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
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”.
SCC’s priority sectors and cross-cutting thematic
areas
Rural
Finance
Housing
Finance
Microinsuranc
e
Financial
Educatio
n
Where we are:
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
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
What is not!
• It is not Marketing (publicity, sales or
advertising)
• Financial Literacy is not just raising of
awareness and providing information
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 semiformal institutions (SACCOs) while
35% uses informal systems (ROSCAs,
ASCAs etc)
Formal
19%
Formal Other
8%
Informal
35%
(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)
Excluded
39%
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, overindebtedness, 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”
What Risks?
Inherent Risks in
Financing Agriculture
Associated Risks
•Production Risks
•Non Compliance/Client Integrity
•Credit risks
•Customer Performance Risks
•Payment/Sales Contract Risks
•Transactional Risks
•Price Risks
•/ Payment Risks
•Currency Risks
•Country / Political Risks
•Diversion Risks
•Buyers Risks
•Warehouse Merchandise
Risks on value, quality..
Processors
Collector/Traders
Farmers & Producer Groups
Input Suppliers
Financial Literacy
Medium and Large
Exporters and Wholesalers
Finance and Supporting Services
Financial Literacy Along the VC Flow
Savings
Investments
Credit
Banking Services
Risk Management
(i.e. Insurance)
Planning
Etc.
FL Methodologies
Awareness and Information
•Speeches and discussion forums
•Radio and TV programs
•Articles and advertising campaigns
•Print material (posters, leaflets)
•Competitions
•Expositions
•School events
•Road shows
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
Learner – Centered Methodology: Key Principles
that must be taken into account
Learners learn
best when
drawing on their own
knowledge
and
Relevance
experience
Learners must be
able to apply the new
Immediacy
learning immediately
Learners need
to feel
respected
Respect
and like equals
Dialogue
Learning
must be two-way
We remember
20 percent of what we hear,
40 percent 20/40/80
of what we hear and see,
80 percent of what
we hear,
see and do
Rule
Learners need to
receive praise, even
forAffirmation
small efforts
Learning must involve
learners through discussion,
Engagement
small
groups and
learning from peers
Learning should involve
Cognitive,
thinking andAffective,
emotions
and Psychomotor
Interaction
as well as doing
Adapted from: Adult Learning Principles and Curriculum Design
for Financial Education, MFO, FH, Citigroup
Learners need to feel
that others value their ideas and
contributions,
Safetythat others
will not belittle or
ridicule them
Approaches:
• At the Individual &
institutional level
– Choose a sustainable
methodology (one-onone, TOTs, study guides
etc)
– Develop/adapt a relevant
curriculum e.g. Swedish
Cooperative Centre, Financial
Literacy Study Circle Guide
Learning together practically!
You reap what you sow!
Basic Record Keeping!
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
Approaches: Kenya’s Example (Adapted from: Financial
Education in Kenya, FSD Kenya, MFO, 2008)
Financial Education Partnership
(Public/Private Partnership)
Actors
oGovernment (Ministries)
oRegulators and supervisors
oPublic learning institutions
oParastatals
Roles and Responsiblities
oPolicy development
oPolicy enforcement
oFacilitate entry (to schools)
oDisseminate information
oAssess impact
oStaff time and funding
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
Actors
oIndustry players and their
onetworks
oCivic institutions (NGOs,
churches, consumer
oprotection associations)
Roles and Responsiblities
oLeveraging client base
oIncorporate FE activitites
into service delivery
oHost FE Programs
oStaff time and funding (CSR)
oFinance FE campaigns
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
Thank You!
Merci! Gracias! Ke a
Leboha!
Ngiyabonga! Ndoliboa!
Nakhensa!
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