Why Financial Literacy is Important for Financial Inclusion

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Why Financial Literacy is Important for Financial
Inclusion

• Indian School of Microfinance for Women

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• 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.

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Characteristics of Financial Exclusion

1. Lack of access to services/products.
2. Lack of perception of the value of availing of
   formal services/products.
3. Lack of information and knowledge of
   services/products.
4. Inability to chose between alternate
   services/products

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• 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).

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• 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.

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• 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

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• 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.

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What is financial literacy?

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

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CITIGROUP CENTRE FOR FINANCIAL LITERACY Indian
School of Microfinance for Women
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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.

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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

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Approach
TNA with a prospective partner mFIs
Concept Sharing workshop
Campaigns with the ultimate beneficiaries
Training of Trainers
Monitoring and Evaluation
Impact Assessment
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Components

• Concept Sharing Workshop and Campaigns
• Training of Trainers (ToT)
• Research

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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

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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

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Smart Savings

• Deciding your goals
• Relationship between income/expense and savings

• How to Save
• Concepts in Savings
• Saver V/s Spender

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Wise Spending

• Define consumption Need vs. Want
• Avoid wants and spend judiciously on needs

• Managing Big-Ticket Expenses
• Creating a Need Account

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Intelligent Investments

• Keep Investing
• Mitigate Risk
• Capital Formation

• Financial Independence
• Make a Financial Plan
• Make a Budget

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• A Glimpse of the Activities so far

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Financial Literacy Workshops Campaign
Date Name of MFIs/Organizations State/Region No of Participants in the workshop No of Participants in the Campaign
2nd February 2004 SEWA Bank Gujarat, Ahmedabad. 58 -
4th -6th January 2006 Chaitanya Maharashtra, Pune 40 800
1st 3rd February 2006 SEWA Indore Madhya Pradesh, Indore 23 350
1st 3rd March 2006 Centre for Youth and Social Development Orrisa 33 350
4th 6th April 2006 Bullock Workers Development Association Tamil Nadu, Pondicherry 46 1000
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Conti
31st May-2nd June 2006 Ankuram Sangamam Poram Andra Pradesh, Hyderabad 30 100
6th 8th July 2006 Sarba Shanti Ayog(SASHA) West Bengal, Kolkata 30 100
21st June 2007 Campaign on Financial Literacy. Gujarat, Ahmedabad - 1500
28th July 2007 Shephard Tamil Nadu, Trichy - 500
10th September 2007 Village Welfare Society Kolkata - 300
16th 18th October 2007 Access Development Services. Madhya Pradesh Bhopal, Gwalior - 100
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Training of Trainers (TOT)
Date Name of MFIs/Organizations represented State/Region (location of TOT) No of Participants in the TOT
5th 10th December 2005 SWADHAAR CYSD SKS Chaitanya BWDA SEWA Indore SEWA Bank SEWA Bharat FPI Gujarat, Ahmedabad 17(from seven states)
19th 22nd May 2006 Refresher training for Chaitanya Gujarat, Ahmedabad 11
25th 26th July 2006 Loyalam Bank Project Manipur 30
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Conti
19th to 27th February 2007 Development support team, Pune. SHEPHARD Village Welfare Society Chaitanya Annapurna Parivar SWABHIMAAN Grameen Koota BISWA SEWA Bank Gujarat, Ahmedabad 16
29th July 2007 Shephard Tamil Nadu, Trichy 70
11th 12th September 2007 Village Welfare Society (VWS) Kolkata 18
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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

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• 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.

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• 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.

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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.

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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.

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• 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.

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• Thank You