“Financial Literacy Initiative”

1. “Financial Literacy Initiative” Launch of Pakistan Campaign

2. DISCLAIMER The financial literacy initiative of SAFE, is neither intended to promote or publicize any particular type of investment or product, nor is it aimed to endorse any specific kind of financial institution or market. The overall objective of the financial literacy initiative is to promote the financial skills and the knowledge of the common citizens, and to support the agenda for the broader financial inclusion in our societies. While the sponsors/partners/promoters of the financial literacy initiative may share these broader objectives, however they may only support such educational & informational activities/programs that are relevant to the social responsibility objectives of their organizations.

3. Scheme of Presentation About SAFE SAFE & the Objective of Financial Literacy OECD’s definition of financial literacy? Compelling Reasons for Promoting Financial Understanding Financial Illiteracy in South Asia Financial Access Statistics in Pakistan Benefits of Enhanced Financial Awareness International Efforts Some Outcomes of International Financial Literacy Programs Compelling Conclusions from the Preceding Debate Broader Objectives of SAFE’s Initiative Planned Activities Why Regulators Should Join SAFE’s Initiative? Why Governments Need to Join SAFE’s Initiative? Why Financial Institutions should Join SAFE’s Efforts? Why International Donors/NGOs should Join SAFE’s Efforts? Conclusion

4. Financial Literacy InitiativeAbout SAFE • SAFE was established in year 2000 with the objective of promoting cooperation, growth and development of the region’s capital markets; • SAFE comprises of 24 Member entities from SAARC region (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan & Sri Lanka), Bahrain, Mauritius and UAE; 18 stock & commodity exchanges as Primary Members, and six other members such as depository & clearing institutions and a capital market related IT company; • SAFE is funded by its member institutions on annual basis, and its activities are coordinated from its permanent Secretariat located in Islamabad, Pakistan;

5. Financial Literacy InitiativeAbout SAFE SAFE seeks to promote the common economic growth and progress of the region through the expansion of its constituent capital markets; SAFE also stands to prepare and position its member markets for their orderly integration into the global financial system by enhancing the depth, inter-connectivity, integrity and transparency of its markets.

6. SAFE & the Objective of Financial Literacy One of the objectives of SAFE is to help mobilize domestic savings in our respective countries and to introduce best consumer/investor protectionstandards in the region. In line with this objective, SAFE makes regular efforts for the spread of financial knowledge/awareness in the region. Broadening on this objective, SAFE has now decided to launch a regular program under the title of “Financial Literacy Initiative” to promote financial literacy in the SAARC countries. This program shall be started initially from Pakistan under the title of “Financial Literacy Initiative in Pakistan (FLIP)”, and will be introduced in the other countries of the region as soon as some material support of important stakeholders becomes available.

7. Financial Literacy InitiativeWhat is meant by Financial Literacy? According to OECD, the term financial literacy means the following: “Financial literacy is the combination of consumers’/investors’ understanding of financial products and concepts and their ability and confidence to appreciate financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being.”

8. “Financial Literacy Initiative”Compelling Reasons for Promoting Financial Understanding For the people living at the bottom of the pyramid, the ability to make good financial decisions is of fundamental importance. The poor lack resources to cushion them from lost savings or investments or enable them to rebound from adversity. Having access to safe savings products or insurance can greatly affect their financial future. Mounting evidence shows that those who are less financially literate are more likely to have problems with debt, are less likely to save, are more likely to engage in high-cost credit, and are less likely to plan for the future. More than one third of World’s population uses high cost alternatives to access funds in times of need, and lower income groups of the society fall prey to loan sharks etc.;

9. “Financial Literacy Initiative”Compelling Reasons for Promoting Financial Understanding As fees and interest expenses related to financial products—formal or informal—take a higher share of income, therefore they have a significant impact on the well-being of individuals. Financial stress is the single largest reason of many other social problems facing our societies. Due to lack of adequate financial knowledge, consumers become vulnerable to fraudulent activities such as pyramid schemes etc., which make them to enter into unwise investments, ignore important signals, information, or basic prudence measures before entering into a contractual agreement with a financial service provider.

10. “Financial Literacy Initiative”Compelling Reasons for Promoting Financial Understanding For financial institutions, over-indebtedness is a serious issue affecting microfinance clients as well as commercial bank clients. The recent global financial crisis originated because overextended consumers were provided with easy access to credit. The increasing complexity of financial markets and innovation has created further vulnerabilities as loan products have become too complex for consumers to easily understand, and disclosure are inadequate to clarify the risks. Financial institutions themselves became prone to risks involved in the trading of complex derivative financial products.

11. “Financial Literacy Initiative”Financial Illiteracy in South Asia South Asia paints a dismal picture of the penetration of financial services as well as the protection of consumers. In India, for example, more than half of laborers surveyed indicated that they store cash at home, while borrowing from moneylenders at high rates of interest. This pattern of behavior (high-interest loans and no-interest savings, with the attendant high risk of theft—or “frittering away”—of savings) worsens their financial situation. Millions of other families in countries like Afghanistan, Bangladesh, Bhutan, Nepal, Maldives, and Sri Lanka, exist outside of the reach of financial system or are only partially engaged. Those who least can afford it are often paying the most for basic financial needs.

12. “Financial Literacy Initiative”Financial Illiteracy in South Asia According to one research, financial illiteracy is widespread in the region and is specifically acute amongst specific groups of the population such as the women, the elderly, and those with low education. The lack of financial inclusion limits the ability of domestic populations to save for the future, be prepared for financial emergencies, buy a home or get a decent credit for their micro businesses. As a result, informal money sector is on the rise in the region, while the respective national savings rates have lagged behind the global trends.

13. “Financial Literacy Initiative”Financial Access Statistics in Pakistan Source: World Bank’s Report “Bringing Finance to Pakistan’s Poor” published in 2009.

14. “Financial Literacy Initiative” Financial Access Statistics in Pakistan Only 14% of Pakistani population use a financial product or service from a formal financial institution. Taking in account informal Financial Services (Organized Informal Services and Unorganized Informal) around 50.5% of Pakistani population has access to Finance. Around 50% of Pakistani population has either no access to or does not engage in either the formal or informal financial system. Out of the 50% financially excluded population, around 19% have voluntarily excluded themselves through lack of understanding or awareness due to poverty, gender bias and religious misgivings and not because of unavailability or lack of access to financial services.

15. “Financial Literacy Initiative” Financial Access Statistics in Pakistan More than half of the population of Pakistan SAVES, but only 8% entrust their money to formal financial institutions/system. One third of the population BORROWS money, but only 3% use formal financial sector for borrowings. International remittances have grown at an average of 29% since 2001, however only 2.3 percent of Pakistanis send and receive remittances formally. The prevailing levels of interest for Financial Literacy are encouragingly high, 47.6% urban population and 52.5% rural population thus depicting a mean interest level of more than 50%. Major constraint to financial access arise from the high levels of poverty, combined with low awareness of and information about available financial services, as well as gender bias. Financial access is low among the poor, women, small & micro-enterprises and in rural areas, though market studies suggest that these factions are viable customers for formal financial sector. Source: Pakistan Access to Finance (A2F) Household Survey 2008 & State Bank of Pakistan (SBP) Statistical Bulletin Jun 2008.

16. “Financial Literacy Initiative”Benefits of Enhanced Financial Awareness Financially educated consumers are more likely to save their money, compare financial products and services, and seek and give advice on money matters. Access to finance is known to create incentives and environments that promotes desired financial behaviors such as saving, budgeting, or using credit wisely. Financial literacy can help to prepare consumers for tough financial times, by promoting strategies that mitigate risk such as accumulating savings, diversifying assets, and purchasing insurance. Greater financial knowledge, together with behavioral change to apply the lessons of financial education, reduces the likelihood that consumers—at any income level—will fall prey to unscrupulous salespeople and purchase products or services that aren’t in their best interest.

17. “Financial Literacy Initiative”Benefits of Enhanced Financial Awareness For poor and rich alike, financial literacy 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. Financial literacy also reinforces responsible behaviors such as conscientious tax payments, timely clearance of bills and avoidance of over-indebtedness etc.

18. Financial Literacy InitiativeInternational Efforts Policy makers worldwide now increasingly acknowledge the importance of financial education both as a life skill and as a key component of financial & economic stability and development in their Nations. Many advanced countries of the World such as Australia, Japan, the United States, and the UK etc., already have regular programs to raise the interest of their citizens in financial education and literacy. Financial literacy is also getting attention in many developing and the emerging economies of the World such as Hong Kong, Malaysia, Singapore, China etc. International organizations such as the World Bank , OECD, DFID etc., are also working to strengthen financial literacy throughout the developing World because of its positive direct impact on access to finance & savings, which in turn supports livelihoods, economic growth, sound financial systems, and poverty reduction.

19. “Financial Literacy Initiative”Some Outcomes of International Financial Literacy Programs Financial literacy programs are known to have been useful. Many programs and policies have been evaluated and shown to be effective at imparting financial knowledge and changing behavior. For example, in a study of U.S. consumers with low initial credit scores, those who received credit counseling reduced their use of revolving debt by 12 percent more than borrowers who did not receive counseling. They also reduced the number of accounts held, the total amount of debt, and the use of credit cards. In another study, low-income households in the United States who received mortgage counseling faced less than half the default risk of households who did not receive counseling. The counseled households also increased their financial sophistication and were better able to evaluate optimal behavior with respect to defaulting on a loan or refinancing.

20. “Financial Literacy Initiative”Some Outcomes of International Financial Literacy Programs Workplace financial education is correlated with higher rates of saving, especially for consumers who were previously saving little or nothing. In the United States, an evaluation of the American Dream Demonstration’s Financial Education Program found higher saving rates correlated with the number of hours of training received, up to 12. The Guatemalan microfinance institution Fundación Génesis Empresarial found that clients who took part in a financial education program improved their repayment rate, borrowed more, and had fewer problems in their microfinance group. Two massive savings campaigns in Uganda included radio, posters, token gifts, and community events, coupled with outreach by more than a dozen local savings institutions. In a three-year period, 300,000 new bank accounts were established.

21. “Financial Literacy Initiative” Compelling Conclusions from the Preceding Debate In view of the foregoing debate, it is clear that levels of financial literacy in the region are unacceptably low, and action is needed so that the consumers everywhere benefit from having greater financial knowledge. Financial literacy programs should empower individuals so that they are able to evaluate their options in the financial marketplace and then take appropriate actions in their own self-interest.

22. “Financial Literacy Initiative”Broader Objectives of SAFE’s Initiative SAFE’s Financial literacy initiative shall be aimed at empowering and educating consumers so that they become knowledgeable about finance in a way that is relevant to their lives, and to enable them to use this knowledge to evaluate different financial products and make informed decisions. The initiative will attempt to create broad awareness amongst the citizens so as to enable them to appreciate their rights and responsibilities as users of financial products, and to understand and manage risk and reduce their vulnerability to overzealous retailers or fraudulent schemes. The efforts for financial literacy would complement the financial inclusion programs so as to help improve the financial capability of our general masses and achieve the purpose of collective well being of our Nations.

23. “Financial Literacy Initiative”Planned Activities Establishing a financial literacy resource center Dedicated web site on financial knowledge and related issues in English and other regional languages; Capacity development for financial literacy programs such as the development of specialist trainers and researchers; Publishing booklets, and other information material; Surveys, assessments and impact studies about financial literacy; To act as a think tank on financial literacy, and develop and implement national strategies in this regard.

24. “Financial Literacy Initiative”Planned Activities School and College Education Programs Edutainment for younger kids and financial literacy programs for the parents; Informal awareness programs for middle and high schools; Seminars and lecture series on personal finance for college students; Investment competitions such as savings contests, stock market games, portfolio management performance contests etc; Conduct and promote formal teaching programs in financial management subjects; Hold regular training programs for the teachers; Facilitate internships in financial institutions for those college and university students, who perform better in financial literacy competitions.

25. “Financial Literacy Initiative”Planned Activities Workplace and Professionals Programs Preparation and distribution of easy to understand pamphlets and booklets for industrial workers; Educational activities (such as basic financial literacy sessions, seminars, roundtables, corner briefings etc) through workers unions; Regular informational activities (conferences, presentations with the Chambers of Commerce of the country and other business forums); Professional community to be provided financial literacy training thorough the help of professional associations such as the forums for lawyers, engineers, doctors etc. Women and Senior Citizens Household briefings and meetings for creating financial awareness; Regular activities for professional and entrepreneurs women through women chambers of commerce, professional & vocational training centers; Programs for senior citizens on prudent and safe investments and savings.

26. “Financial Literacy Initiative”Planned Activities Programs for SME, Rural, Agri, & Microcredit Markets Conduct moneywise workshops/programs for the relevant communities on topics including savings; the dos and don’ts of availing credit; and the essential basics of investing; Hold district wise sessions with the relevant community groups to advise them about the use of organized financial markets for their financial security and well being. Carry out periodical research and advise financial institutions about the sustainable growth of accessible and affordable financial services; Consumers/Investors Protection Programs Mobile phone awareness programs for creating understanding of consumers/investors regarding their rights and responsibilities as the users of financial services; Conduct regular awareness programs through seminars, conferences, town hall meetings, and TV programs etc., to inform consumers about the consumer protection laws and regulations; Conduct research and analysis on the quality of existing consumer protection standards in the financial services, and recommend policy measures for strengthening thereof.

27. “Financial Literacy Initiative”Planned Activities Program for Public Representatives Regular briefing sessions/seminars for promoting understanding of sovereign/national finance; Hold issue specific awareness programs about public finance, fiscal & economic policies/management; Hold public debates on economic & fiscal policies and encourage participation of citizens in the same;

28. “Financial Literacy Initiative”Why Regulators Should Join SAFE’s Initiative? For regulators of financial services, helping people to make informed financial decisions is central to protecting consumers, promoting public awareness, and maintaining market confidence, and for enforcing stringent market conduct rules. Financial literacy helps to improve the efficiency and quality of financial services. Financially literate consumers help to reinforce competitive pressures on financial institutions to offer more appropriately priced and transparent services, by comparing options, asking the right questions, and negotiating more effectively. Financially literate consumers increase the demand for, and responsible use of, financial services, help to underpin financial market stability, and contribute to wider economic growth and development. Financial literacy efforts compliment the results of consumer protection laws and awareness campaigns.

29. “Financial Literacy Initiative”Why Governments Need to Join SAFE’s Initiative? Improved financial literacy could potentially play a positive role in boosting the low savings rates in the poorest communities. Financial literacy could also result in better use of financial products for business transactions (for example, through loans to finance capital expansion and letters of credit to expedite exports and imports), better investment decisions, and improved household consumption through more responsible financing of durable goods, schooling, and investments for retirement. Better economic decisions by individuals are known to lead to a more prosperous and stable economy, for which financial literacy is considered as paramount. Collective welfare in a society is correlated to a better educated and financially literate population.

30. “Financial Literacy Initiative”Why Financial Institutions should Join SAFE’s Efforts? Financially literate consumers tend to increase the demand and the use for savings and investments products (such as saving accounts, insurance, stock and mutual fund investments etc. Financial literacy also helps in the expansion of access and the availability of other basic financial products and services. Financial institutions also stand to benefit from financial literacy as informed clients pose less risk and constitute a market for sustainable financial services. Financial literacy efforts result in better understanding of financial products within the marginalized communities of the society (such as agri & rural populations, women, micro finance clients and other small business owners etc).

31. “Financial Literacy Initiative”Why International Donors/NGOs should Join SAFE’s Efforts? Since most of the International donor agencies deal with the agendas of supporting livelihoods, economic growth, sound financial systems, and poverty reduction, therefore greater financial literacy is considered important in helping meet these targets. Financial literacy programs compliment the agenda for the community social development as these programs also promote the cause of greater access to the marginalized sections of society, the low income groups & rural populations etc. World Bank, DFID, OECD, UNCDF, UNDP, EU and AusAID etc., are known to have supported the programs in various regions for promoting financial literacy and creating access to financial services to the most unbanked region of the world. 

32. “Financial Literacy Initiative”Why International Donors/NGOs should Join SAFE’s Efforts? Asian Development Bank’s Improving Access to Financial Services (Phase I) Program (IAFSP) for Pakistan was approved in December 2006. The program consisted of a $300 million program loan (Loan 2291-PAK) from ADB's ordinary capital resources (OCR), an SDR-denominated loan (Loan 2292-PAK) equivalent to $20 million from ADB’s special funds resources (ADF loan), and a $2 million technical assistance (TA) grant (TA 4894-PAK).The entire proceeds of the ADF loan were used to establish a 20-year endowment fund managed by the State Bank of Pakistan (SBP). The Program Output of the Financial Literacy component is disheartening and indeed unfortunate in a country like Pakistan where statistics as well as ground realities indicate imperative and urgent need for a dedicated nation-wide financial literacy drive to promote financial inclusion of the underserved factions of society.

33. “Financial Literacy Initiative”Why International Donors/NGOs should Join SAFE’s Efforts? The IAFSP comprised of four components, the last of which was “financial and basic microfinance literacy”. This last component was to be funded by the grants from the Endowment fund created under the ADF loan being managed by SBP and administered by a committee composed of representatives of five stakeholders—SBP, the Pakistan Microfinance Network, the Pakistan Banks Association, the Pakistan Poverty Alleviation Fund (PPAF), and academia. (ADB acted as an observer to the committee.) The Program Outputs as stipulated by the completion report of the program compiled and submitted in December, 2009 indicated the following Source: ADB Pakistan: Improving Access to Financial Services (Phase I) Program Completion Report December 2009 (Project Number: 39492)

34. “Financial Literacy Initiative”Proposed Categories of Affiliations Patron: Ministry of Finance, Government of Pakistan. Partners Strategic Partners: SBP, SECP, CCP Advisory Partners: International organizations with financial literacy expertise Advocacy Partners: PILDAT etc. Knowledge Partners: LUMS, NUST, IBA, ICM, ICAP etc. Publicity Partners: Print & Electronic Media etc Sponsorship Categories: Lead Sponsor, Associate Sponsor

35. “Financial Literacy Initiative”Conclusion In order to achieve the purposes of the financial literacy initiative, SAFE seeks the involvement and support of all relevant stakeholders such as the government ministries/departments, regulatory authorities, financial institutions, local & international donor agencies & institutions, non-governmental organizations, relevant communities and groups etc. Funding from all possible sources (public, donor, corporate, charity etc.) is critical to start the introduction of financial education programs and the development of relevant activities. Based on the objectives of various organizations, SAFE can tailor programs and implement them as long as the same fall within the scope of the activities planned by SAFE for this initiative.