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> Posted by Monique Cohen, Independent Advisor, and Founder of Microfinance Opportunities
When an Equity Bank client in Kenya was asked if she saw value in financial education, she replied without hesitation, “Yes, but I thought it was only for rich people.” Delighted with this ringing endorsement the interviewer never asked her what financial education meant for her. If she had we might have gone down a different track.
Intuitively, financial education seems like a good thing. Many experts will tell you that it or financial capability are important for achieving financial inclusion. Yet, the research tells a contrary story: financial education, building financial literacy, or financial capability interventions in developing countries have little effect on changing financial behaviors, including the uptake and usage of formal financial services. I keep asking: What am I missing in this picture? Why doesn’t it add up? With 12 years of experience in this space I would argue that there is much confusion about what financial education is, what it can do, and what we want it to do.
Financial institutions have much to gain from effective financial education, as, of course, do clients. At present, however, the field is torn between two paradigms – a money management paradigm and a product usage paradigm. Though both have merits, neither gets it quite right. I propose a more client-led perspective as a way to ensure that financial education can become more meaningful for the user.
> Posted by Elisabeth Rhyne, Managing Director, CFI
In his book, The Emperor of All Maladies, Siddhartha Mukherjee tells the history of the fight against cancer. It’s a grand saga involving scientists, doctors, patients, and politics, all wielding their best tools to find better treatments and ultimately a cure. And of course, the tale is not over: the scourge continues, though much progress has been made, and an increasing number of bright spots are appearing.
As I read, I see parallels between the evolution of that medical “war” and the struggle against poverty waged by the international development community, or at least the part of that struggle I’m part of, the struggle to give people financial tools to better their lives. The more I read, the more I see, until in each corner of the cancer story I find parallels with our own sector and its searches for solutions.
In the early 20th Century, surgeons began to treat breast cancer with radical mastectomies in which not only breast but also lymph nodes and many of the neighboring chest muscles were taken. The more radical, the greater the chances of success, went the theory. By mid-century, chemotherapies appeared. They represented another radical approach in which patients were brought to the brink of death as chemicals attacked cancerous and normal cells alike. In both cases, Mukherjee argues, brute force substituted for the absence of a deep understanding of the causes and behavior of cancer. The medical profession simply applied the tools at hand, raising the intensity as high as patients could tolerate. The tools sometimes cured the patient, but more often postponed the inevitable recurrence, a partial success. According to Mukherjee, the surgeons and chemotherapists who wielded these instruments were so convinced of their efficacy that they closed their minds to alternatives (including each other’s solutions), scoffed at attempts to measure success through rigorous trials, and downplayed the suffering imposed on actual patients.
Maybe you’re already seeing parallels…
> Posted by Eric Zuehlke, Web and Communications Director, CFI
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“I took today off because the stress is too high. I was going to borrow $200 from a friend and it fell through. I truly need it. I want to cry and can’t. I need it before the month is out. I had it and lent it to my family and I’m catching hell getting it back.”
— Tammy, age 60, U.S. Financial Diaries participant
According to the U.S. Census Bureau, the U.S. supplemental poverty rate is 15.5 percent, meaning that 48.7 million Americans live below the poverty line.¹ While poorer households face higher difficulties to make ends meet, households across the lower and middle-income spectrum in the U.S. struggle with income volatility, unplanned expenses, and finding ways to save and invest. But they also use creative ways to manage their budgets and money.
> Posted by John Gitau, CEO, Kenya Financial Education Centre
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Written in 1910, a tiny book, The Science of Getting Rich by Wallace D. Wattles has relevance today in our financial inclusion efforts.
In one of the chapters, “How To Use the Will,” the author writes, “What tends to do away with poverty is not the getting of pictures of poverty into your mind but getting pictures of wealth into the minds of the poor. You are not deserting the poor in their misery when you refuse to allow your mind to be filled with pictures of that misery. Poverty can be done away with, not by increasing the number of well to do people who think about poverty, but by increasing the number of people who purpose with faith to get rich. If you want to help the poor, demonstrate to them that they can become rich; prove it by getting rich yourself.”
These words were written at a time when the American Titans of Industry – Cornelius Vanderbilt, Andrew Carnegie, and John D. Rockefeller – were generating millions of dollars from oil, steel, and commodities trading. The existence of poverty alongside such epochal abundance must have shocked Wallace Wattles deeply. He must have also witnessed the proliferation of poverty eradication efforts through charity and noted their failure or absence of impact.
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published in the Guardian Development Professionals Network DAI Partner Zone.
When the Global Findex, an unprecedented demand-side survey by the World Bank and Gallup, was released last year, it marked the first time financial inclusion statistics from the demand side were available on a globally consistent basis. The headline: 2.5 billion adults (including 59 percent of adults in developing countries) are “unbanked” — that is, they do not have an account at a bank or other formal financial institution.
Why is having a bank account the top indicator of financial inclusion?
Setting aside the obvious point that bank accounts are among the easiest indicators to track, the policy focus on “banking the unbanked” seems to rest on the premise that bank accounts have a special role in financial inclusion. Three important functions ascribed to bank accounts are: a place to save, a money management hub, and a way to establish an ongoing relationship with a formal financial institution (an “on-ramp” to other services). These assumptions appear to underpin much of financial inclusion thinking and policy.
If a bank account is a money management tool – a central node through which a person’s financial transactions flow – it will be used regularly. This is the way most people in the developed world (and, I suspect, most financial inclusion policy makers) use bank accounts. However, many accounts in the developing world are relatively inactive. Taking the frequency with which people make more than two withdrawals per month as a proxy for operating an account as a money management hub, the following chart divides the “banked” into low – and high – activity accounts.
> Posted by Elisabeth Rhyne
I wrote a blog post on the Huffington Post a couple of weeks ago, just thin
king out loud about something which suddenly seems absolutely central to financial inclusion: money management. How do people keep track of their finances? Will people new to formal financial services be inclined to use a bank account as a money management tool? How do financially excluded people manage their money?
I was hoping to start a conversation. I even sent the post to several colleagues experts in this area. But what I got was yawns and silence.
Almost. I did get 2 comments, both from a U.S. perspective. “SirVantes137” said that the best way to help poor people with money management, including himself, was to pay them better so they would have something to manage. “Samantha is Soo Savory” referred me to powerwallet, an online money management tool, which looks pretty interesting, and very relevant to the question.
But the conversation among financial inclusion folks failed to take off, so I’m trying again. Come on, people, think about this. It’s important! Read the rest of this entry »
> Posted by Guy Stuart, Ph.D., Senior Advisor, Microfinance Opportunities
This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at ACCION International.
My work using the Financial Diaries methodology has made me very cognizant of how much cash low-income people handle daily – more cash, in real terms, than a middle-income person in a developed country handles. If we are to increase financial inclusion by increasing low-income individuals’ use of savings products, we have to find ways to channel some of the large amounts of cash they handle into those products, in ways that they value. Monique Cohen and I have written about this in our recent article “Channeling Cash: Towards a New Business Model for Low-Income Savings Mobilization.”
In the article, we first had to step back and define what we really meant by savings. In the paper, we assert that low-income people use savings for three different purposes: Read the rest of this entry »
> Posted by Guy Stuart and Monique Cohen
Rose lives in a village about 5km from the provincial town of Murang’a in the Central Province of Kenya. Her husband works in Nairobi. During the time when our diaries study interviewed her, between November 2009 and June 2010, she earned very little, less than $10 per week. But her husband sent her 29 remittances through Safaricom’s M-Pesa mobile money service from Nairobi over a 33-week period. He also brought cash home on visits. Rose contributed about Ksh.270 ($5.70) to a merry-go-round (a type of ROSCA) about 25 times during the course of our study. At the end of February her husband sent her Ksh.10,500 (about $210) in three remittances in one week. She withdrew all but Ksh. 500 in the same week and spent it on construction materials. Her husband came home that week and stayed for two weeks. He then returned to Nairobi, and on his return he sent Rose more money.
Rose is one of the 92 respondents Microfinance Opportunities (MFO) tracked during an eight-month Financial Diaries study in Kenya. This study yielded detailed transactional data that enabled us to better understand the economic lives of low-income individuals and households in two rural areas and one urban area.
The diaries also provide a close look at how low-income Kenyans actually use the now-famous mobile money service, M-PESA. M-PESA is an SMS-based mobile money transfer system owned and run by Safaricom, the leading mobile phone operator in Kenya. There are 30,000 M-PESA agents nationwide through whom people can deposit cash into or withdraw cash from their M-PESA accounts. Once they have cash in their accounts, customers can text their money to anyone in the country who has a mobile phone. The recipient can then either on-send the money to someone else or cash it out at an agent. There are over 13.5 million M-PESA accounts. The adult population of Kenya is 20 million.
As with our other financial diaries study in Malawi, and studies performed by other researchers such as Stuart Rutherford, Daryl Collins, and Orlanda Ruthven, the data from Kenya show that the poor handle a lot of cash, often more than twice their income. Furthermore, they use a wide variety of informal financial services, including intra-family loans and gifts as well as rotating savings and credit associations. Read the rest of this entry »
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