Financial Literacy

For Risk Management

In Financing Agriculture
Expert Meeting
Managing Risk in Financing
Agriculture
April 1 3, 2009
Johannesburg, South Africa
Mr. Charles Mutua




www.sccportal.org
The Swedish Cooperative Centre (SCC)
was founded in 1958 by the Swedish
cooperative movement.

The overall goal of SCC is poverty
alleviation, which is expressed in the
organisations vision of
a world free from poverty and injustice.
SCC
SCCs priority sectors and cross-cutting thematic
areas
Rural
Finance
Housing
Finance
Micro-
insuranc
e
Financial
Educatio
n
Where we are:
Presentation Outline
What is Financial Literacy?
What is Financial Literacy is not
Why Financial Literacy?
Justification
Importance
What Risks?
Financial Literacy along the Value Chain (VC)
FL Methodologies & Approaches

WHAT IS?
Financial literacy is the ability to process financial information and
make informed decisions about personal finance
(Asian Development Bank)

Financial Literacy is a situation which empowers consumers to
make informed decisions (skills, attitudes, knowledge and
understanding) enabling the consumer to act accordingly

Financial literacy/education seeks to strengthen and change
behaviors that lead to increased incomes, better management and
protection of scarce assets, and effective use of financial services
(Microfinance Opportunities)

It uses Adult learning principles and practices
Brings learners own experience to a learning event

What is not!

It is not Marketing (publicity, sales or
advertising)
Financial Literacy is not just raising of
awareness and providing information
Why Financial Literacy?
Justification:

Kenya for example: 38% of the
population is excluded from financial
services (unbanked). Only 19% uses
financial services from formal
institutions like banks, 8% uses semi-
formal institutions (SACCOs) while
35% uses informal systems (ROSCAs,
ASCAs etc)
(Financial Access in Kenya 2007, FinAccess)

South Africa: Only 34% of survey
respondents knew the correct word to
describe annual price increases. (ECI
Africa 2004, FinScope)
Formal
19%
Formal Other
8%
Informal
35%
Excluded
39%
WhyContd

Importance:

At the individual level - the lack of financial literacy makes people
more susceptible to the devastation caused by emergencies, over-
indebtedness, over-zealous retailers or fraudulent schemes

At the institutional level - the lack of financial literacy generates
misinformation and mistrust of formal financial service providers

Misinformed consumers make poor clients, who in turn represent
increased risk for financial institutions and contribute to a weaker
bottom line.

At the market level - uninformed consumers cannot play a
developmental and monitoring role in the market to weed out bad
practices and providers.
Financial literacy is a win-win proposition for clients and institutions

An informed customer is a good customer
What Risks?
Production Risks
Credit risks
Payment/Sales Contract Risks
Price Risks
Currency Risks
Diversion Risks
Buyers Risks


Non Compliance/Client Integrity
Customer Performance Risks
Transactional Risks
/ Payment Risks
Country / Political Risks
Warehouse Merchandise
Risks on value, quality..

Inherent Risks in
Financing Agriculture
Associated Risks
F
i
n
a
n
c
i
a
l

L
i
t
e
r
a
c
y

Financial Literacy Along the VC Flow
Medium and Large
Exporters and
Wholesalers
Processors
Collector/Traders
Farmers & Producer Groups
Input Suppliers
F
i
n
a
n
c
e

a
n
d

S
u
p
p
o
r
t
i
n
g

S
e
r
v
i
c
e
s

Savings
Investments
Credit
Banking Services
Risk Management
(i.e. Insurance)
Planning
Etc.
FL Methodologies


Speeches and discussion forums
Radio and TV programs
Articles and advertising campaigns
Print material (posters, leaflets)
Competitions
Expositions
School events
Road shows

Study Circles
Organized visits to financial institutions
Involvement of multipliers
(e.g. priests, trade unions, teachers)
Training of trainers
Mentoring, use of corporate volunteers
E-platforms
Awareness and Information Learner-Centered
Learner Centered Methodology: Key Principles
that must be taken into account
Relevance
Dialogue
Engagement
Learning must involve
learners through discussion,
small groups and
learning from peers
Immediacy
Learners must be
able to apply the new
learning immediately
20/40/80
Rule
We remember
20 percent of what we hear,
40 percent of what we hear and see,
80 percent of what
we hear, see and do
Cognitive, Affective,
and Psychomotor Interaction
Learning should involve
thinking and emotions
as well as doing
Respect
Learners need
to feel respected
and like equals
Affirmation
Learners need to
receive praise, even
for small efforts
Safety
Learners need to feel
that others value their ideas and
contributions, that others
will not belittle or
ridicule them
Learners learn
best when
drawing on their own
knowledge and
experience
Learning must be two-way
Adapted from: Adult Learning Principles and Curriculum Design
for Financial Education, MFO, FH, Citigroup
Approaches:
At the Individual &
institutional level
Choose a sustainable
methodology (one-on-
one, TOTs, study guides
etc)
Develop/adapt a relevant
curriculum e.g. Swedish
Cooperative Centre, Financial
Literacy Study Circle Guide

Learning together practically!
You reap what you sow!
Basic Record Keeping!
Contd
At the country level
Craft national strategies for financial literacy
Create partnerships
Integrate financial education and insurance in
curricula of public education system
Code of Ethics, e.g. Uganda Microfinance
Financial literacy emphasis days/months using a
combination of instruments
Target group specific activities (children, youth,
women, entrepreneurs)
Indirect learning as part of other campaigns (health,
finance in general
Approaches: Kenyas Example (Adapted from: Financial
Education in Kenya, FSD Kenya, MFO, 2008)
Actors
oGovernment (Ministries)
oRegulators and supervisors
oPublic learning institutions
oParastatals

Roles and Responsiblities
oPolicy development
oPolicy enforcement
oFacilitate entry (to schools)
oDisseminate information
oAssess impact
oStaff time and funding

Actors
oIndustry players and their
onetworks
oCivic institutions (NGOs,
churches, consumer
oprotection associations)

Roles and Responsiblities
oLeveraging client base
oIncorporate FE activitites
into service delivery
oHost FE Programs
oStaff time and funding (CSR)
oFinance FE campaigns

Vision
Champion FE initiative;
maintain singular focus;
maintain neutrality &
credibility;
quality control on content;
market FE to stakeholders;
policy advocacy;
identify and co-ordinate
working groups,
facilitate research and
monitoring and evaluation
activities

Financial Education Partnership
(Public/Private Partnership)
Contd
At the global level
International Network on Financial Education
www.financial-education.org
Yearly conference: www.FinancialEducationSummit.org
Global Training Program: www.GlobalFinancialEd.org
Financial Education Fund (FEF) - FEF is a new fund
which will support innovative projects in Africa that
improve financial capability: www.genesis-analytics.com
Working group Insurance education
www.microinsurancenetwork.org
Merci! Gracias! Ke a
Leboha!
Ngiyabonga! Ndoliboa!
Nakhensa!
Thank You!

Mr. Charles Mutua
Senior Programme Officer Financial Services
Swedish Cooperative Centre & Vi Agroforestry
Regional Office for Eastern Africa
P.O. Box 45767 00100, Nairobi, Kenya
Tel: +254 20 4180201/37
Fax: +254 20 4180277
Web: www.sccportal.org
Email: charles.mutua@sccroea.org