> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities

The past few decades have seen an impressive expansion of financial services to the world’s under- and unbanked populations. This expansion has not been without its challenges, including low-income customers of many financial service providers (FSPs) falling into considerable over-indebtedness¹ or signing up for services they do not use.² MFO’s own research³ and the research of others suggest that the limited financial capability of FSP customers is one of the factors behind these challenges. Hundreds of millions of people are gaining access to formal financial services with no education in basic money management principles and ways to maximize the usefulness of the new services to which they have access.4

Extending financial education (FE) to consumers is vital in empowering them to make informed decisions about the financial services they use and how they use them, including avoiding over-indebtedness and signing up for accounts they never use. But reaching the massive number of clients in need of FE in a way that is accessible and practical is a tall order. The Monitor Group report suggests it could cost from $7 billion to $10 billion using traditional, classroom-based approaches to provide education just to those who already have access now —a sum that is 10 to 15 percent of the total current asset base of microfinance institutions worldwide. If access to finance were extended to include the world’s 2.7 billion unbanked, the cost of building financial capability would rise further by a factor of at least three.

One way to deliver FE at scale and cost-effectively is embedded education. This is the process of leveraging encounters in a provider’s service delivery channels that exist primarily for non-educational purposes.

Over the past number of years MFO has been engaged in several embedded education projects, including three projects within its Consumer Education for Branchless Banking program in India, Philippines, and Zambia.5

From these projects we have learned that embedding education in the existing service delivery system of an FSP can have multiple benefits in comparison to traditional classroom training, because it:

  1. Lowers the cost of delivering education;
  2. Leverages “teachable” moments within the service delivery process; and
  3. Forces the service provider to secure and renew the commitment of front-line staff and key management personnel to educating customers, resulting in a more effective implementation process.

Embedded education’s efficacy6 rests on tested Adult Learning Principles. In particular, it gives consumers the opportunity to practice what they have learned because they are receiving their new knowledge in a context where they can apply it.

In addition, embedded education empowers front-line staff to interact with their customers in an informed manner regarding the technical use of the financial services they are providing and how a customer might use them as part of their good money management practices.

The key ingredient required to make embedded financial education work as a model is to keep the focus on the consumer throughout the process: design of the content, depth and mode of learning, packaging of tools and resources, frequency of exposure, mode of delivery, and positioning of the overall financial education program. But this focus on the consumer must also take into account the need to align the education program with the operational processes of the FSP and the priorities and interests of the front-line staff.

Embedded education is a critical tool for empowering consumers to make informed decisions about the financial services they use and how they use them. This approach to education is also consistent with trends in financial inclusion, which put clients at the center. Furthermore, as I will discuss in another blog in this series, it is consistent with improving the bottom line of FSPs.

This post is part of MFO’s new blog series, where we’ll share key learning and evidence from our current work. Next week, we’ll delve deeper into the embedded education methodology and its key elements.

Guy is Executive Director of Microfinance Opportunities (MFO). Before becoming Executive Director, Guy was a Senior Advisor to MFO and served as Principal Investigator on five Financial Diaries studies and as project leader for the development of the Financial Capabilities Index Web Portal. Guy received his Ph.D. from the University of Chicago in 1994, and subsequently worked for four years in Chicago in the field of community economic development. He then served 13 years as a Lecturer in Public Policy at the Harvard Kennedy School where he taught courses in management and microfinance. He continues to teach in Executive Education programs at the school.
Have you read?

What Is “Financial Capability”?

From Financial Literacy to Financial Capabilities: Implications for Practitioners

Financial Capability Stakeholders Join J.P. Morgan in New Solutions Lab

[1] The Andhra Pradesh crisis of 2010 alerted policy-makers to the problems of customer over-indebtedness. MFO’s analysis of MixMarket data revealed that FSPs in Latin America wrote off $800 million in bad debts in 2012.

[2] GSMA’s 2013 “State of the Industry” report stated that of the 200 mobile money deployments worldwide, only 15 had over one million active users with only 37 percent of registered users being active on average.

[3] See also Cohen 2013.

[4] See the Monitor Group’s 2013 “Bridging the Gap” report.

[5] These projects were with FINO PayTech in India, the Rural Bankers Association of the Philippines (RBAP) and Microenterprise Access to Banking Services (MABS) in the Philippines, and VisionFund and Zoona in Zambia.

[6] Tower, C. and Noggle, E. (forthcoming) ‘Zambia Outcomes Assessment’, internal document, Washington, DC: Microfinance Opportunities.