Financial Literacy: A Step for Clients towards Financial Inclusion

These are tumultuous and exciting times for microfinance, marked equally by the stunning potential of the cell phone to change the face of financial services and disturbing reports of suicides linked to over-indebtedness. Against this backdrop, a shift in the industry is taking place, drawing our attention from the financial institution back to the client. Indicators of a renewed concern for clients include research to quantify the ‘unbanked’, rallying calls for consumer protection, and efforts to better meet customer needs with diversified products. A key driver of this change in focus is the now widely embraced goal of ‘financial inclusion’. Governments of developed economies, in G20 Summit agreements, have recognized financial inclusion and consumer protection as integral to achieving financial stability and integrity. Financial access has been highlighted as a ‘key accelerator’ to meet the Millennium Development Goals. Key to attaining this laudable goal is financial education (World Savings Bank Institute, 2010). Financial inclusion is a multi-dimensional, pro-client concept, encompassing better access, better products and services, and better use. Herein lies its challenge – without the third element, use, the first two are not worth much. Technological innovations are bringing both new customers, potentially including millions of unbanked cell phone owners, and new service providers –a diverse array of retail outlets, telcoms and others – into the market. Diversification of products and services has already resulted in rich, and complex, choices for consumers, especially compared to the early days of one-size-fitsall working capital loans. Yet, increased access and better choices do not automatically translate into effective use. The path from uptake (i.e. opening an account) to usage is still an uncharted course. Effective use is hampered by asymmetries of information and power between financial institutions and poor consumers, an imbalance which grows as customers are less experienced and the products they can choose are more sophisticated, 4 an imbalance which holds real potential for negative outcomes due to institutional abuses or ill informed client decisions.

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