Financial Literacy

For Risk ManagementIn Financing Agriculture

Expert MeetingManaging Risk in Financing

Agriculture

April 1 – 3, 2009

Johannesburg, South Africa

Mr. Charles Mutua

www.sccportal.org

• The Swedish Cooperative Centre (SCC) was founded in 1958 by the Swedish cooperative movement.

• The overall goal of SCC is poverty alleviation, which is expressed in the organisation’s vision of“a world free from poverty and injustice”.

SCC

SCC’s priority sectors and cross-cutting thematic areas

Rural Finance

Housing Finance

Micro-insuranc

e

Financial Educatio

n

Where we are:

Presentation Outline

– What is Financial Literacy?– What is Financial Literacy is not– Why Financial Literacy?

• Justification• Importance

– What Risks?– Financial Literacy along the Value Chain (VC)– FL Methodologies & Approaches

WHAT IS?

• Financial literacy is “the ability to process financial information and make informed decisions about personal finance…”(Asian Development Bank)

• Financial Literacy is a situation which “empowers consumers to make informed decisions” (skills, attitudes, knowledge and understanding) enabling the consumer to act accordingly

• Financial literacy/education “seeks to strengthen and change behaviors that lead to increased incomes, better management and protection of scarce assets, and effective use of financial services…” (Microfinance Opportunities)

– It uses Adult learning principles and practices– Brings learners own experience to a learning event

What is not!

• It is not Marketing (publicity, sales or advertising)

• Financial Literacy is not just raising of awareness and providing information

Why Financial Literacy?Justification:

• Kenya for example: 38% of the population is excluded from financial services (unbanked). Only 19% uses financial services from formal institutions like banks, 8% uses semi-formal institutions (SACCOs) while 35% uses informal systems (ROSCAs, ASCAs etc)(Financial Access in Kenya 2007, FinAccess)

• South Africa: Only 34% of survey respondents knew the correct word to describe ‘annual price increases’. (ECI Africa 2004, FinScope)

Formal 19%

Formal Other8%

Informal35%

Excluded39%

Why…Cont’d

Importance:

• At the individual level - the lack of financial literacy makes people more susceptible to the devastation caused by emergencies, over-indebtedness, over-zealous retailers or fraudulent schemes

• At the institutional level - the lack of financial literacy generates misinformation and mistrust of formal financial service providers

Misinformed consumers make poor clients, who in turn represent increased risk for financial institutions and contribute to a weaker bottom line.

• At the market level - uninformed consumers cannot play a developmental and monitoring role in the market to weed out bad practices and providers.

“Financial literacy is a win-win proposition for clients and institutions”

“An informed customer is a good customer”

What Risks?

•Production Risks

•Credit risks

•Payment/Sales Contract Risks

•Price Risks

•Currency Risks

•Diversion Risks•Buyers Risks

•Non Compliance/Client Integrity

•Customer Performance Risks

•Transactional Risks

•/ Payment Risks

•Country / Political Risks

•Warehouse Merchandise

Risks on value, quality..

Inherent Risks in Financing Agriculture Associated Risks

Fin

an

cia

l Lit

era

cy

Financial Literacy Along the VC Flow

Medium and LargeExporters and Wholesalers

Processors

Collector/Traders

Farmers & Producer Groups

Input SuppliersFin

an

ce a

nd

Su

pp

ort

ing

Serv

ices

SavingsInvestments

CreditBanking ServicesRisk Management

(i.e. Insurance)Planning

Etc.

FL Methodologies

•Speeches and discussion forums•Radio and TV programs•Articles and advertising campaigns•Print material (posters, leaflets)•Competitions•Expositions•School events•Road shows

•Study Circles•Organized visits to financial institutions•Involvement of multipliers (e.g. priests, trade unions, teachers)•Training of trainers•Mentoring, use of corporate volunteers•E-platforms

Awareness and Information Learner-Centered

Learner – Centered Methodology: Key Principles that must be taken into account

Relevance

Dialogue

EngagementLearning must involve

learners through discussion, small groups and

learning from peers

ImmediacyLearners must be

able to apply the new learning immediately

20/40/80Rule

We remember 20 percent of what we hear,

40 percent of what we hear and see, 80 percent of what

we hear, see and do

Cognitive, Affective, and Psychomotor Interaction

Learning should involve thinking and emotions

as well as doing

Respect Learners need

to feel respected and like equals

Affirmation

Learners need to receive praise, even

for small efforts

Safety

Learners need to feel that others value their ideas and

contributions, that others will not belittle or

ridicule them

Learners learn best when

drawing on their own knowledge and

experience

Learning must be two-way

Adapted from: Adult Learning Principles and Curriculum Design for Financial Education, MFO, FH, Citigroup

Approaches:

• At the Individual & institutional level– Choose a sustainable

methodology (one-on-one, TOTs, study guides etc)

– Develop/adapt a relevant curriculum e.g. Swedish Cooperative Centre, Financial Literacy Study Circle Guide

Learning together practically!

You reap what you sow!

Basic Record Keeping!

Cont’d…

• At the country level– Craft national strategies for financial literacy– Create partnerships– Integrate financial education and insurance in

curricula of public education system– Code of Ethics, e.g. Uganda Microfinance– Financial literacy emphasis days/months using a

combination of instruments– Target group specific activities (children, youth,

women, entrepreneurs)– Indirect learning as part of other campaigns (health,

finance in general

Approaches: Kenya’s Example (Adapted from: Financial

Education in Kenya, FSD Kenya, MFO, 2008)

ActorsoGovernment (Ministries)oRegulators and supervisorsoPublic learning institutionsoParastatals

Roles and ResponsiblitiesoPolicy developmentoPolicy enforcementoFacilitate entry (to schools)oDisseminate informationoAssess impactoStaff time and funding

ActorsoIndustry players and theironetworksoCivic institutions (NGOs,churches, consumeroprotection associations)

Roles and ResponsiblitiesoLeveraging client baseoIncorporate FE activititesinto service deliveryoHost FE ProgramsoStaff time and funding (CSR)oFinance FE campaigns

Vision• Champion FE initiative;• maintain singular focus;

• maintain neutrality &credibility;

• quality control on content;• market FE to stakeholders;

• policy advocacy;• identify and co-ordinate

working groups,• facilitate research and

monitoring and evaluationactivities

Financial Education Partnership(Public/Private Partnership)

Cont’d…

• At the global level– International Network on Financial Education

www.financial-education.org – Yearly conference: www.FinancialEducationSummit.org – Global Training Program: www.GlobalFinancialEd.org – Financial Education Fund (FEF) - FEF is a new fund

which will support innovative projects in Africa that improve financial capability: www.genesis-analytics.com

– Working group “Insurance education” www.microinsurancenetwork.org

Merci! Gracias! Ke a Leboha!

Ngiyabonga! Ndoliboa!Nakhensa!

Thank You!

Mr. Charles MutuaSenior Programme Officer – Financial ServicesSwedish Cooperative Centre & Vi Agroforestry

Regional Office for Eastern AfricaP.O. Box 45767 – 00100, Nairobi, Kenya

Tel: +254 20 4180201/37Fax: +254 20 4180277

Web: www.sccportal.org Email: charles.mutua@sccroea.org