HomeOpinion & AnalysisFinancial literacy as a tool for financial inclusion

Financial literacy as a tool for financial inclusion


EMBRACING the related goals of financial capability and financial inclusion requires a multi-stakeholder framework built around consumers, the financial services industry and government.

Financial inclusion, essentially, involves two elements, one of “access” and the other of “awareness”.

Globally, economists and social scientists have agreed that the relative emphasis placed on the two elements varies from country to country.

For developed countries with widespread financial infrastructure, the access to financial products and services is no longer a matter of concern. It is more of a financial literacy issue in that market players and consumers are required to be sufficiently educated about the characteristics of the available financial products and services, including their risks and returns.

However, in developing countries such as Zimbabwe, the general access to banking and other financial products is also lacking.

Therefore, here, both the elements, ie access and awareness need to be tackled with the same emphasis. However, as the popular adage goes, “Knowledge is Power”.

Therefore improving financial knowledge through literacy assumes a greater priority.

Admittedly, Zimbabwe still has some access issues and banks are looking at innovative ways of reaching the unbanked segments and have already achieved to a small extent access” by means of brick and mortar, electronic and now mobile delivery channels. However, the results of the Finscope suveys demonstrate that access to financial services is still poor.

However, more importantly, as already noted, attitudes and knowledge factors need to be given greater priority so that to creating awareness about money and money issues (financial literacy) among the unbanked population comes high on the financial inclusion agenda.

Financial education thus becomes the nexus linking the different stakeholder interests to these common goals.

For example , non governmental and community-based organisations will use financial literacy to promote better livelihoods and asset building for the poor, integrating financial literacy concepts into a range of activities that include extension services, health education, business-development training, or mentoring.

Financial institutions such as bank use it to enhance their community profile, increase adoption and use of their products and ultimately, improve performance. Central bankers and other regulators embrace financial education as a means to protect consumers and the banking public from fraud and abuse.

Promoting financial education and financial literacy can therefore build a winning propositions at multiple levels, for multilpe stakeholders. At the individual or consumer level, financial literacy helps households to use scarce money resources more effectively.

It helps consumers choose the financial products that best meet their needs and they therefore become pro-active, empowered decision makers.

At the financial institutional level, informed consumers make better clients, lowering institutional risk and contributing to a stronger bottom line. A consumer base full of responsible borrowers makes for better credit culture in an economy. A country with astute savers, builds capacity for long term investment on the back of substantial savings reserves on household balance sheets.

At the market level, financially literate consumers are a key element in effective consumer protection; placing moral pressure on financial institutions for services that are both appropriately priced and transparent.

With such a multiple stakeholder approach, financial education begins to fill a hitherto void in the quest for financial inclusion.

Therefore, creating “awareness” in a big way needs all stakeholders mentioned above to provide a handhold support to the beneficiaries by building their capacities to better understand the importance of financial products in their daily lives.

It is for the above reason that banks will now be engaging with all stakeholders including the media in creating awareness and knowledge of financial issues as part of the greater push for financial sector development and financial inclusion.

In the next installment we will begin to delve into the basics of financial knowledge as we start a journey which begins with a brief history and the character of money.

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 clive@baz.org.zw.

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