loans to group members through the group guarantee and also with individual collateral. Male members of the society have land and other properties in their name and therefore they can borrow large amount of loans with collateral, but many women don’t have property registered in their name because of which they are unable to borrow large amount. Most of the groups are not involving poor people in the groups because they suspect their ability to utilise the loan and their capacity to repay in time.

Some of the members admitted that there are multiple memberships, but they borrow only from one source. They do not know how to match the loan product with the purpose. They use the borrowed money for any purpose such as enjoying festivals or buying pigs and goats or house construction/repair. A female member said that she borrowed money from her cooperative to construct a home. When she was asked, using borrowed money in house construction does not give you the cash flow how do you repay the loan? She replied, house is my basic requirement. I will repay the loan gradually by earning daily wages. Many members borrow money for business purposes. They also use the borrowed money for goat rearing. Since goats are not matured during the loan maturity period, the loan is repaid by agricultural income.

Most of the borrowers do not know the cost of their debts. They never compare the rate of interest and other related costs of different sources of loan. The just ask the amount and period of instalment with the lender institution and repay the loan as specified in the terms and conditions. Some of them know the rate of interest of their loan, but they do not know how to calculate the interest. Cooperatives charge interest ranging 12 to 18 percent per annum for their loans. The annual interest rate of loan provided by money lender, neighbour or friend varies from 36 percent to 60 percent per annum. When somebody has to go abroad for employment he is in urgent need of money and has to pay interest on his borrowing from informal lender at 60% per annum. In an interview one person said that the rate is 36% per annum for agricultural purposes.

Borrowing from groups or financial institution is not considered bad among the people. But when the misuse of borrowing turns a person landless or property less, it becomes bad in the society. We should borrow money with some purpose. Some of the participants carrying on income earning activities with borrowed money have developed positive attitude towards it. Those who have no source to repay and have burden of over-borrowing have developed a negative attitude towards it. Therefore, assessing capacity to repay is important before borrowing.

Household Risk Management

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There are many unexpected crises that can happen in the families such as the household income earner is injured in an accident, flood destroys home, one of the spouses abandons family, child has serious illness and has to be admitted in the hospital, and fire destroys business etc. These events cause hardships in the households. We can adopt protective measures beforehand so that we can manage likely financial crises which may occur after the incident.

Insurance helps us protect from unforeseen events such as loss of life and property, illness, accident, theft etc. When asked in an interaction, whether they know the risks around them which sometimes happen unexpectedly, some of the FGD participants in all the three selected districts stated some natural hazards as unexpected such as earthquake and flood. They also mentioned other risks such as accident, death and possible loss of property by fire. They realised that there are some risks in our lives which come unexpectedly. They have heard the word Beema (Insurance), but they have no knowledge about it. They also do not know the Microfinance Insurance business.

They showed their positive attitude towards insurance when they were explained that it is one of the measures of protection, the loss of property can be recovered from the insurance company, family members can be compensated from loss of life through accident or illness, and there are various insurance products such as health insurance, livestock insurance etc. to cover for these unforeseen events.

Selecting Services of Financial Service Providers (Knowledge about Available services, current level of access)

The FGD respondents have a little knowledge on financial service providers and their services. There are various savings and loan products developed by commercial banks and other financial institutions, but they keep knowledge of only those products developed by their institutions in which they are the members. Since cooperatives have designed the compulsory saving account for them, they regularly deposit a pre-determined sum of money in that account. They also do not know how the rate of interested is calculated and credited in their saving account. They only know that the balance on the compulsory saving account forms basis for borrowing money from the cooperative in which they are the members.

The commercial banks are not offering the small size loans to them in group collateral and on the other hand, in many places geographical distances hindrance them to have their access. Since they do not have easy access to the commercial banks they do not know what products they have been offering and cannot compare the merits and demerits of each product. However, when there is a need of higher amount of loan to expand the business a member of the cooperative goes to a commercial bank to have the understanding of the collateral requirement and the terms and conditions of loan. Their access to commercial bank is very low since they cannot generally comply with their collateral requirements.

Family Budgeting

A family budget is a statement of the estimated income and expenditure of a household over a given period of time. A household must have estimation of his incomes and

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expenditure over a period of time say, a month, six months or a year. It is a plan to spend money on your necessary expenses, saving and investment. In order to prepare a budget one must estimate how much money is coming in from different sources and how they are going to spend them during a set period of time. Therefore one should identify and prioritize his expenses so that he may save certain amount for future requirement.

In order to make a family budget one should: • Identify her total income by sources. • Prepare list of all expenses and amount required for each one. • Ensure that the total amount of expenditure does not exceed the total income. • Decide the amount of saving to meet financial goal. • Review that estimation is not beyond reality

It is very hard to remain within the budget, because unexpected events such as pressure from the family members, poor incomes from the estimated source and weak financial discipline may happen. However people can stick within their budget by observing the following rules:

1. Let us keep track of our spending. 2. Let us maintain a financial discipline that we do not spend more than the budgeted. 3. Let us keep savings out of our easy access so that they cannot be easily spent 4. Let us make a list of ways to cut the estimated expenses. 5. If we spend more for one item, spend less for some other item. 6. Reduce the expenses on non-essential items. 7. Always remind yourself that you are not to spend more than the budgeted.

Financial Negotiations

Communication often takes place between two parties on matters of concern for both of them. Financial negotiation involves communication between two parties for the purpose of reaching agreement about financial matters such as loan and saving. It often happens when both the parties have common concern on a particular subject but the interest differs. Therefore, financial negotiation is conducted to reconcile the conflicting interest of both the parties and come into unanimous resolution to solve the problem. In a financial negotiation both the lender and the borrower sit at a place, enter into give and take negotiation and share their problems and concerns to come at the common agreement.

Financial negotiation is not a bargaining, successful negotiation requires the knowledge and skill of effective communication on the subject matter. One must build confidence by learning how to negotiate successfully. One may lose in the negotiation if he is not well prepared, has no confidence, loses control and enters into negotiation with the wrong person.

D. Demand for Financial Education

Financial education is intertwined with the financial system or financial services. It is not demanded by the people in isolation. The demand of financial education is always

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associated with the need of making informed decisions to use the financial services. The demand for financial services is seriously felt because of the lack of skill and knowledge in the under mentioned areas.

Cash f low management and Budgeting – How to manage money proactively?

Understanding budgeting and estimating cash inflows and cash outflows is basic for cash flow management. When a person is in financial need he often borrows money from the informal source often committing to pay higher cost (interest). If he prepares a monthly budget he can control his expenses and stick within the budget limit. This may help him to save regularly and accumulate some amount to use in case of emergency such as illness and other life cycle events. A financially literate person who prepares budget and takes proactive measure to manage money can reduce his financial pressures.

The FGD participants have no knowledge of financial planning and family budgeting. Financial plan helps maintain financial discipline and control. It checks over spending and prioritises their needs. Learning of financial literacy must include learning of financial plan and budgeting in its curriculum.

Savings and Borrowing services

The FGD participants have little knowledge of saving and alternative saving products. They also do not know the importance of regular savings. They save money only to fulfil the compulsory saving requirement of cooperatives or their groups and to meet immediate requirements. The saving goal for most of them is to borrow when they need money from cooperative where they are members. They do not know their long term saving goals and saving plan. Therefore, the demand of financial literacy for them is to design a curriculum to make them aware of the various saving products and let them learn the skill to plan and manage fund for their long term needs as well.

The people have no knowledge to link the loan products with the household needs. They must have the knowledge and skill to identify various loan products of all FIs, which can cater the needs of households, businessmen and SMSEs. Financial education should explain the relative merits and demerits of various loan products and explain which product is suitable for which purpose.

Debt management – How to Control Debt and Avoid Over-indebtedness

There are different sources of borrowing like formal and informal sources. The households must have knowledge about the comparative benefit of taking loan from different FIs. They should be able to use the loan in productive activities and develop skill to assess capacity to repay and calculate the cost of their loans. Unless and until they are able to select a loan product best matched with their purpose, they cannot change their present behaviour.

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Financial education curricula should be designed in a way that helps change their present behaviour of using loan to desired behaviour.

A loan should be repaid on time. The repayment of loan on time depends on the income the loan earns from its use. Over-indebtedness comes when people borrow more than they can sustain. It normally happens when people borrow money from various sources without having alternative sources of income to pay. Therefore in order to avoid over-indebtedness and manage loan effectively one should observe the following rules:

• Prepare a Loan repayment schedule with details such as, when borrowed, principal amount, date of payment

• Regularly set aside a sum for loan payment (depending upon your income stream) • Develop habit of paying the minimum amount due on each loan • Pay off the most expensive loan first • Find ways to cut down unnecessary expenses

A loan is not bad, but it turns into bad when mismanaged. The demand for financial education has gone up because of the need of managing borrowed money.

Interfacing with Financial System/Use of Bank Services

The need for financial education is not widely recognized by the financial institutions in Nepal. The banking system is supply dominated. Majority of the rural poor people are excluded from the mainstream of formal financial system. Financial inclusion of a large number of excluded population depends on the provision of financial education to them. Financial system offers them various deposit and loan products, the knowledge of which is necessary to them. Financial literacy initiative should impart knowledge to the target group about the comparative benefit of taking loan from different FIs. The people should have the knowledge of various bank deposits and be able to use loans in productive activities and develop skill to assess capacity to repay and calculate the cost of their loan. Unless and until they are able to select a loan product best matched with their purpose, they cannot change their present behaviour.

Improving Financial Negotiating Skil ls

Negotiation needs specific knowledge and skill between the parties involved in negotiation. Financial negotiation takes place when the bank officer and a client sit on a table to lay down terms and condition of a loan or of a term deposit or on any matter of interest to both the parties.The FGD participants have no knowledge and skill of negotiation. They believe on what financial providers say on the provisions, terms and conditions of saving and a loan. Therefore, the demand of financial negotiation in financial literacy has been increasing day by day.

Client Protection

Households are the clients of banks and financial institutions. All clients have a right to be treated with respect by the financial service providers. When a client enters the financial institutions for service he must feel convenient to deal with the bank staff. He/she has a right

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to decide which financial product or service he wants to use. The client has the right to ask bank staff sufficient information regarding procedure of opening an account or borrowing money to expand his business. The bank staff has the responsibility to provide the client clear, truthful and timely information. He/she must feel protected from his financial institution and therefore he wants that his financial information should be kept confidential.

The client has every right to ask and understand all contracts, documents, banking rules, regulation and procedure affecting him/her. Deposit Insurance is also relevant to the client's protection. The client has every right to ask bank staff and understand banking provisions including Deposit Insurance to protect his/her own interest. The banking regulation has made many provisions to safeguard the rights of their clients.

There was a provision of keeping complaint box for the clients in one of the cooperatives in Salyan, where there were around 600 members, but this provision did not work effectively. Therefore they made a provision of discussing written complaints from their member clients. However, clients feel comfortable in dealing with the staff of cooperatives compared to the staff of commercial banks. Cooperatives having members less than 200 do not have the provision of filing written complaint. They are comfortable in deciding matters in group meetings

Client protection is an important issue for building financial inclusion and capability as clients need to feel safe and respected when dealings with FSPs. For this, standard policies and procedures are needed at regulatory and industry levels. At the institutional levels, FSPs must be committed to listening to their clients and providing them with accessible and effective reporting channels for grievances. These internal controls are also likely to improve financial and operational efficiency while reducing risks by addressing problems early on.

E. Supply of Financial Education

Major Approaches and Delivery Channels

Most of the training programmes are run under the traditional approach. They conduct face-to-face trainings on a class-room setting and distribute hand-outs to the participants. Few of the programmes have improved their approach of training delivery using participatory methods in class rooms with some plays, games, exercises and blank cards. Therefore, the customary delivery channels are used in most of the cases. In few cases, printed materials and booklets on financial literacy are also published and circulated among the literate people. Mass media such as TV and radio are not widely used in the delivery of training contents.

F. Gaps On Financial Capabil ity To Be Addressed By AFP Programme

The rural poor specially excluded women, Dalit and other vulnerable communities in Nepal have no or a very little access to formal financial services. The major barriers to enhance financial access to them are identified as the low presence of financial institutions in the rural villages and low level of financial education to them. Major concentration of financial service providers is in Kathmandu valley and in city areas of the country. A few financial institutions

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have been operating in hills, but they are also concentrated in district headquarters and providing services to a handful of local merchants. The vast majority of the people have virtually no access or little access to the available financial services.

Despite various efforts made to increase the access of financial education to the poor people, the desired result could not be achieved. This is because the Nepalese financial system historically is not demand driven. The approach of various banking programmes launched in the past focused on the supply side of financial services. Their approach was only to expand financial services through the expansion of branches to some extent. The regulator and the commercial banks in Nepal had no strategy to launch financial education programme so as to include a large number of population aware of financial matters so that majority of the people could have integrated with the financial system and the demand for financial service would have increased to a greater extent. Therefore the scaling up and extension of financial education was hindered by the past approach of focusing on expansion of supply of financial services rather than enhancing the demand for it.

The following are the key gaps identified in Financial Capability Need Assessment:

1. The rural people are in need of loans to grow vegetables, rear goat, buy cattle or pig or carry on business or any income earning activities, but no financial service providers are available in their village. Commercial bank located in the district head quarter requires physical collateral to advance loan which they do not have.

2. Sometimes they save a little money, but they keep it at home. They have no knowledge of saving products and financial institutions offering various saving products.

3. They do not know the importance of regular saving and also they have no knowledge of short run and long run saving goals. Therefore, they do not make any saving plan.

4. They have no knowledge of various types of financial service providers. They know something about their own institution, for example, a member of the cooperatives has general knowledge about the working of it.

5. They cannot compare the services of various types of financial institutions. Therefore, they have no knowledge of comparative advantage and disadvantage of using a financial product of any institution. They also have no idea of any limitation or operative mechanism of any financial service provider.

6. In the village where there is absence of any formal financial service provider, the farmers seasonally borrow from local money lender to grow vegetables. The interest rate charged is normally 36 percent per annum.

7. When one has to arrange money to go abroad for employment he/she can borrow it from the local money lender. The rate of interest for this purpose varies from 36 to 60 percent per year depending upon the urgency.

8. Many people borrow from multiple sources, such as cooperative, saving and credit group and also from local money lenders. As they have no knowledge of debt management they pay the loan from one source by borrowing from another source at higher rate of interest. When their income becomes insufficient to pay the loan, it keeps on increasing and ultimately they fell into debt trap.

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9. They do not know how to match the loan product with the purpose and also lack knowledge and skill of computing rate of interest.

10. They understand something about unexpected risk, but lack knowledge of how insurance products help them manage financial pressure and develop proactive behaviour to manage household risks.

11. They do not plan their incomes and expenses and therefore no knowledge to prioritise expenses. They have no saving plan, no long run financial goal and lack knowledge of preparing family budget.

12. A client should be aware of the procedure and all terms and conditions of a financial transaction, but they lack knowledge of client rights and provisions made for their protection.

13. They have no idea of negotiating with the officers of BFIs about the terms and conditions of a financial product. They believe on what they are explained to without understanding all the terms.

Financial education should be linked with income earning activities of the people, such as agricultural production, livestock, poultry, fruit canning, ware housing, cold storage, transportation and many other business and services areas. AFP Programme has an objective of providing technical and financial support along with the financial education to the entrepreneurs who seek support from the programme. Since the income earning activities and the financial education will go side by side, they will be able to make an informed judgment about financial matter. The AFP Programme should take a lead role to speed up in preparing the National strategy on Financial Education in Nepal.

G. Summary of Key Gaps in Financial Literacy

Summary of Key Gaps which needs to be addressed

Attr ibutes Actual Behaviour Desired Behaviour Gaps Identif ied

Financial Goal Setting

No knowledge of setting short- and long- term financial goals

Ability to set short- and long-term financial goals

Need for education on setting financial goals (short and long term objective/goals)

Savings Irregular saving patterns; absence of knowledge of saving products

Develop regular saving habit, link saving to their needs

Need for education on saving products; ability to select saving products; and building regular saving habit

Debt Management

Lack of knowledge and skills to select loan products based on actual needs; inability to calculate cost of loans (debts) and

Knowledge of and ability to choose loan products that meet household and business needs; ability to calculate and compare the cost of

Need for education on selecting loan products based on the actual needs and purpose of the funds; learn to compute and compare cost of available loans products from

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compare with other offerings

debts. different suppliers.

Household Risk Management

Some knowledge of risk; lack of knowledge of insurance as a tool to mitigate their household and business risks

Understanding of insurance products; developing proactive behaviour to manage household risks

Need for education to learning about various types of risk and insurance products available through different channels

Selecting Services of Financial service Providers

Some knowledge of financial products but lack of knowledge to select services offered by different FIs

Good knowledge of all financial products and services and ability to select a financial product that suit their needs

Need for education to learn about the various financial products and services accessible to them including comparing costs

Family Budgeting

No knowledge of how to prepare a budget for the household (family) and the benefits associated with it

Ability to estimate their household incomes and expenses and prepare family budget

Need for education to learn how to prepare monthly family budget

Financial Negotiation

No knowledge of financial negotiation

Effectively negotiate with the officers of BFIs about the terms and conditions of financial products

Need for knowledge and education to acquire the skills required to better negotiate with the staff of the FSPs

Figure 5: Summary of Key Gaps

VII. Recommendations:

FE situation in AFP Programme region is found to be very poor and among the members we met in FGD, around 80%-mostly women-are financially illiterate. Therefore, rolling out FE across all financial institutions that are working there is indispensable to enhance access to financial services in the areas. Therefore, it is recommended that AFP Programme takes this activity as cross cutting activity and encourage partners to embed this activity in their projects for which they are seeking resources from the Challenge Fund of AFP Programme.

While rolling out FE, it should be coupled with other interventions proposed under Component 2-Financial Inclusion- through different deliverables particularly Deliverable A2.1 and A2.2. However, FE is also equally important for SME clients; therefore, it is also

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recommended that component 1-SME Lending- also consider it as one of the project activities, where possible.

Based on the above findings, following are two broad areas of interventions recommended for AFP during implementation phase.

Ø Macro level intervention that are around advocacy and lobbying to create conducive environment to roll out FE nationally

Ø Micro level intervention to support AFP Programme partners to rollout FE effectively in AFP Programme areas.

A. Macro level intervention that are around advocacy and lobbying to create conducive environment to rol l out FE nationally

While working at Macro level, following activities are proposed to be undertaken by AFP

Ø Lobby to Nepal Rastra Bank for framing a national policy on Financial Education and unified strategies that mandate all financial institutions to make Financial Education as part and parcel of financial services they offer. Through these policies and strategies, NRB should instruct all BFIs that they should create a separate unit for Financial Education and Client protection.

Ø Propose Nepal Rastra Bank to form a national level Financial Literacy Advisory Committee(similar to Financial Literacy and Education Commission in USA and Australian Securities and Investment Commission in Australia) to oversee and monitor the financial education scheme implemented by BFIs in Nepal.

Ø In Nepal, enforcing policies and strategies is important. Therefore, it is also important to have a Financial Literacy Enforcement Unit in Nepal Rastra Bank and AFP Programme can help establish such a unit in NRB. This unit ensures that all BFIs are complying the policy and strategies of NRB on Financial Education.

Ø AFP may also convince NRB and Cooperative Department to lobby to introduce Financial Education in school text books as this is important for all people and learning financial education from school help manage money effectively.

B. Micro level intervention to support AFP partner to rollout FE effectively in AFP areas.

AFP Programme does not implement the programme activities directly in the ground; we work through partner financial institutions to implement activities related to access to finance for poor.

As noted earlier, several project activities identified by Capacity Gap Analysis (Deliverables A2.1) and Demand Driven Assessment (Deliverables A2.2) should be implemented in conjunction with Financial Education. We also need to make sure that financial organizations that are expanding their outreach with the help of AFP Programme should embed Financial Education as their regular activity.

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Following are two major areas to support AFP partners to be able to rollout FE effectively together with other activities:

Ø Helping Partners develop FE curriculum and Ø Identifying appropriate delivery channels to rollout FE

C. Helping partner organizations develop curriculum on Financial Education.

Based on the findings, there are huge literacy gap in the following areas and we need to assist partner in developing appropriate curriculum and materials on the following areas:

a. Setting Financial Goal of Households b. Savings and its important c. Obtaining credit, its cost and debt management d. Mitigating household risks e. Identifying and selecting FSPs f. Preparing Family Budgeting g. Financial Negotiation.

However, we should also encourage partner to include other information that are important in the local context.

D. Helping partner organizations identify and use appropriate delivery mechanism (both methodology and channels) to roll out FE.

Majority of the people in AFP Programme districts are illiterate. Merely preparing training materials and organizing training may not motivate people to learn particularly to the Semi-literate and illiterate people. Therefore, we have to assist partner to come up with appropriate methodologies and channels to effectively rollout the FE scheme to their clients

Based on the field observations, following are some of the methodologies and channels that are appropriate in the program districts and we need to encourage our partner to use one or more of those methodologies and channels to effectively rollout the FE.

Ø Organizing regular training to all members during their regular meeting using a

pictorial message. This will be very effective tool to disseminate FE message to illiterate and semi-illiterate and also literate people. AFP Programme can help partners prepare pictorial material and organize TOT for their loan officers who then will train their clients.

Ø Organizing community training to all clients for up to 5 days preparing FE training materials. AFP Programme can help partners in preparing training materials and organizing TOT for the selected loan officer who will be resource persons.

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Ø They can also distribute FE related document to all who become their members as a package and staff from FSP confirms that the new members read and understand it. If the new members are semi-literate or illiterate, the staff should read it out and make sure that s/he understood the message. This information should also be reiterated during their regular meeting. AFP Programme can support partner in preparing these materials.

Ø Sending FE voice messages over mobile is also one of the effective ways to

disseminate FE information for all illiterate, semi-literate and literate people. For this, our partners have to negotiate with local agent of mobile service provider to regularly sending voice message to all members in their mobile for which a series of information to be prepared and send to the agent regularly. In this system, it is important that all members are timely informed on the time and the date for getting voice message over mobile so that they listen and learn.

Ø Use of local FM to disseminate FE message. FM radio is very popular among rural

population. Therefore, using FM radio will be effective means to disseminate FE message to the people in general and to the clients of partner organization in particular.

Apart from those channels, we should also encourage partners to identify other delivery channels that are appropriate and effective in the local context

E. Role of AFP and its Challenge Fund to effectively rollout the FE

As noted earlier also, AFP can play major role in promoting FE both at the macro and micro levels. At the macro level it needs to work with Nepal Rastra Bank and department of cooperatives, to develop policy, establish enforcement unit in NRB and lobby for incorporating FE related information in school books.

Similarly, to rollout the FE to FSPs’ clients, it can use Challenge Fund to meet some of the expenses related to FE rollout at the partner organization level. In order to ensure FE to be properly rolled out, AFP can also mandate all partner that are working around improving outreach for financial services to embed FE in their programme for which AFP can allocate part of their total budget that comes for Challenge Fund for FE rollout.

VII I . Conclusion and way forward

Financially capable person is one who can understand financial service providers and their products, knows how to use these products and takes informed decision on financial matters such as savings, borrowings, investment, budgeting and client's rights and his protection. Financial education prepares people to become financially capable, creating awareness among them by providing practical knowledge, skill and attitude to manage money properly.

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In general, FE situation in Nepal is poor. Even in cities areas, significant number of people is still semi-literate or illiterate financially. This situation in AFP Programme areas is even more glaring, majority (around 80% from among the members in FGD) of the people there are found financially illiterate. Therefore, it is very important to effectively introduce FE in order to improve access to finance in the programme areas-the main objective of AFP. While introducing FE, the AFP Programme can work at two levels- Macro level-to create conducive environment to rollout FE nationally and at the Micro Level- to enhance partner organizations’ capacity to effectively rollout FE. Following areas where we found that members of financial organizations have very low knowledge and partners’ focus on developing FE contents should be around them:

h. Setting Financial Goal of Households i. Savings and its important j. Obtaining credit, its cost and debt management k. Mitigating household risks l. Identifying and selecting FSPs m. Preparing Family Budgeting

Similarly, for the FE message delivery channels; Training with pictures that contain FE message, Community training, Educating new members before obtaining financial services, Sending voice message on FE through mobile and Using local FM radios are found appropriate in AFP districts. But AFP should also encourage partners to identify other appropriate and effective channels to disseminate FE messages. Way forward: Based on these findings and recommendations, AFP Programme should make sure that FE become cross cutting activity and all financial institutions that seek AFP support should include FE as their one of the activities. A TOR being prepared for Financial Service Providers should also highlight this activity and approaches to incorporate FE activities in the concept notes and or proposals the potential financial organizations are submitting.