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Why Financial Literacy is Important for Financial Inclusion Indian School of Microfinance for Women Financial Inclusion seeks to: Increase financial outreach to under-served and un-served populations.

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Presentation Transcript
slide2
Financial Inclusion seeks to:
  • Increase financial outreach to under-served and un-served populations.
  • Improve access at a reasonable cost to these populations to a range of financial services and products.
characteristics of financial exclusion

Characteristics of Financial Exclusion

Lack of access to services/products.

Lack of perception of the value of availing of formal services/products.

Lack of information and knowledge of services/products.

Inability to chose between alternate services/products

slide4
Formal institutions like banks seek to address financial inclusion by:
  • Educating people about available services/products.- (financial education).
  • Reaching clients.
  • Being client friendly.
  • Making access to ‘no-frill accounts’ easy. (as a beginning).
slide5
There is a latent unmet demand for financial service/products.
  • However there is also need to understand the lives and constraints of the poor.
  • Poor have earning and spending patterns that are peculiar to their state of poverty.
  • This in turn determines their savings patterns.
slide6
Financial Institutions have been more successful in tapping latent demand when they ‘look through the eyes of the clients’.

Things that matter:

  • Who you are
  • Where you live
  • How you make your living
slide7
Understanding the poor and their world of work allows us to understand their earning and expenditure patterns.
  • This understanding has been used to create a curriculum of ‘financial literacy’ that combines reflection and introspection.
what is financial literacy

What is financial literacy?

Awareness, knowledge and skills to make decisions about savings, investments, borrowings and expenditure in an informed manner.

slide9

CITIGROUP CENTRE FOR FINANCIAL LITERACY

Indian School of Microfinance for Women

genesis
Genesis….
  • Financial Literacy was initiated by SEWA Bank in June 2002
  • Focused within Gujarat
  • ISMW started CCFL in 2005 with a commitment to spread it across the country.
objectives
Objectives

Spread awareness and build skills of poor women on

  • Clarity of financial concepts.
  • Making better financial decisions
  • Accessing financial products & services
  • Building assets
  • Overcoming vulnerability
  • Planning towards economic security
approach
Approach

TNA with a prospective partner mFIs

Concept Sharing workshop

Campaigns with the ultimate beneficiaries

Training of Trainers

Monitoring and Evaluation

Impact Assessment

components
Components
  • Concept Sharing Workshop and Campaigns
  • Training of Trainers (ToT)
  • Research
fundamentals of financial planning
Life-cycle needs

Financial Decisions

Components of Financial Planning

Planner V/s Non-Planner

Current Status V/s Planned Status

Cash Dealing to Managing Finances

Fundamentals of Financial Planning
mature borrowings
When-How and Why we borrow; from Whom

Pre and Post Borrowing Factors

Reducing vs. Flat Rate of Interest

Borrowing for Productive purpose

Options available for borrowings

How much debt should one take

Mature Borrowings
smart savings
How to Save

Concepts in ‘Savings’

Saver V/s Spender

Deciding your goals

Relationship between income/expense and savings

Smart Savings
wise spending
Define consumption: Need vs. Want

Avoid wants and spend judiciously on needs

Managing Big-Ticket Expenses

Creating a Need Account

Wise Spending
intelligent investments
Financial Independence

Make a Financial Plan

Make a Budget

Keep Investing

Mitigate Risk

Capital Formation

Intelligent Investments
financial literacy can lead to financial wisdom

Financial literacy can lead to financial wisdom

Ability to manage money not just deal with it.

Ability to use skills to take wise decisions for the future

slide25

A financially literate person can link her need for a product or service with those available within the banking system.

A demand for financial inclusion is created through an appreciation for what is available.

slide26

The formal banking system will find a financially literate person easier to approach.

A financially literate person will seek information about available services to operationalise her financial decisions and hence access what is available.

financial literacy empowers the poor and women

Financial literacy empowers the poor and women

Financial literacy builds capacities to make decisions and take responsibility for those decisions.

It increases their economic space.

financial inclusion empowers the poor and women

Financial Inclusion empowers the poor and women

Linkage to formal financial systems mainstreams poor producers.

Self esteem increases when their productive lives include mainstreaming into formal systems.

slide29
Conclusion

Financial literacy is a primary step for financial inclusion since introspection changes behavior which in turn makes people seek and receive financial services and products.