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. • Improve access at a reasonable cost to these populations to a range of financial services and products.
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
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).
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.
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
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? Awareness, knowledge and skills to make decisions about savings, investments, borrowings and expenditure in an informed manner.
CITIGROUP CENTRE FOR FINANCIAL LITERACY Indian School of Microfinance for Women
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 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 TNA with a prospective partner mFIs Concept Sharing workshop Campaigns with the ultimate beneficiaries Training of Trainers Monitoring and Evaluation Impact Assessment
Components • Concept Sharing Workshop and Campaigns • Training of Trainers (ToT) • Research
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
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
How to Save Concepts in ‘Savings’ Saver V/s Spender Deciding your goals Relationship between income/expense and savings Smart Savings
Define consumption: Need vs. Want Avoid wants and spend judiciously on needs Managing Big-Ticket Expenses Creating a Need Account Wise Spending
Financial Independence Make a Financial Plan Make a Budget Keep Investing Mitigate Risk Capital Formation Intelligent Investments
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
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.
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 builds capacities to make decisions and take responsibility for those decisions. It increases their economic space.
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.
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.