Do financial management tools improve credit access among

disadvantaged sectors?

Evidence from the use of an Integrated Platform for Company Management (PIMEX)

.Andrés Cuba Borda .Sharim Ribera Camacho

Center for the Studies of Social and Economic Realities

Washington DC, November, 2014

BACKGROUND

• Bolivia has made substantial progress in increasing financial services over the last decade

The increase in coverage benefited all departments in Bolivia

BACKGROUND

We found there is greater inclusion with respect to savings than to credit

Why? Due to the lack of financial understanding of the credit application process

MOTIVATION

How can this be improved?

Overall financial educationFinancial capability and management Assessment for credit applications.

We cover all three

MOTIVATION

Do financial management tools improve credit access among disadvantaged sectors?

RESEARCH QUESTION

1. Identify potential borrowers / credit beneficiaries

2. Conduct baseline survey

3. Small scale field experiment

4. Comparison of results

METHODOLOGY AND FIELD EXPERIMENT

We conducted a baseline survey to all 110 potential borrowers Socio demographic profiles Administration of expenses to measure Financial

Management (FM) Savings practices and behavior Credit access and credit use Use and access to other channels for Financial Exposure

(FE) Greater FE is related to financial education

METHODOLOGY: BASELINE SURVEY

THE TREATMENT GROUP 50% randomly selected as part of a “treatment group”

We give them a short induction on financial education Basic notions of financial terminology Use of a financial calculator and budgeting

Training on the PIMEX tool Three hour session for groups of 10-15 people on how to use PIMEX We have run the first session, three more to come…

Elaboration of credit application Use a credit-assessment tool to generate list of legal requirements Use PIMEX to produce information on income/revenue,

expenses/costs, cash flow Preparation of credit application file

METHODOLOGY: FIELD EXPERIMENT

THE CONTROL GROUP 50% will be part of a regular “control group”

We only collect baseline information with our initial survey No additional training is provided Keep track of their credit application with help of loan officers

from ECOFUTURO AND BCO

MONITORING We check on the status of application of the control group with

the loan officer every week We do not contact the applicants anymore after the initial survey Credit officers do not know which individuals are from the control

or treatment group

METHODOLOGY: FIELD EXPERIMENT

Three sources of data for this project

1.Regional Forum Survey

Measure overall financial inclusion indicators in three main

metropolitan areas

2.Baseline Financial Inclusion Survey

Applied to control and treatment groups

3.Personalized financial assessment reports (Pimex Relev)

DATA COLLECTION

Main content of the sessions included:

1. Financial Education

2. Financial and Business Management (Pimex Relev)

3. Orientation and assessment on accessing credit.

FINANCIAL TRAINING SESSIONS FOR TG (FIELD EXPERIMENT)

The PIMEX Tools produces the following outputs

1.Total units sold2.Total amount generated per unit sold3.Total income per product4.Total income 5.Average sale prices6.Profit margins7.Product/service destination8.Product Inventory Report9.Packaging Inventory Report10.Stock reportUse (1) – (10) to generate two reports: Monthly income report + detail of production+ Fix and variable costs + monthly financial flow

THE FINANCIAL MANAGEMENT TOOL (PIMEX RELEV)

CREDIT EVALUATI

ON

BASELINE SURVEY RESULTS (SOCIO DEMOGRAPHIC PROFILE)

BASELINE SURVEY RESULTS (SAVINGS BEHAVIOR)

BASELINE SURVEY RESULTS(CREDIT BEHAVIOR)

CONCLUSIONS

How does the result connect with the broader objective ?

There is an interesting and increasing use and demand for financial services in BoliviaThe formal financial system has been expanding their financial services, which is reflected in a greater number of credit approvals and lower rates of credit dismissalsHowever, there is an overwhelming number of small entrepreneurs that DO NOT ask for creditWe have designed an experiment to evaluate the importance of financial management tools to increase credit accessWe implemented two surveys.

One to document financial inclusion in main metropolitan areas in Bolivia Baseline survey about financial inclusion including savings and credit behavior

We are currently working on implementing the second, third and fourth rounds to administer the PIMEX Hopefully interesting results from the experiment for next time…

THANKS!