Financial Literacy

1. Financial Literacy For Risk Management In Financing Agriculture Mr. Charles Mutua www.sccportal.org Expert Meeting Managing Risk in Financing Agriculture April 1 – 3, 2009 Johannesburg, South Africa

2. SCC • The Swedish Cooperative Centre (SCC) was founded in 1958 by the Swedish cooperative movement. • The overall goal of SCC is poverty alleviation, which is expressed in the organisation’s vision of “a world free from poverty and injustice”.

3. SCC’s priority sectors and cross-cutting thematic areas Rural Finance Housing Finance Micro- insurance Financial Education

4. Presentation Outline • What is Financial Literacy? • What is Financial Literacy is not • Why Financial Literacy? • Justification • Importance • What Risks? • Financial Literacy along the Value Chain (VC) • FL Methodologies & Approaches

5. WHAT IS? • Financial literacy is “the ability to process financial information and make informed decisions about personal finance…” (Asian Development Bank) • Financial Literacy is a situation which“empowers consumers to make informed decisions” (skills, attitudes, knowledge and understanding) enabling the consumer to act accordingly • Financial literacy/education “seeks to strengthen and change behaviors that lead to increased incomes, better management and protection of scarce assets, and effective use of financial services…” (Microfinance Opportunities) • It uses Adult learning principles and practices • Brings learners own experience to a learning event

6. What is not! • It is not Marketing (publicity, sales or advertising) • Financial Literacy is not just raising of awareness and providing information

7. Why Financial Literacy? Justification: • Kenya for example: 38% of the population is excluded from financial services (unbanked). Only 19% uses financial services from formal institutions like banks, 8% uses semi-formal institutions (SACCOs) while 35% uses informal systems (ROSCAs, ASCAs etc) (Financial Access in Kenya 2007, FinAccess) • South Africa: Only 34% of survey respondents knew the correct word to describe ‘annual price increases’. (ECI Africa 2004, FinScope) Formal 19% Formal Other 8% Informal 35% Excluded 39%

8. Why…Cont’d “An informed customer is a good customer” Importance: • At the individual level - the lack of financial literacy makes people more susceptible to the devastation caused by emergencies, over-indebtedness, over-zealous retailers or fraudulent schemes • At the institutional level - the lack of financial literacy generates misinformation and mistrust of formal financial service providers Misinformed consumers make poor clients, who in turn represent increased risk for financial institutions and contribute to a weaker bottom line. • At the market level - uninformed consumers cannot play a developmental and monitoring role in the market to weed out bad practices and providers. “Financial literacy is a win-win proposition for clients and institutions”

9. What Risks? Inherent Risks in Financing Agriculture Associated Risks • Non Compliance/Client Integrity • Customer Performance Risks • Transactional Risks • / Payment Risks • Country / Political Risks • Warehouse Merchandise • Risks on value, quality.. • Production Risks • Credit risks • Payment/Sales ContractRisks • Price Risks • Currency Risks • Diversion Risks • Buyers Risks

10. Financial Literacy Along the VC Flow Finance and Supporting Services Medium and Large Exporters and Wholesalers Savings Investments Credit Banking Services Risk Management (i.e. Insurance) Planning Etc. Processors Financial Literacy Collector/Traders Farmers & Producer Groups Input Suppliers

11. FL Methodologies Awareness and Information Learner-Centered • Study Circles • Organized visits to financial institutions • Involvement of multipliers • (e.g. priests, trade unions, teachers) • Training of trainers • Mentoring, use of corporate volunteers • E-platforms • Speeches and discussion forums • Radio and TV programs • Articles and advertising campaigns • Print material (posters, leaflets) • Competitions • Expositions • School events • Road shows

12. Learner – Centered Methodology: Key Principles that must be taken into account Learners learn best when drawing on their own knowledge and experience Learners must be able to apply the new learning immediately Relevance Respect Learners need to feel respected and like equals Immediacy We remember 20 percent of what we hear, 40 percent of what we hear and see, 80 percent of what we hear, see and do Dialogue Learners need to receive praise, even for small efforts Learning must be two-way Affirmation 20/40/80 Rule Cognitive, Affective, and Psychomotor Interaction Learning must involve learners through discussion, small groups and learning from peers Learners need to feel that others value their ideas and contributions, that others will not belittle or ridicule them Engagement Learning should involve thinking and emotions as well as doing Safety Adapted from: Adult Learning Principles and Curriculum Design for Financial Education, MFO, FH, Citigroup

13. Approaches: • At the Individual & institutional level • Choose a sustainable methodology (one-on-one, TOTs, study guides etc) • Develop/adapt a relevant curriculum e.g. Swedish Cooperative Centre, Financial Literacy Study Circle Guide

14. Cont’d… • At the country level • Craft national strategies for financial literacy • Create partnerships • Integrate financial education and insurance in curricula of public education system • Code of Ethics, e.g. Uganda Microfinance • Financial literacy emphasis days/months using a combination of instruments • Target group specific activities (children, youth, women, entrepreneurs) • Indirect learning as part of other campaigns (health, finance in general

15. Approaches: Kenya’s Example (Adapted from: Financial Education in Kenya, FSD Kenya, MFO, 2008) Financial Education Partnership (Public/Private Partnership) • Actors • Government (Ministries) • Regulators and supervisors • Public learning institutions • Parastatals • Roles and Responsiblities • Policy development • Policy enforcement • Facilitate entry (to schools) • Disseminate information • Assess impact • Staff time and funding • Actors • Industry players and their • networks • Civic institutions (NGOs, • churches, consumer • protection associations) • Roles and Responsiblities • Leveraging client base • Incorporate FE activitites • into service delivery • Host FE Programs • Staff time and funding (CSR) • Finance FE campaigns Vision • Champion FE initiative; • maintain singular focus; • maintain neutrality & credibility; • quality control on content; • market FE to stakeholders; • policy advocacy; • identify and co-ordinate working groups, • facilitate research and monitoring and evaluation activities

16. Cont’d… • At the global level • International Network on Financial Education www.financial-education.org • Yearly conference: www.FinancialEducationSummit.org • Global Training Program: www.GlobalFinancialEd.org • Financial Education Fund (FEF) - FEF is a new fund which will support innovative projects in Africa that improve financial capability: www.genesis-analytics.com • Working group “Insurance education” www.microinsurancenetwork.org

17. Merci! Gracias! Ke a Leboha!Ngiyabonga! Ndoliboa!Nakhensa! Thank You! Mr. Charles Mutua Senior Programme Officer – Financial Services Swedish Cooperative Centre & Vi Agroforestry Regional Office for Eastern Africa P.O. Box 45767 – 00100, Nairobi, Kenya Tel: +254 20 4180201/37 Fax: +254 20 4180277 Web: www.sccportal.org Email: charles.mutua@sccroea.org