Zimpapers Logo

Sanderson Abel
Financial inclusion can be defined as the access to appropriate financial products and services needed by vulnerable groups, such as weaker sections and low income groups, at an affordable cost, in a fair and transparent manner by mainstream institutional players. So, from the financial literacy perspective, it essentially involves two elements: One of access and the other of literacy which enables usage.

Without these two, the access and ability, people are often referred to as financially excluded. People that are financially excluded might;

• Not be able to access affordable credit
• Not want or have difficulty obtaining a bank account
• Be financially at risk through not having home insurance
• Struggle to budget and manage money or plan for the unexpected
• Not know how to make the most of their money

Financial inclusion implies an alignment of supply and demand, where financially literate consumers have opportunities to apply their knowledge in a marketplace of appropriate product options.

According to the Finscope 2011 report, a large section of population still lack access to basic financial services from the formal financial sector and hence moving towards universal financial inclusion should be both a national commitment and a policy priority.

Financial education is hence an important component for promoting financial inclusion, consumer protection and ultimately financial stability.
Financial inclusion and education need to go hand in hand to enable the common man to understand the need and benefits of the products and services offered by formal financial institutions.

Financial education is the process of building knowledge, skills and attitudes to become financially literate.
It introduces people to good money management practices with respect to earning, spending, saving, borrowing, and investing.
The role of financial education is to enable people to shift from reactive to proactive decision-making and work towards fulfilling their financial goals.

By broadening people’s understanding of financial options and principles, financial education builds skills to use financial products and services, and promotes attitudes and behaviours that support more effective use of scarce financial resources.

Financial education is an important tool to help consumers to accept and use the financial products to which they increasingly have access.
Because it can facilitate effective product use, financial education is critical to financial inclusion.

It can help clients both to develop the skills to compare and select the best products for their needs and empower them to exercise their rights and responsibilities in the consumer protection equation.

Properly designed financial education is tailored to the client’s specific context, helping them to understand how financial instruments, formal or informal, can address their daily financial concerns, from the vagaries of daily cash flow to risk management.

Its power lies in its potential to be relevant to anyone and everyone, from the person who contemplates moving savings from under the mattress to a community savings group, to the one who tries to compare account choices offered by competing banks.

It spans the informal and formal financial sectors, supporting clients’ access to, and more importantly, use of, diverse financial services.
Given the criticality of financial inclusion, especially in our economy, there is need for concerted effort towards encouraging financial education programmes.
These programmes should have three broad objectives that correspond to overlapping, inter-related interests of these three stakeholders.

1)Personal financial empowerment and improved welfare;
This should target the consumer, the potential client who needs to know when and how to use appropriate financial services to save, borrow, invest and mitigate risk.
Financial literacy varies significantly among the poor, especially in relation to a financial landscape that is rapidly changing.
With increased access to more service providers and more products, people confront options they don’t always understand.

When their existing knowledge and competencies are not applicable to an ever changing financial landscape, people are limited in their ability to act.
2)Product uptake or improved/increased use
New accounts and increased account activity are obvious motivations for financial institutions to sponsor financial education.
Taken in isolation, these goals admittedly blur the line between education and marketing. Yet, financial institutions have other reasons to support financial education such as meeting their social responsibilities and building client loyalty with popular services.
Institutional efforts range from incorporating educational content into marketing materials to adding financial education delivery to the responsibilities of front-line staff.

3) Consumer protection and awareness
Consumer protection is a cornerstone of financial inclusion, levelling the playing field between suppliers and consumers of financial services.
While both have their respective roles and responsibilities, Government is the ultimate third party protector, especially in the absence of effective consumer advocacy organisations.
Governments can embrace financial education in the form of public campaigns to broadcast key messages about consumer rights.

In conclusion, there is need to understand that financial inclusion and education are closely linked concepts.
Financial education is meant to motivate the learner to understand the advantages of transactions with mainstream financial institutions and adopt available formal financial services.
Financial inclusion is thus the process of bringing people from the margin to the mainstream, linking them to mainstream financial institutions so that they become customers for banks and are able to access the full range of services – savings, deposits, loans, which banks offer.

Financial education is key to promoting financial inclusion which is a step towards customer protection as it ensures linkage with mainstream financial institutions so that the hapless borrower is not at the mercy of the informal service providers who charge notoriously high rates of interest.

Sanderson Abel is an economist. He writes in his capacity as senior economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008