> Posted by Sarah Hugo, Project Manager, Developing Markets Associates (DMA)

The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

For unbanked citizens in developing countries, the collection of remittances sent by friends and family overseas is sometimes their only interaction with the formal financial sector. Yet remittances are too often overlooked when considering approaches for increasing financial inclusion. For Armenia, a country that receives 16 percent of its GDP from remittances, only 2.5 percent of people use an account to receive them.

In a recent workshop we conducted with middle managers from five banks in Armenia, staff admitted they were initially skeptical about the implementation of a financial education program aimed at remittance recipients. Even though the pilot was to be fully funded through the European Bank for Reconstruction and Development’s Early Transition Country Multi-Donor Fund, staff remained unconvinced about the potential impact and effectiveness of financial education and how it would be received by customers. These opinions were primarily due to expressed beliefs: that people would not be receptive to the program’s unplanned financial consultations, that their bank already did a good job at offering financial products to remittance recipients, and that most remittance recipients only have money to cover their basic needs and therefore have no need for financial products.

Halfway through the pilot, the results of the financial consultations have been impressive, and bank management and staff admit that their preconceptions were misplaced. The results indicate that there is indeed value in providing financial education and in targeting remittance recipients.

In six months, with a team of 20 financial advisers working in 20 bank branches in five partner banks across the country, over 18,500 people have received a free, one-on-one financial consultation. The banks’ remittance recipients are intercepted as they collect their cash from the branch and invited for a consultation. The consultations, which are held in private and tailored according to the specific needs of the individual, are aimed at helping people assess and manage their personal finances and plan for the future, in full awareness of the products and services available to them and their relative costs and benefits.

A financial consultation at Bakai Bank in the Kyrgyz Republic.

As a direct result of these consultations, nearly 8,000 new accounts have been opened. That is, nearly half of all people that received a consultation chose to open an account. In a country where only 23 percent of the adult population has a financial product (mainly loans), this is a high conversion rate. Financial advisers are not financially incentivized to open accounts. This is to ensure that providing good quality financial consultations is their primary focus.

Additionally, banks are asked to verify the balance of the newly opened accounts at the end of each first month. In just six months, US$2.6 million has been brought into the formal financial sector as a direct result of consultations (over 80 percent of program consultations are administered to remittance clients – financial advisers will also provide consultations to other bank visitors during times when there aren’t remittance clients to serve). The banks are enthused, not only with the conversion rate, but also with the amount of money deposited in these accounts. The financial consultations are helping to build trust and confidence in the banks and their products and are leading to a change in money managing behavior.

Armenia is not an isolated case. The same pilot is currently being implemented in Moldova, and last year it was implemented in Tajikistan and the Kyrgyz Republic. In 16 months, a total of 104,000 people have been provided with a financial consultation across the four countries, over 15,000 new accounts have been opened, and US$15.2 million has been brought into the formal financial sector.

The public service offered by these projects - directly improving the financial literacy of thousands of people – is clear. But perhaps more importantly, the results send a strong (and quantified) message to the banks.

  • Providing financial education and improving financial literacy levels is a way to bridge the gap to the unbanked. Results in Armenia indicate that 58 percent of people that received the consultation said they had “no need” for a financial product; 48 percent of whom then opened an account. It’s also therefore a great outreach tool for banks.
  • One-on-one consultations are effective in providing financial education. Tailored consultations make the information relevant to the individual and therefore show them how they can use and benefit from the tools and financial products available to them.
  • There is a real opportunity for banks in targeting remittance recipients to share information about other financial products. It is estimated that banks handle 70 percent of remittance receiving volumes globally. The world over there are queues of people visiting bank branches to collect their remittances, but for many those transactions remain the extent of their relationship with the formal financial sector.

The success of the pilots is proving to live on. The latest feedback from a bank in the Kyrgyz Republic shows that 68 percent of accounts opened are still active eight months later. A number of banks have already hired DMA’s Financial Advisers to continue working for them at the end of the program in the same or similar role. In Tajikistan, 13 of the team of 20 advisers were kept on. Banks have also expressed interest in and completed further training of bank staff across their branch network to highlight the program’s methodology and results more broadly, and central bank governors have taken note and held program presentations to ensure lessons learned reach a broader audience.

Through these pilots we hope to continue demonstrating to banks the value for them in offering financial education services, so that they may adopt and continue such exercises in the future, and so that other banks may explore similar efforts, too.

For more information on Financial Inclusion 2020, sign up for project updates.

Sarah Hugo is a Project Manager at Developing Markets Associates (DMA). DMA is a consultancy firm specializing in remittances and financial inclusion with offices in London and Sydney. Over the past two years Sarah has managed a series of financial education programs in the Commonwealth of Independent States (CIS). At DMA Sarah has also led on mobile money pilots in Africa, assisted remittance service providers in market entry and growth strategies, written papers on remittances for development for multilaterals, and worked with government and Diaspora on Diaspora investment. For more information about this and other projects please contact Sarah Hugo.

Image credit: DMA

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