In our first post in this series, we described the need for an approach to financial education that was both effective and scalable, and we offered embedded education as a potential solution. Our second and third posts described how the embedded education approach works and showed its potential effectiveness by describing the improved money management behavior displayed by clients in Zambia after participating in our program. We believe that these findings also revealed the potential for a business case for delivering financial education using the embedded approach.

For a business case to exist, two things have to be true: financial service providers (FSPs) need to see a positive, bottom-line impact from an embedded program and a financing mechanism needs to exist that can compete with the current grant-based model for funding financial education.

Bottom-Line Impact

Financial education can positively impact financial service providers in a number of ways (aside from knowing that they’re empowering individuals to take control of their financial lives). Offering training could improve client retention by strengthening loyalty. It could reduce customer service requests by increasing familiarity with a banking process. But our market research suggests that the biggest potential impact is lowering write-off ratios and increasing savings balances.

Using data from The MIX, we estimated that in 2012 alone, loan distributing MFIs wrote off $1.4 billion from their portfolios. And that number underestimates the total value of write-offs by a considerable margin because it only includes the almost 650 MFIs that had reported enough data for these calculations. In The MIX database alone, there were an additional 600 MFIs that did not report the data necessary to estimate losses resulting from write-offs. The sums are not insignificant at the individual MFI level either. Of the 650 MFIs for which enough data was available to formulate estimates, roughly 20 percent wrote off more than $1 million. In the largest MFIs, reducing the write-off ratio by a fraction of a percentage point could result in millions of dollars of savings in a single year. Even small to medium sized MFIs could realize hundreds of thousands of dollars in savings. Using MFO’s portfolio-at-risk results from Zambia and our cost structure as a base, we believe that many MFIs could easily afford to pay for the implementation of an embedded education program from the savings such a program could generate.

Competing with Grant Funding

A current challenge, though, is grant funding. Why would an MFI pay for an embedded education program when grant funding may be available for more traditional models instead? The answer is that grant funded programs are unlikely to be able to close the financial capability gap in the long term because they are not realistically scalable. If educational trainings are not incorporated within existing service touch points, the MFIs are forced to develop or alter portions of their organization to create a space to educate clients. Estimates of the cost of closing the gap with current educational methods already stands in the billions of dollars and the needs of clients will only increase as FSPs continue to create innovative products and push services to the bottom of the pyramid.

There is an alternative that can compete with the low-risk nature of grant funding for FSPs: offer embedded education on a pay-for-performance basis. In this model, organizations like MFO design an embedded education program for an FSP and cover the costs of designing and implementing this program in return for payments if the program meets agreed-upon performance benchmarks that the FSP values, such as decreased default rates. For example, an FSP might hire a firm that develops financial education programs to design and implement a debt management education program to decrease delinquencies and defaults. In return for this work, the FSP shares with the developer the savings it realizes from decreased delinquency and its associated costs. The FSP also enjoys the added benefits that come with more capable clients.

This approach could have significant benefits for those working to promote financial inclusion. It ensures that education programs are problem-focused – an FSP will only select an education program if it addresses a particular problem it has, and an education provider will only choose projects that generate value for which the FSP is willing to pay. The approach also ensures that a successful program will last because the FSP will have a tailored education program embedded into their operations from which they will continuously derive tangible financial benefits. For non-profits and small private organizations whose mission is to deliver high quality financial education programs, the pay-for-performance model has the potential to create a sustainable revenue stream, which will also be necessary for financial education programming to reach scale. For grant makers, this approach provides an avenue to a self-sustaining, scalable solution to addressing the financial capability gap. It weans both implementers and FSPs off grant funding for these types of projects, freeing up valuable resources for other initiatives.

The Path Ahead

Successfully implementing a pay-for-performance project is by no means easy. Issues of contracting and close monitoring take on greater precedence while the fact remains that this approach has been untried, as far as we know, in the financial inclusion space. Despite these challenges, we believe the pay-for-performance model offers a clear path toward delivering financial education on a sustainable basis at scale. Through our work, we have found no other alternative that can claim the same.

MFO has already begun to discuss implementing this model with investors, donors, and financial service providers. With the ultimate goal of expanding access to financial education, we welcome those in the financial inclusion and financial capability development fields to question and comment on this approach as we continue our work on closing the financial capability gap.

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.

As Microfinance Opportunities’ Research Officer, Eric manages consumer research projects and performs quantitative analysis for both the consumer research and financial education teams. His work focuses on understanding how low-income households manage their cash flows and their implications for financial inclusion. He is currently working on projects in Ghana, Tanzania, Myanmar, and Zambia. Eric holds a Master in Public Administration with a focus on International Development and Administration from the Maxwell School at Syracuse University and a Bachelor of Arts degree in economics and political science from the University of Nevada, Reno. Prior to joining MFO, Eric was a member of Teach For America in Denver, CO where he taught high school mathematics.

Have you read?

Embedded Education: Taking Financial Education to Scale

Design and Implementation of Successful Embedded Education

Evidence Favoring the Embedded Education Approach from Zambia

Last week we highlighted historic challenges to scaling financial education (FE) and offered the embedded education model as one viable solution. The embedded approach has the potential to benefit traditionally under- and unbanked populations and financial service providers (FSPs) alike. Of course, embedded education is about more than simply incorporating educational resources within providers’ existing delivery channels. In large part, the success of embedded education hinges on putting clients at the center of its design and implementation and understanding how financial capability is developed.

The first post in this series raised the importance of adult learning principles (relevance, dialogue, immediacy, and respect, to name a few) for the effective design of educational materials. These principles ensure that materials will reshape consumers’ attitudes and build their knowledge, skills, and self-confidence to act on their financial decisions. The approach is holistic and engaging, providing consumers with the opportunity to dialogue with others as they learn and to wrestle with their questions. The approach also provides the opportunity to apply new knowledge and skills, leveraging moments when consumers are positioned to act on what they are learning – for example, while transacting with the FSP. Finally, the approach ensures that the educational messages are reinforced, so that financial education is not a one-off event and clients are frequently exposed to key messages.

MFO’s experience over the past few years with embedded education suggests that a good embedded education strategy involves five key elements:

1. Identify existing consumer contact points that are most feasible for integrating FE;
2. Develop clear, concise, and consistent financial management messages for the consumer audience;
3. Build engaging tools to deliver messages that use the organization’s existing communication channels with consumers;
4. Empower frontline staff to be agents for sharing and reinforcing FE during real-time encounters;
5. Engage stakeholders to strengthen the enabling environment for financial capability development and help ensure that the success of FE is not dependent on one set of actors or one contact point.

To illustrate the process, let’s look at MFO’s FE program in Zambia with partners Zoona, an electronic payments platform that provides real-time payments through cash distribution channels, and VisionFund (VF), a microfinance institution. Prior to the program, VF had just switched to an electronic system for loan disbursals using Zoona’s platform. Migrating to the new electronic system proved to be challenging for VF clients who were accustomed to the old way of receiving and repaying loans, and had minimal understanding of how the new system worked. The FE program aimed to build clients’ financial capabilities by breaking through barriers related to knowledge, skills, and self-confidence to use the service appropriately as well as to increase trust in the service. The FE program also tackled basic money management topics such as tracking spending, budgeting, debt management, and saving, so clients could strengthen their financial capabilities and become more effective clients of VF.

Here’s how the embedded FE strategy worked. MFO designed a financial education strategy that leveraged existing consumer contact points and “teachable moments” within Zoona and VisionFund’s existing infrastructure. First, MFO developed eight 20-minute FE sessions that VF loan officers could incorporate within their preexisting monthly meetings with their client loan groups. Clients also received illustrated workbooks to use during the FE trainings and to help reinforce key FE messages at home. Finally, when client loan groups visited agents to collect their loan disbursements, the agents led 5-minute refresher sessions focused solely on the Zoona service, followed by a 5-minute Q&A.

The FE delivered at each customer contact point was designed to fit the context of the specific contact point with regards to the person delivering the FE, the amount of time with clients, and the physical location. VF loan officers and Zoona agents received training on how to deliver FE and tools appropriate for use at their customer contact points. The tools were designed in a simple, visually appealing manner to engage customers’ interest and facilitate clear, consistent explanations of a topic.

In addition to the client workbooks, VF loan officers used colorful, illustrated posters to support their training. Zoona agents received a set of posters that focused on the Zoona service. Each poster was made of a resilient rubberized material for hanging inside or outside the agent shop and represented a key message to convey to loan groups during a given visit. Zoona agents also received a counter sheet, a laminated visual aide that they could place on their counter to illustrate the steps for transacting with the Zoona loan disbursement and repayment system.

The effective implementation of MFO’s embedded strategy in Zambia was due to the positioning of the overall FE program within the FSP’s operational processes and by its alignment with the business objectives of VisionFund and Zoona. Frontline staff and agents are more likely to engage in strengthening the financial capability of consumers when the FE helps them achieve the outcome or the performance required for their jobs – for example, lower delinquency among borrowers or faster transactions, allowing them to serve more customers at the agent’s shop.

The embedded approach simultaneously enhances the capacity of low-income consumers to make informed financial decisions and mitigates challenges to implementation of FE for FSPs. Utilizing monthly loan meetings and client visits to collect loans allowed VisionFund and Zoona to embed educational encounters within their preexisting service contact points; doing so enabled VisionFund and Zoona to reduce costs, increase relevance to core business, and deliver FE to customers at scale. Meanwhile, VF clients received the resources they needed to make and exercise money management decisions that best fit the circumstances of their lives. By the end of the program, VF clients showed positive changes in knowledge, skills, attitude, self-confidence, and behaviors around money management and use of the Zoona service.

This post is part of MFO’s new blog series, where we’ll share key learning and evidence from our current work. We’ll focus on outcomes of our embedded education model next week, with emphasis on evidence from the program in Zambia. Stay tuned.

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.

Julie Lee is Senior Technical Advisor for Financial Education at Microfinance Opportunities. Julie designs strategies that embed financial education within organizations and build the financial capabilities of consumers. She develops tools, curricula, and trainings to fit the needs of low-income consumers and increase the capacity of the people who deliver financial education. Julie’s recent projects include embedded financial education programs for branchless banking, and the development of a national financial education strategy in Rwanda.

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