ZIMBABWE is credited with one of the highest literacy rates in Africa, estimated at over 90% of the adult population.
However, despite such endowments and accolades, the country also suffers one of the lowest rates of financial inclusion in Africa as revealed by results of the two Finscope surveys conducted by the Finmark Trust in 2011 and 2012.
The enlightening, but saddening statistics about the state of financial inclusiveness in Zimbabwe have ignited some serious debate among stakeholders in the financial system, chief among which are the banks who form the core of the financial sector.
A brief recap of some of the matrix unveiled by the surveys were that as much as 43% of small-and-medium enterprise (SME)s owners (1,2 million) in Zimbabwe are financially excluded, ie they do not use any financial products or services (neither formal nor informal) to manage their business finances while only 50% of SME business owners (1,4 million) have access to or use of informal mechanisms to manage their business finances.
A mere 18% are formally serviced by both banking and other formal non-banking products services while only 14% of SME business owners or about 382 000 were banked, ie use formal financial products and services offered by a commercial bank.
A large majority of SMEs were identified not to use or have a bank account for business purposes and only 3% were found to use a bank account in the name of their business.
Whilst financial exclusion is mainly driven by lack of access to financial services, economists have also set out a very clear causal link between the level of financial literacy and the extent of financial inclusion in an economy. In other words, people maybe financially excluded due to lack of knowledge about the services and sometimes due to fear and uncertainty bred by individual or social attitudes to using such services.
Therefore in facing the financial exclusion challenge head on, the key role players in driving financial inclusion must also address the aspect of financial literacy.
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Fortunately, financial inclusion has fast emerged as a priority area for Zimbabwe’s banking industry as part of its broader agenda for financial sector development.
The banks and other stakeholders now have initiated an increasing level of discourse aimed at coming up with a comprehensive framework to improve access to and usage of formal financial services.
In this regard, there is an important realisation that financial markets can hardly develop in the long run, when all stakeholders are not well informed and educated to understand the functions of financial institutions, the instruments and products available and how they work.
Therefore to achieve long term growth in the financial services sector:
- Financial education must be used to empower the population to understand the financial markets and uses of the various products and services on the market.
- Financial capability must be promoted through education as an essential life skill from an early age through the integration of financial education into the formal curriculum at schools and higher learning institutions.
- Enhanced financial education will increase the participation of all segments of society in the financial system, bring critical economic players such as SMEs under the ambit of banking.
The importance of promoting financial literacy As a developing region, the financial systems in most African countries including Zimbabwe have serious limitations, because beneficial financial services are available only to a minority of people. Promoting financial literacy is an active tool to enhance financial inclusiveness.
In the most basic terms, financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more money, etc) and how that person donates his or her money to help others.
More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. Financial literacy has therefore emerged as a focus area for policy makers and bankers not just in Zimbabwe, but all across the globe, particularly in developing regions .
The absence of financial literacy has been recognised to lead to making poor financial decisions that can have adverse effects on the financial health of an individual or business or even a whole economy. Being financially smart! Most economic literature often use three terms — financial literacy, financial education, and financial capability — whose overlap often causes confusion.
They are, however, distinct pieces of the financial inclusion puzzle, parts of the whole, or steps towards the goal of financial inclusion.
The bankers’ view of financial literacy is associated with the consumer who has a responsibility to inform himself of the products he purchases and to understand the contracts he signs.
It incorporates knowledge, skills and positive attitudes about money, saving, investment and credit.
Financial education is a key tool to reach this multidimensional goal.
Financial capability, on the other hand, is about the context; it engages the financial services sector in its responsibility to offer the right products to its various target markets. It incorporates the various elements of responsible finance, responsible lending and promoting consumer awareness and rights.
Financial inclusion as a working whole implies profitable alignment of supply and demand, where financially literate consumers have opportunities to apply their knowledge in a marketplace of appropriate product options.
Therefore financial literacy is not a simple term, but one that defines “a combination of financial awareness, knowledge, skills, attitudes and behaviours necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.”
Financial literacy is expected to impart the wherewithal to make ordinary individuals into informed and questioning users of financial services.
It is not just about markets and investing, but also about saving, budgeting, financial planning, basics of banking and most importantly, about being “Financially Smart”.
Clive Mphambela is a Banker. He writes in his capacity as advocacy officer for the Bankers’ Association of Zimbabwe. For your valuable comments and feedback related to this article, he can be reached on 04-744686, 0772206913, or [email protected].
