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Aug 31, 2018

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Page 1: Financial Education For Managing Risks - e-MFP · Financial Education For Managing Risks ... that a person needs to make sound financial decisions that support well being ... their

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Financial Education For Managing Risks

Lucia Spaggiari Zak Syengo Yousra Hamed

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Outline

Microfinance Financial Literacy: A Cross-Country Study : Lucia Spagiarri - MicroFinanza Rating

Financial Education for Managing Risk : Zak Syengo - Rafiki

What impact of financial education interventions in Cambodia?: Yousra Hamed - ILO

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Financial capability, Financial literacy, Financial education …

Financial education is a way to increase financial literacy. It

provides basic skills related to earning, spending, budgeting,

borrowing, saving and using other financial services such as

insurance, money transfers

Financial literacy is the ability to understand finance. It refers to

the set of skills and knowledge that allows an individual to make

informed and effective financial decisions, and understand the

financial services that are available.

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Financial capability is defined as the combination of …

1. Knowledge (I know what a savings account is)

2. Skills (I know how to open a bank account)

3. Attitudes (I find it useful to have a bank account)

4. Behaviour (I’m going to the bank to open a savings account)

that a person needs to make sound financial decisions that support well being (center for financial inclusion)

What is financial capability ?

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Access to credit and financial awareness

Microfinance Financial Literacy: A Cross-Country Study

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Methodology

• Financial literacy: set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources (Giesler, Markus; Veresiu, Ela). One of the skills is interest rate awareness.

• Interest rate awareness: clients who know their nominal interest rate within 25% margin of error.

• Analysis (logit model) by the University of Reading, UK. • Limitations: only one measure of financial literacy; no causality,

only association.

Financial awareness of interest rate = α + β_1 x Sociodemograhic Status + β_2 x Financial Access + ε Research question 1: Where do we stand in financial literacy? Research question 2: What borrower profiles are more financially literate? Research question 3: Are borrowers with previous access to finance more financially literate?

Social Rating field surveys by MicroFinanza Rating

Data: 9,053 clients, 52 FSPs, 28 Countries

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% Clients aware of the interest rate of their loan

Low client awareness of the nominal interest rate of their loan, indicating low financial literacy.

42%

33%

24%

33%

41%

31%

28%

45%

35%

No Saving

Low fin. intermed.

High fin. intermed.

Small scale

Medium scale

Large scale

Urban

Rural

Urban-rural

40% 40%

32% 34%

44% 32% 33%

14%

26% 48%

63% 30%

34%

MixedVillage B.

GroupIndiv.

NGOCredit Union

NBFIBank

AfricaSEAECALAC

Total

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Dependent variable Client awareness of interest rate

Controls Country, survey year

Socio-demographic explanatory variables

Age***

Education***

Client household head***

Living in rural area***

Female

Financial explanatory variables

Annual interest rate on current loan***

Multiple borrowing from other NBFI, NGOs, Credit Unions (now)***

Have a saving account (previously)***

Have a loan from moneylender, family or friends (now)***

Have a loan from NBFI, NGO or Credit Unions (previously)

Have a loan from bank (previously)

***/** Statistical significance 1%/5% level. NBFI: Non Bank Financial Institution.

≠ literature

= literature

Communication transparency

Over-indebtedness

Remuneration not the focus

Awareness of interest % does not come automatically with access

Past stress experience

Association: positive; negative; none

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Policy implication

Financial literacy is not automatically achieved with access to finance; deliberate financial education measures are needed to improve it.

Given the cost of education programs, it may be cost-effective to take financial education measures with target segments with especially low financial literacy.

Transparency culture and supervision could help improving client financial literacy.

Client financial literacy may be a necessary line of defence against over-indebtedness.

Hypothesis 1 Sociodemographic factors such as gender, age and education level are associated to the financial literacy levels of clients in the cross-country microfinance environment.

√ Age, education X Gender, rural

Hypothesis 2 Clients with previous access to credit and additional source of credit have higher financial literacy of interest rate.

√ Previous access to moneylenders, family and friends X Previous access to banks, NBFI, NGO or Credit Unions; multiple borrowing

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Zak Syengo,

Head of Marketing &

Corporate Affairs

Rafiki Bank

Financial Education for Managing Risk

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A subsidiary of Chase Bank (K) Ltd and

regulated by the Central Bank of Kenya.

Rafiki opened it doors on 7th July 2011.

Currently we are the 3rd largest

Microfinance Bank in Kenya.

Institutional Background

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Savings Facilities

• Savings Account

• Current Accounts

• FDRs

Credit Facilities

• Working Capital

• Asset Finance

• Mortgages &

Development

• Over Drafts

Trade Finance

• Bid Bonds

• Guarantees

Forex

Money Transfer services Micro - Insurance

PRODUCT OFFERING

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Education Products

Education Finance These comprise of loan products that enable individuals pursue education at

different levels

Institution Finance

These loan products are offered to educational institutions to purchase necessities such as school vans, etc.

Training

We also facilitate training programs to individuals and educational institutions so as

to promote education in Kenya through committed champions

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Training Initiatives

Chama breakfasts

Classroom trainings

Customer advisory

Customer visits

Open day

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Partnership: Edulink International College

• Edulink International College offers global technical and graduate courses.

• Has partnered with several universities in the US, UK

• Partnership with the bank to have credit facilities availed to the students and

guardians

• Diversification of partnership to reach out to many more youth.

• The bank extends financial training module to students through regular sessions

facilitated by the staff trainers

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OneUni MOBI DEGREE

• OneUni is a Silicon Valley mobile-first startup revolutionizing global higher education

• Offering a mobile learning platform that lets students access programs anywhere

• The monthly program fees even include the data plan — so students can get to work

wherever they are.

• In Kenya, OneUni is rolling out the first programs in partnership with Daystar University

• OneUni also chose to partner with Rafiki Microfinance Bank to offer school fees loans to

students enrolling in their programs.

• Challenges: Reaching out to individual students for personal finance training

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Number of schools financed 25

Primary schools 14

Secondary schools 11

Total amount financed Ksh.70,122,563

Balance of these loans outstanding Ksh.56,772,171

PAR 0.63%

Educational Institution Finance

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CASE STUDY 1:Tenacity Locks Ltd

• The proprietor, Ken Ndwiga is BCOM graduate

• He began specializing in locks in May, 2011 to take care of padlock security needs

• Enrolled in Rafiki Financial Education class in 2011(part of bank’s initiatives for training

entrepreneurs in personal and business finance through four sessions in a month)

• Uses social media as a key tool for advertising and marketing

• Currently planning to set up the largest show room in the Central Business District for

locks

• Current borrowing over Kshs 4,500,000

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CASE STUDY 2: St. Francis of Assisi Academy, Nakuru

• St. Francis of Assisi Academy was 30th May 2006 by two directors

• Offers 8-4-4 system ranging from baby class to class 8

• Currently accommodates a total number of 707 students.

• Employed 28 members of teaching staff and 12 non-teaching staff

• Current borrowing over Ksh. 9,000,000

• School directors and management have benefited from Financial Education

training organized by the bank to enhance best practices in personal and

business finance

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Number of groups trained 2102

Loan Book 469,354,000

Deposits 527,000,000

PAR 1.20%

CASE STUDY :CHAMAS

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Education Vs Risk in Microfinance

• Access to information helps clients make informed decisions

• Bank monitoring makes clients prioritize-avoid diversion

• Financial access bridges expansion gaps

• Ultimate risk management-for clients and microfinance

• Challenge: How sustainable are FE initiatives by the microfinance bank?

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Zak Syengo

Head of Marketing & Corporate Affairs

Rafiki Microfinance Bank

[email protected]

(+254) – 706 757 140

www.rafiki.co.ke

Rafiki House, Biashara Street,

P.O. Box 12755 – 00400

Nairobi, Kenya

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Microfinance and risk management:

An impact assessment of a client training on financial education

AMK and VisionFund - Cambodia

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Action Research Programme

Timeframe: 2008-12

16 partner-MFIs worldwide

GOAL: to measure the impact of decent work innovations on the welfare of microfinance clients

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Microfinance for Decent Work Innovations

Formalization •Awareness raising and client sensitisation to benefits

•Introduction of business development services

Occupational

Safety and Health

•Client training on good working conditions and agreement on improvement

plan

•Specific loan product for work improvements

Job Creation/

Women

Empowerment

•Organisational restructuring: new SME lending window

•Client training on women‘s empowerment

Risk Management •Financial education - Entrepreneurship training for clients

•Introduction of insurance products: multi-risk for business loan clients,

health, credit life

•Introduction of individual emergency fund

•Introduction of leasing product

Child Labour •Awareness campaign

•Modification of existing health-insurance product

•Modification of existing health-insurance product

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Microfinance for Decent Work Innovations

Formalization •Awareness raising and client sensitisation to benefits

•Introduction of business development services

Occupational

Safety and Health

•Client training on good working conditions and agreement on improvement

plan

•Specific loan product for work improvements

Job Creation/

Women

Empowerment

•Organisational restructuring: new SME lending window

•Client training on women‘s empowerment

Risk Management •Financial education - Entrepreneurship training for clients

•Introduction of insurance products: multi-risk for business loan clients,

health, credit life

•Introduction of individual emergency fund

•Introduction of leasing product

Child Labour •Awareness campaign

•Modification of existing health-insurance product

•Modification of existing health-insurance product

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Risk Management cluster’s innovations

PRIDE Microfinance Uganda • Introduction of new leasing product (Mortgage Asset Financing

Loan)

Negros Women For

Tomorrow

Foundation (NWTF)

Philippines • Introduction of new entrepreneurship training to clients: using ILO

training modules “Generate and Start Your Business”

• Modifications to Individual Emergency Fund (= savings account for

emergency situations)

VisionFund Cambodia • Introduction of financial education to clients (direct client training)

AMK Cambodia • Introduction of financial education to clients (indirect approach

through educating client officers)

TYM Vietnam • Introduction of client training on risk management and

microinsurance

Finanziera

Confianza

Peru • Introduction of insurance “Multiriesgo de Confianza” and client

training to establish a “insurance culture” among clients

Banco Popular Honduras • Introduction of health insurance “Salud popular”

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Risk Management cluster’s innovations

PRIDE Microfinance Uganda • Introduction of new leasing product (Mortgage Asset Financing

Loan)

Negros Women For

Tomorrow

Foundation (NWTF)

Philippines • Introduction of new entrepreneurship training to clients: using ILO

training modules “Generate and Start Your Business”

• Modifications to Individual Emergency Fund (= savings account for

emergency situations)

VisionFund Cambodia • Introduction of financial education to clients (direct client training)

AMK Cambodia • Introduction of financial education to clients (indirect approach

through educating client officers)

TYM Vietnam • Introduction of client training on risk management and

microinsurance

Finanziera

Confianza

Peru • Introduction of insurance “Multiriesgo de Confianza” and client

training to establish a “insurance culture” among clients

Banco Popular Honduras • Introduction of health insurance “Salud popular”

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Findings from the diagnostic phase and choice «over indebtedness and vulnerability» - AMK

Almost 20% of respondents stated they had difficulties repaying their loan;

66% of respondents confirmed using financial services from other sources; among those clients, 8.8% stated that they took a loan to pay back their loan to AMK;

55% of respondents stated that they had been confronted with a large, unforeseen expense in the last year (mostly due to health issues);

65% of respondents explained that they covered large, unforeseen expenses by withdrawing savings; 60% took an additional loan, while almost 30% sold their assets;

Only 11.6 % of all self-employed respondents indicated that their business income covered their business expenses;

8.3% of respondents reported being unable to cover household expenditures.

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ACTIVITIES OUTPUTS OUTCOMES

IMPACT

• Development of

training/new product

• Training of Trainers at

different organisational

levels (HQ, branch)

• Pre-selection of

clients

• Client training/

briefing

•MFI staff trained

(training department, loan

officers, branch

managers)

• FE manuals provided

(partially in local

language)

• MFI clients

trained/briefed

• MFI clients served by

capacitated staff

• Clients changed financial

attitude

• Clients took better informed

financial decisions and improved

risk management strategies

-Increased savings

-Improved planning

-Less withdrawals for

non-emergencies

-Increased use of insurance

• Clients built and maintained

assets (physical, financial, social)

• Clients improved

entrepreneurial skills

• Clients increased business

revenue/profit

• Client levels of

overindebtedness

reduced

-Multiple borrowing

reduced

-Late payments

reduced

-Use of loans to

payback loans

reduced

• Client vulnerability

levels reduced

-Planned and

unforeseen expenses

fully covered by

income

• MFI loan portfolio

improved

Implementation Results

Baseline survey and up to 5 follow-up surveys to track the impact

FE theory of change

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Control and target group.

Panel data: Baseline with one to four follow-up surveys (depending on the

innovation).

Data sources: Questionnaires (clients) and Management Information Systems

(MFIs).

Assignment of innovation at branch level (Number of branches in samples: 2 to

29).

Typical evaluation methodology: Difference-in-differences (sometimes

supported by Propensity Score Matching).

Quantitative impact Evaluation: Basic facts on evaluation for MF4DW Action Research.

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Risk Management

Groups of outcome variables:

Financial attitude

- Debt-related attitudes

- Precaution-related attitudes

Financial behaviour/risk management

- Planning horizon

- Setting money aside etc.

Asset building

- Insurance

- Savings

Over-indebtedness/multiple borrowing

- Borrowing from other informal/formal source

- Took loan to repay another

- Repayment difficulties

Vulnerability

- Expenses covered by income

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AMK - Cambodia

Results

Strongest positive impact on the repayment behaviour of clients:

• Reduction of 3.4% in late payments

Significant and positive impacts on:

• Asset building through 10% increase of insurance uptake,

• Financial attitude through 8% reduction in clients’ believe that it is impossible to save, 1% increase in clients’ association of savings and security, through improved handling of debt, as well as attitude towards borrowing

AMK applied an indirect training approach focusing on increasing financial education and training capacity of staff and delivering key message in group meetings throughout the loan cycle.

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Vision Fund-Cambodia

Results

Some impact on financial attitude and risk management

• 10% decrease of negative perception towards insurance

• Partially improved attitude towards savings

• 9% increase of setting money aside for future emergencies

• 22% increase in ability to put money aside for emergency expenses;

Little evidence with respect to asset building

(except for 8-10% increase of savings incidence);

Many mixed and counter-intuitive results for multiple borrowing/over-indebtedness and vulnerability.

VFC applied a direct training approach and implemented training sessions with clients (2 days course).

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Q&A