Sustaining Informal Sector Women Entrepreneurs through Financial Literacy

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  • Glenrose Jiyane and Britta Zawada

    Sustaining Informal Sector Women Entrepreneurs through Financial Literacy

    DE GRUYTER DOI 10.1515/libri-2013-0004 Libri 2013; 63(1): 4756

    Abstract: The United Nations Millennium Development Goals seek to address poverty among other things. It is as-sumed that addressing poverty issues through financial literacy will bring growth to a countrys economy. The informal sector is one avenue that has been observed to be contributing highly to the creation of employment op-portunities, economic development and empowerment in South Africa, especially for women. However, the in-formal sector is heterogeneous which makes it difficult to quantify its profile, and due to the nature of its existence, informal sector entrepreneurs are often characterised by low levels of skills, limited access to organised markets, and low and unstable incomes. This is influenced by their lack of knowledge and skills in business management. It is believed that financial literacy can improve the perfor-mance of informal sector entrepreneurs and sustain busi-ness information and skills. By means of financial literacy, their basic life skills such as numeracy and literacy, com-munication skills and information searching skills will be improved which, in turn, will improve their confidence, generate good income and Millennium Development Goals 13 , namely that of poverty alleviation and equal education opportunities for women, though not all will be reached. The study uses focus group discussions, inter-views and observations to explore financial literacy levels and their impact on informal sector women entrepreneurs (ISWEs) in South Africa. The purpose of this study is to de-termine their mathematical literacy, money management behaviour and skills, selection and utilisation of financial products, and access to and utilisation of information and advice. There were young, middle-aged and older ISWEs in the three focus groups. Participants had some limited skills such as personal, business operation and math-ematical literacy. It was also interesting to determine the ISWEs realisation of their lack of awareness of business information services, and of their need for training inter-ventions.

    Dr. Glenrose Velile Jiyane: Senior Lecturer, Department of Informati-on Science, University of South Africa, Pretoria, South Africa, email: Dr. Britta E. Zawada: Deputy Executive Dean, College of Human Sci-ences, and former Chair, Department of Linguistics, Pretoria, South Africa, email:

    IntroductionIn 2008, the world experienced a recession, and the ex-perts such as the World Bank Group (2009) and the In-ternational Monetary Fund (IMF) (Alderman 2010) are speculating on the return to recession and urge people to save in order to survive. However, financial intermediaries observe that South Africa does not have a culture of sav-ing; therefore they have a role to play in teaching people to save. For instance, according to Gareth Stokes from the newspaper Mail & Guardian (2011) South Africans are not saving enough, and subsequently the South African Re-serve Bank Quarterly Bulletin (2011), indicates that South African households only save 1.5% of the gross domestic product (GDP). The Banking Association of South Africa (BASA) (2011) has observed that a lack of Financial Lit-eracy (FL), which, according BASA is the key to saving, is one of the factors that brought about a global financial cri-sis in recent years. According to BASA, promoting FL will foster creative capitalism which is needed to drive mar-ket-based social change. Therefore, financial freedom is imperative for sustainable socio-economic development. Businesses require people to have a sound financial liter-acy so that they develop a habit of managing the finances of the business that will make it grow. Financial Literacy is the ability to make informed judgements and decisions on the use and management of money (Noctor, Stoney, and Stradling 1992).

    Worldwide, women fulfil primarily domestic and child- rearing roles. In addition, it has been observed that wom-en perform a number of activities over and above domestic ones even outside their households (Cowling 2010). Cowl-ing gives further examples of them influencing a large percentage of decisions made in families and communi-ties; they make decisions regarding healthcare providers, personal banking relationships, dining habits, school choices, personal family time and more, like engaging in businesses especially informal businesses. According to Leach (1996), the reality of most womens lives is that they are obliged by poverty and deprivation to seek an income away from home. With women being denied opportunities of advancing themselves in education, many of them are understandably without good education which is necessa- ry to be employed in jobs with lucrative income and de-

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  • 48 Glenrose Jiyane and Britta Zawada, Sustaining Informal Sector Women Entrepreneurs DE GRUYTER

    cent working conditions and privileges. Many of the wom-en seek employment in the informal sector (IS). According to Liimatainen (2002) the term informal sector was used for the first time in reports on Ghana and Kenya prepared under the International Labour Organisation (ILO) World Employment Programme at the beginning of the 1970s. Li-imatainen further indicates that ILO refers to an informal sector (IS) term as commonly used to refer to that segment of labour market in the developing countries that has ab-sorbed significant numbers of job seekers, mostly in self-employment and to workers in every small production units. However, while informal employment accounts for over 60% of total urban employment in Africa (Liimatai-nen 2002), Karl (2000) observe that it is not only in de-veloping countries that IS has grown and has contributed to Gross Domestic Product (GDP), in the Organisation for Economic Cooperation and Development (OECD) coun-tries of which South Africa is not a member, IS accounts for +/-15% of the GDP.

    Although the IS has absorbed many retrenched, un-employed, literate, neo-literate, illiterate, young, aged, women, men, able and disabled, and has been a solution and an alternative platform for employment during eco-nomic downturns and recessions, it has been given many unacceptable names because of the nature of business activities that are carried out in this sector. According to Ikoja-Odongo and Ocholla (2004), such names as paral-lel, undeclared, marginal, unofficial, underground, wan-gling economy are some but not all the names that the IS is known by.

    However, contrary to this, the perceptions of different people towards IS are different. For instance, Bruthiaux (2002) sees the IS as a ready-made context for creativity and initiative as well as a key basis for increased earning power and empowerment through self-employment. It is evident that opportunities for self-realisation, self-disci-pline, confidence and empowerment are vast in the IS. Ad-ditionally, due to its popularity, specifically during these worldwide economic challenges, the IS is growing very fast and contributes substantially to the economy of any country. The ease of entry and departure, flexible work-ing hours, low education and skills requirements in the IS (Ikoja-Odongo and Ocholla 2004) could be main reasons for its attraction across all sectors of people.

    The IS absorbs even entrepreneurs. According to Sharma and Chrisman (1999), the word entrepreneur was coined by the French economist, Cantillon (1757). It is de-fined as a person who buys at certain prices and sells at uncertain prices. From the definition one could deduce that an entrepreneur is a risk-taker in the decisions made and resource allocations in terms of finance, business lo-

    cation, employees and so forth. In the nineteenth century when the term gained recognition and prominence, Say and Mill both, as quoted by Sobel in The Concise Encyclo-paedia of Economics, affirmed the element of risk-taking in the term entrepreneur. Say (Sobel 2011) placed great emphasis on the risk-taking entrepreneur and further stressed the role of the entrepreneur in creating value by moving resources out of less productive areas into more productive ones. While Mill, as quoted by Sobel (2011) used the term entrepreneur in his popular book, Princi-ples of Political Economy to refer to a person who assumes both the risk and the management of the business (Sobel 2011). This indicates that women entering informal busi-nesses need financial management skills to contribute meaningfully to GDP and managing their business financ-es successfully. They need to be financially literate.

    According to the American Library Association (ALA) (2000), information literacy (IL) is a set of abilities that require individuals to, recognise when information is needed and have the ability to locate, evaluate, and use effectively the needed information (ALA 2000, 2). Fur-thermore, Jiyane and Onyancha (2010), and Machet and Wessels (2006) have discussed at length the IL issues both at institutions of higher learning and in communi-ties and families. Therefore, it is crucial to adopt IL in so-ciety through education and training from a tender age. Generally IL is important for personal and business gains (Lynch 1998). He indicates that it is important for people to understand how information resources are mapped into technological and economic structures; in other words how to access information relevant to a businesses and how to use technology to launch your business or com-municating information regarding your business or even designing tools to market your business in order for it to grow. Thus, a combination of IL and FL will assist in gain-ing insight in the management of personal finances and business-related matters. The management of any busi-ness requires a person to have gained skills by means of IL and FL among other things. However, according to (Ikoja-Odongo and Ocholla 2004), the majority of entrepreneurs in the IS acquire skills through experience and they there-fore, obviously lack FL. When looking at Says definition of an entrepreneur as that of risk-taking and marrying it with the Ikoja-Odongo and Ochollas (2004) observation that the majority of entrepreneurs gain business skills on the job, it is evident that an entrepreneur risks embark-ing on business even less armed with business skills and knowledge. This emphasises the definition of an entrepre-neur as a person who is a risk-taker and it poses a need for extensive interventions and support. According to Lii-matainen (2002), the development of relevant skills and

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  • Glenrose Jiyane and Britta Zawada, Sustaining Informal Sector Women Entrepreneurs 49DE GRUYTER

    Standard Money Management Benchmark

    I. Money management: Recognises how cash flow management and net worth analysis can be used as tools to achieve financial goals

    Cash Flow Management Adults can: -Identify the components of a budget.-Create personalised budget documents.-Revise their budgets to reflect current cash flow.Personal Net WorthAdults can:-Identify the components of a personal net worth statement.-Create personalised net worth statements-Understand that their net worth will fluctuate as the values of their assets and liabilities change.Financial Goal SettingAdults can:-Differentiate between short and long term financial goals.-Prioritise their financial goals.-Construct a realistic financial goal action plan.-Revise their financial goals as life circumstances change.

    II. Credit: Know how and where to obtain credit, and the implications of using and misusing credit

    Obtaining CreditAdults can:-Differentiate among the types of credit.-Understand which types of credit are better suited for particular purposes than other types.-Identify types of financial institutions where credit can be obtained.-Understand how credit application works.Utilisation of CreditAdults can: -Comprehend the legal implications of using credit.-Understand what a credit report is, how to dispute errors in credit reports and what a consumers rights are regarding credit reports.-Recognise what precautions can be taken to prevent identity theft and fraud, and what to do if victimised.

    III. Debt Management: Recognise how using debt can be a tool in asset building

    Debt MeasurementAdults can:-Know what tools are available to them to measure their debt load.-Determine what their appropriate debt load is.-Understand the difference between good debt and bad debt.Debt ResolutionAdults can:-Recognise the warning signs of excessive consumer debt.-Understand options available to assist with excessive debt loads.Evaluate which professionals can assist in dealing with excessive debt issues.

    IV. Risk Management: Use appropriate risk management strategies to protect assets and quality of life

    InsuranceAdults can:-Differentiate among the types of insurance products.-Understand their insurance needs.-Comprehend the implications of being insured or uninsured.Risk ManagementAdults can:-Evaluate the effectiveness of risk management tools in protection against financial loss.-Assess their risk tolerance level.-Use risk tolerance levels in developing risk management strategies.

    V. Investment and Retirement Planning:Implement investment and retirement strategies to achieve financial goals

    Investment and Retirement PlanningAdult can:-Differentiate among the types of investment vehicles.-Identify the types of financial institutions where investment products can be purchased.-Understand the differences between retirement and non-retirement, and qualified and non-qualified investments.-Recognise the importance of planning for retirement.+Investing and Retirement StrategiesAdults can:Evaluate the risks and rewards associated with investment options.-Understand the role risk tolerance plays when choosing investment vehicles.-Comprehend the legal implications of investing.-Assess their overall financial situation in determining retirement needs.

    Table 1: National Standards for Adult Financial Literacy Education (Source: Institute for Financial Literacy 2007)

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  • 50 Glenrose Jiyane and Britta Zawada, Sustaining Informal Sector Women Entrepreneurs DE GRUYTER

    knowledge is a major instrument for improved productiv-ity, better working conditions, and the promotion of de-cent work in the informal economy; hence the necessity to equip IS entrepreneurs with business skills.

    Realising the gap between the business performance of entrepreneurs and the skills and knowledge of the businesses they own, the Institute for Financial Literacy (2007) developed National Standards for Adult Financial Literacy Educ...


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