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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