You are currently browsing the tag archive for the ‘A Change in Behavior: Innovations in Financial Capability’ tag.

> Posted by Elisabeth Rhyne, Managing Director, CFI

Client of Akiba Bank in Tanzania

Around the world today, financial service providers, technology entrepreneurs and policy makers are engaged in building a financial system that reaches out to previously excluded people, such as lower income people, very small businesses, rural dwellers, and women. Although this work is carried out in the name of the consumer, all too often, scant attention is paid to the real needs and desires consumers and very small enterprise owners have.

With that in mind, here is a thought experiment. A thought experiment is an “exercise of the imagination used to investigate the nature of things.” The question for this experiment is this:

Imagine that consumers were the creators of the inclusive finance system. What would such a system look like?

What characteristics would emerge if the needs, desires and preferences of the target customers of financial inclusion were the driving force to shape their services? The observations here are drawn from consumer research conducted or commissioned by the Center for Financial Inclusion, including research in Peru, Pakistan, Georgia and Benin for the Client Voice project of the Smart Campaign, in Kenya and India for our project on financial health, in India and Mexico for our study of financial capability, and again in Kenya and India for two CFI Fellows’ projects on the role of human touch in the digital age. I offer ten propositions based on this research.

Read the rest of this entry »

> Posted by Hannah McCandless, Program Support Associate, Village Enterprise

Through its one-year graduation program, Village Enterprise provides business and savings training, access to savings groups, seed capital, and mentoring to rural East Africans living in extreme poverty. The program combines these grassroots interventions with linkages to financial institutions, increasing the financial capability of the extreme poor. In the second part of this series, Village Enterprise reflects on some of the learning gained through these interventions, focusing on amplifying progress made at the grassroots level through linkages to formal institutions.

The adoption of attitudes, habits, and behaviors needed for healthy financial decision-making is an essential first step in preparing individuals to be consumers of financial services. But just because households regularly save money or understand the risks of microloans does not necessarily mean that they are ready to evaluate and take-up formal financial services on their own. To be effective, financial inclusion interventions for those living in extreme poverty, at the base of the pyramid, need to both foster financial capability and facilitate healthy linkages to financial institutions.

Recognizing this need, Village Enterprise is working to establish linkages between our Business Savings Groups (BSGs, our version of VSLAs) and formal financial institutions. However, as we have learned, linking our BSGs to the right financial institution is easier said than done. We have found that creating healthy linkages is a multi-step process, rather than a one-time event.

Read the rest of this entry »

> Posted by Hannah McCandless, Program Support Associate, Village Enterprise

Through its one-year graduation program, Village Enterprise provides business and savings training, access to savings groups, seed capital, and mentoring to rural East Africans living in extreme poverty. In part one of this series, Village Enterprise reflects on some of the learnings gained through these interventions, focusing on facilitating behavior and attitude change to increase financial capability.

In a recent CFI blog post, Robert Stone of Savings at the Frontier reflects that technology can serve as a valuable tool, but not a silver bullet, in the quest to improve well-being through expanding financial capability. As tech-thinker Kentaro Toyama notes, “Even in a world of abundant technology, there is no social change without change in people.” Toyama’s words resonate with Village Enterprise’s approach to financial inclusion for the extreme poor. Stone argues that effective change will occur when interventions that create change in people are connected to systems that amplify the effectiveness of these changes. This is a good description of what Village Enterprise is about.

Village Enterprise’s graduation program instills behavior change in people by providing a package of supports that enable them to move forward: access to savings networks, an asset transfer, skills training, and mentoring. Then, we capitalize on these changes by connecting participants to formal financial services. The combination of these services dramatically increases financial capability–the knowledge, skills, attitudes, and behaviors needed to facilitate healthy financial decision making–in the extreme poor.

Capitalizing on behaviorally informed practices

Read the rest of this entry »

> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

Those who work in the financial inclusion space need a deep understanding of how low income people manage their money, and there is no better guide to develop this understanding than Ignacio Mas, who recently spoke at the Africa Board Fellows seminar in Cape Town. Here are some of his insights.

Unused money is vulnerable if you are poor. You have to protect it from a lot of things – theft, friends and family, and, also, your future self… (Let’s not underestimate the threat of the future you as someone who has the most access to, and authority over, those funds.) And there is no saying how resolved you will stay toward your savings goals. One way to protect any unused money against these threats is to make it less liquid. For example, you could convert your savings into a goat. In many countries, a goat can be sold if an emergency should arise, but you certainly wouldn’t sell or trade it to make an impulse purchase. Or as the vendor I just bought holiday jam from put it: “Making jam is like forced savings for me. I spend it in the summer on jars and sugar and fruit and get it back in December for Christmas shopping money!” These are examples of self-nudges that enable clients to better stick to their goals – one of the seven behaviorally-informed practices for financial capability. These approaches create behavioral roadblocks, so that individuals are able to save with less effort.

Read the rest of this entry »

> Posted by Camyla Fonseca, Knowledge Management Analyst, International Labour Organization

Remember when you were a kid, and your father lectured you about the value of money when you asked him to buy you the new videogame your friend just got for his birthday? You certainly don’t remember how much the videogame actually cost, but you can probably still hear your father’s voice saying money is hard to earn and shouldn’t be spent without caution. Your father may not know, but he used a teachable moment to transfer you some of his knowledge. These are instances when we are more likely to remember something because it was taught when we needed to use that information and hence were most likely to be engaged. A good teacher can leverage or perhaps even create teachable moments by adapting the lesson to the situation.

In the area of personal finance, teachable moments usually occur when someone is taking a financial decision or using a financial service. As a recent report published by the Center for Financial Inclusion notes, individuals are more likely to change their financial behavior or recall information if it is conveyed during these teachable moments. This insight has clear implications on the way financial education interventions are designed. Interactions that happen along precise moments in a financial service provider’s value chain may be more effective than traditional stand-alone classroom interventions. And, financial service providers, due to their repeated interactions with clients at crucial teachable moments, are in a unique position to contribute to financial capability efforts. Every customer touch point is a teachable moment.

Read the rest of this entry »

Jayshree Venkatesan is a financial inclusion consultant focusing on innovative delivery models to serve the excluded. As part of the CFI’s recent financial capability-building project, Jayshree conducted a review of financial capability in the Indian context. India’s market is rapidly changing, with the influx of new banking licenses, government programs, technologies, and providers. In this podcast Jayshree discusses the state of financial capability-building in India, and in the post below, she offers some additional thoughts.  

Recently the Reserve Bank of India (RBI) put forth draft guidelines on licensing universal banks. The RBI had already put forth a call for universal bank license applications and issued in-principle licenses to two applicants who then formed banks. In an industry where obtaining a license has not been seen as easy, the issuance of these guidelines is an unprecedented move and one that clearly aims at solving supply side challenges of financial access. In the last two years, competition between institutions has already begun increasing with the provision of the two universal bank licenses, 11 payment bank licenses, and 10 small finance banks. If one were to consider perfect conditions of demand and supply, this would be a fantastic situation and one would assume that the era of the customer had finally arrived. However, India also has one of the highest account dormancy rates in the world. Uptake and usage of financial services, especially those where usage is traditionally contribution-driven, such as insurance and savings accounts, continue to be low. For financial service providers, such behavior fails to build a strong business case.

Read the rest of this entry »

> Posted by Gabriela Zapata, Independent Consultant

A Spanish-language version of this post immediately follows the English version.

With so much hype around and support for financial education initiatives in Mexico in recent years, CFI’s and JPMorgan Chase & Co.’s project on innovations in financial capability-building provides a great opportunity to see who is actually moving the needle (or not) in favor of developing financial capability in Mexico.

Here, the terms financial capability and financial education are often used interchangeably. While the ultimate aim of these closely related efforts is to enable people to make informed and better decisions around financial products and services, the positive behavior change that is sought from these efforts, with very few exceptions, is neither clearly defined from the outset nor measured.

Most initiatives in Mexico fall under what I would call “classic” financial education, focusing on information dissemination, either classroom-based or online, primarily on generic topics (e.g. savings, credit, insurance, interest rates, credit card, etc.), money management, and budgeting/planning. Unsurprisingly, it is much easier to account for their activities and outputs (e.g. type and number of courses and materials developed; number of courses given; number of attendees) than to measure their impact on decision-making. Only a few undertakings measure knowledge acquisition or learning levels right after the intervention, and they have no way of knowing how, in practice, the learning informs consumer decision-making going forward.

Read the rest of this entry »

> Posted by IFMR Trust

The following post was originally published on the IFMR Trust blog.

In this blog post we interview Elisabeth Rhyne, MD, Center for Financial Inclusion, Accion, and co-author of the recently published study A Change in Behavior: Innovations in Financial Capability.

Your paper is the result of a global search for innovative approaches to building consumer financial capability. Financial capability is not a well-known concept. What does it mean?

We define financial capability as the knowledge, skills, attitudes and behaviors a person needs to make sound financial decisions that support well-being. The financial capability approach stems from the research that reveals an important gap between knowing and doing. We may know that savings is important, but we spend instead. Financial capability focuses on behavior change as well as the desired outcome: customer financial health. This approach contrasts with traditional financial education, which has generally been focused on knowledge and information transfer, often stopping short of considering whether information is acted upon.

What prompted you to carry out your scan of the financial capability landscape?

I was reading a lot of material by behavioral economists, and so I was aware of the power of their ideas. However, I didn’t see the kind of uptake in practice that I thought the ideas deserved. I wanted to understand why this wasn’t happening. I was also aware of technology developments that opened exciting new avenues for communicating with consumers, and wanted to find the innovators – organizations like Juntos, a data analytics firm which partners with financial institutions to create personalized SMS conversations containing reminders and tips for customers.

We are also grateful that JPMorgan Chase & Co. provided generous financial support.

What were your main findings?

Read the rest of this entry »

> Posted by Julia Arnold, Financial Inclusion Consultant

thumb_BFBAB02E3F064403B0FCC73A5395DD08Financial service providers must think about their customers not just as users of their products and services, but as individuals whose behavior, and ultimately financial well-being, can be shaped by each interaction. If you’re thinking this sounds like simply passing the financial capability-building onus onto providers, hang tight.

Building successful financial capability requires moving beyond traditional modes of product delivery and financial education. In fact, it insists on marrying the two. Not only are providers optimally positioned to strengthen clients’ capability, they stand to benefit the most from capable clients. Financially capable clients are clients that are financially healthy and equipped to regularly use their products and services. Financial capability boosts the business case for serving the base of the pyramid. In our paper A Change in Behavior: Innovations in Financial Capability, the best examples from a global survey of financial capability innovations were those that figured out how to embed important information like money management within the fabric of products and services.

This can be daunting because it requires retooling how business is done. Most critically, building financial capability asks providers to rethink the customer experience. Providers must move past the assumption that customers need their services more than they need the customer (an attitude that surfaced during the very early stages of microcredit). Customer loyalty, trust, and retention are as important as the bottom line and indeed contribute to the bottom line. A number of theories and practices, such as human centered design, behavioral economics, and customer centricity, which have recently grown in popularity, embody this idea. They ask us to redirect our attention away from how a product is being delivered to who is being targeted.

Read the rest of this entry »

> Posted by Center Staff

Remember the first time you tried to cook? Chances are you were nervous or at least apprehensive about how the food would turn out. If friends or family were in attendance, or, worse, were to eat what you were preparing, you were probably even less confident. Remember the second time you cooked? Or the third? Probably not. The more you actually got into the kitchen, the more your skills sharpened, and the more routine it became.

Using formal financial services for the first time, like cooking, can be intimidating – especially for people not used to interacting with formal institutions. Banks are big and complicated. A person of moderate means might feel that the bank will treat her as a low priority customer. And the notion of entrusting one’s livelihood to an unfamiliar entity is scary.

As part of CFI’s new financial capability project, we scanned the globe for the top innovations to help clients build their capability and make sound financial decisions. One of the behaviorally-informed practices we identified among these innovations as having great promise to affect changes in behavior is learning by doing, a strategy closely connected to effective, practical learning. Think of how much quicker your capability grew by actually cooking, than by reading a cook book.

Learning by doing, whether through technology-enabled simulations, or in real life with the supervision of front-line staff, enables customers to overcome the initial barriers to use that come with unfamiliarity and lack of confidence. Learning by doing offers customers the space to learn and get comfortable with financial products. This can be especially valuable for customer activation.

Read the rest of this entry »

Enter your email

Join 2,201 other followers

Visit the CFI Website

Twitter Updates

Archives

Founding Sponsor


Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

Note

The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.