financial capability presentation road show

13/04/2023 company presentation 2012

How Rural Households Perceive Financial Capability

- A people-centred approach to rethink Financial Inclusion

Jonna Bickel, GIZ7th May, 2014

Guwahati

Financial Inclusion

company presentation 201213/04/2023

• India is one of the leading economies in the world in recent years, especially after liberalisation; The biggest area of concern is that the growth is not fully inclusive

Financial inclusion plays key role to promote inclusive growth - by unleashing the growth potential of low income households (who are largely excluded)

• Almost 50% adult population in the world (about 250 crores) do not have accounts in Formal Financial Institutions (Global Financial Development Report 2014)

• About 90% of small businesses and 60% population in India do not have bank accounts (Nachiket Panel Report on Fin Services to LIH and SB)

• Why it is so?

• Supply Side: Are providers offering the right products through effective channels?

• Demand Side: What are the barriers people face in accessing and using services from formal financial sector?


Inclusive Growth – Financial Inclusion – Financial Capability

• India is one of the leading economies in the world in recent years, especially after liberalisation

• The biggest area of concern is that the growth is not fully inclusive

• Financial inclusion plays key role to promote inclusive growth - by unleashing the growth potential of low income households (who are largely excluded)

• Most efforts on Financial Inclusion are largely for increasing access to financial services and not so much to ensure their usages

• The concept of Financial Capability provides a framework to look at financial inclusion from peoples perspective and aims at effective use of financial services

Research: How do Poor Households perceive Financial Capability?


• „Financial Capability Index“ Methodology by Microfinance Opportunity

• 96 Focus Group Discussions in 4 states (Rajasthan, Odisha, Uttarakhand, Karnataka), 2 district each

• 524 Participants: SHG members, PACS members, MFI clients & financially excluded households

• Question: When you think about a household in your community, whether it is rich or poor, that uses and manages money well, what comes to your mind? Now, what comes to mind when you think about a household that does not manage its money well?

Understanding the statements



The Focal Areas


The Abilities

Ability to use bank accounts

Ability to use insurance

Ability to save

Ability to use loans

Ability to plan for the future

Ability to investAbility to generate sufficient income

Ability to handle money on a daily basis

Ability to spend money responsibly

Ability to participate in community life

Ability to coordinate within the family

Ability to use assets

Ability to gain knowledge and skills

Local Financial Capability Concept


Total study sample Regional Differences

Different Financial Capability Levels


Findings


• Definition: Financial capability is the ensemble of abilities related to making informed financial choices, managing money effectively, and using financial services for one’s own benefit.

• Abilities are shaped by personal attributes as well as by the environment in which actions are performed:

• Personal attributes: human capital like knowledge, skills and attitudes as well as physical, social, cultural and economic properties (e.g. health, social status and economic assets), which a person brings in to interacting with his/her environment.

• Environment: physical infrastructure, social and cultural relations, and economic conditions given in the geographical areas where people act and interact

The Financial Capability concept


• Is based on perceptions and statements by rural low-income households

• Helps us in understanding how different factors influence one’s financial decision making and impact

• Shows us how the household’s abilities develop when Financial Capability Level Increases

• Provides a base for designing policies, strategies and interventions for all stakeholders which have the most positive effect on the clients

Strategic Interventions


• Self-organisation of low-income people in Self-Help Groups, cooperatives and other forms of mutual organisation. (objective: increase social capital and ability to participate in community, ability to access to certain financial and non-financial services)

• Empowerment of women through self-organisation and other means. (improving the coordination and decision making within the family, promoting the responsible money management)

• Knowledge and skills for managing the household economy, for planning and monitoring household budgets, and for making longer-term plans aimed at improving their social and economic stability.

• Livelihood opportunities include the development of skills in line with the demand of labour markets

• Meaningful and sustainable financial inclusion:

• by supporting efforts to improve the financial awareness and literacy of low-income people, and

• By expanding their access to needs-based and demand-oriented financial services.

Relevance and Application: Policy Makers & Apex Institutions


• In order to aim at inclusive growth and poverty reduction, Financial Inclusion policies and strategies need to focus on the perspective of the target group

• Research for Knowledge Creation: Invest in pilots to develop scalable prototypes on effective and people-centred Financial Inclusion

• Mapping of the financial capabilities of low income households across country (Financial Capability Index)

• Making ‘Financial Capability of low-income households’ as an Key Result Indicator of the poverty alleviation initiatives

Relevance and Application: Financial Service Providers


• Focus on Financial Capability of Client in order to make them mainstream customers:

• Know Your (potential) Customer’s financial capability (KYC-2)

• Based on the development of abilities: Design demand-oriented products and effective delivery channels

• Collaborate with other stakeholders in order enable effective use of financial services

Relevance and Application: Supporters, NGOs


• Align activities and interventions in an holistic approach focusing on all the abilities

• Use Financial capability concept to assess the development level of households in each ability – design appropriate interventions to support development to higher levels

• Build bridges between financially excluded and formal financial institutions

The Financial Capability Toolbox


• Tools for UNDERSTANDING the concept (movie, poster, brochure, study report, booklet for financial service providers)

• Tools for SUPPORTING the local verification and adoption of the concept to the communities (Research Reckoner)

• Tools for ENABLE institutions to enhance the abilities of the community members (Life Game).


Website: http://finance4impact.in/

Thank you!

http://finance4impact.in/

http://finance4impact.in/

financial capability presentation road show

Economy & Finance

inclusive financial

ones financial decision

informed financial choices

abilities ability

findings company presentation

family ability

assets ability

insurance ability