Why Financial Literacy is Important for Financial Inclusion

Indian School of Microfinance for Women

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.

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

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).

• 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.

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

• 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.

What is financial literacy?

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

CITIGROUP CENTRE FOR FINANCIAL LITERACY

Indian School of Microfinance for Women

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.

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

ApproachTNA with a

prospective partner mFIs

Campaigns with the ultimate

beneficiaries

Concept Sharing

workshop

Monitoring and

Evaluation

Training of Trainers

Impact Assessment

Components

• Concept Sharing Workshop and Campaigns

• Training of Trainers (ToT)

• Research

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

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

Smart Savings

• How to Save• Concepts in

‘Savings’• Saver V/s Spender

• Deciding your goals• Relationship

between income/expense and savings

Wise Spending

• Define consumption: Need vs. Want

• Avoid wants and spend judiciously on needs

• Managing Big-Ticket Expenses

• Creating a Need Account

Intelligent Investments

• Financial Independence

• Make a Financial Plan

• Make a Budget

• Keep Investing• Mitigate Risk• Capital Formation

A Glimpse of the Activities so far

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 Worker’s Development Association

Tamil Nadu, Pondicherry

46 1000

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

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

1.SWADHAAR2.CYSD3.SKS4.Chaitanya5.BWDA6.SEWA Indore7.SEWA Bank 8.SEWA Bharat9.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

Conti…

19th to 27th February 2007

1.Development support team, Pune.2.SHEPHARD3.Village Welfare Society4.Chaitanya5.Annapurna Parivar6.SWABHIMAAN7.Grameen Koota8.BISWA9.SEWA Bank

Gujarat, Ahmedabad

16

29th July 2007 Shephard Tamil Nadu, Trichy

70

11th – 12th September 2007

Village Welfare Society (VWS)

Kolkata 18

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

•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.

•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.

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.

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.

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.

Thank You