Financial Literacy
For Risk Management
In Financing Agriculture
Mr. Charles Mutua Expert Meeting
Managing Risk in Financing Agriculture
April 1 – 3, 2009
www.sccportal.org Johannesburg, South Africa
SCC
• 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 organisation’s vision of
“a world free from poverty and injustice”.
SCC’s priority sectors and cross-cutting thematic areas
Rural
Finance
Housing
Finance
Micro-
insuranc
e
Financial
Educatio
n
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
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
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
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
What is not!
• It is not Marketing (publicity, sales or advertising)
• Financial Literacy is not just raising of awareness
and providing information
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
Why Financial Literacy?
Justification:
Formal
19%
• Kenya for example: 38% of the population is Formal Other
excluded from financial services (unbanked). 8%
Only 19% uses financial services from formal
institutions like banks, 8% uses semi-formal Informal
institutions (SACCOs) while 35% uses informal 35%
systems (ROSCAs, ASCAs etc)
(Financial Access in Kenya 2007, FinAccess)
• South Africa: Only 34% of survey Excluded
39%
respondents knew the correct word to
describe ‘annual price increases’. (ECI Africa
2004, FinScope)
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
Why…Cont’d “An informed customer is a good customer”
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”
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
What Risks?
Inherent Risks in
Financing Agriculture Associated Risks
•Production Risks •Non Compliance/Client Integrity
•Credit risks •Customer Performance Risks
•Payment/Sales Contract Risks •Transactional Risks
•Price Risks •/ Payment Risks
•Currency Risks •Country / Political Risks
•Diversion Risks •Warehouse Merchandise
•Buyers Risks Risks on value, quality..
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
Financial Literacy Along the VC Flow
Medium and Large
Finance and Supporting Services
Exporters and Wholesalers
Savings
Financial Literacy
Processors Investments
Credit
Banking Services
Collector/Traders Risk Management
(i.e. Insurance)
Farmers & Producer Groups Planning
Etc.
Input Suppliers
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
FL Methodologies
Awareness and Information Learner-Centered
•Speeches and discussion forums •Study Circles
•Radio and TV programs •Organized visits to financial institutions
•Articles and advertising campaigns •Involvement of multipliers
•Print material (posters, leaflets) (e.g. priests, trade unions, teachers)
•Competitions •Training of trainers
•Expositions •Mentoring, use of corporate volunteers
•School events •E-platforms
•Road shows
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
Learner – Centered Methodology: Key Principles that must
be taken into account
Learners learn
best when Learners must be Learners need
drawing on their own able to apply the new
knowledge and
Relevance Immediacy Respect
to feel respected
experience learning immediately and like equals
We remember
20 percent of what we hear, Learners need to
Dialogue
Learning must be two-way 40 percent of what we hear and see,
20/40/80
receive praise, even
Affirmation
80 percent of what for small efforts
Rule
we hear, see and do
Learning must involve Learners need to feel
Learning should involve
learners through discussion, Cognitive, Affective,
thinking and emotions
that others value their ideas and
Engagement
small groups and and Psychomotor Interaction contributions, that others
Safety
as well as doing will not belittle or
learning from peers ridicule them
Adapted from: Adult Learning Principles and Curriculum Design
for Financial Education, MFO, FH, Citigroup
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
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
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
Cont’d…
• 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: Kenya’s Example (Adapted from: Financial Education in
Kenya, FSD Kenya, MFO, 2008)
Financial Education Partnership
(Public/Private Partnership)
Actors Actors
oGovernment (Ministries) Vision oIndustry players and their
oRegulators and supervisors • Champion FE initiative; onetworks
oPublic learning institutions • maintain singular focus; oCivic institutions (NGOs,
• maintain neutrality & churches, consumer
oParastatals credibility; oprotection associations)
• quality control on content;
Roles and Responsiblities • market FE to stakeholders; Roles and Responsiblities
oPolicy development • policy advocacy; oLeveraging client base
oPolicy enforcement • identify and co-ordinate oIncorporate FE activitites
oFacilitate entry (to schools) working groups, into service delivery
oDisseminate information • facilitate research and oHost FE Programs
oAssess impact
monitoring and evaluation oStaff time and funding (CSR)
activities oFinance FE campaigns
oStaff time and funding
Cont’d…
• 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
03/04/2009 AFRACA Expert Meeting
Managing Risk in Financing Agriculture, Jo’burg, SA
Thank You!
Merci! Gracias! Ke a Leboha!
Ngiyabonga! Ndoliboa!
Nakhensa!
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