SPECIAL REPORT: Realizing Potential and Minimizing Risk through Client Protection and Developing Financial Capability in Southeast Asia

ABanking With the Poor Network diverse set of panelists at this session of the Mekong Financial Inclusion Forum agreed that providing financial education can be expensive and yet often fails to produce measurable outcomes. Jayshree Venkatesan, a financial inclusion consultant, stated that “results from financial literacy campaigns are at best mixed.” Shane Nichols, Program Director for Good Return, said that the rise of randomized controlled trials has helped his organization discover that although “we used to do pre- and post-tests showing people gained knowledge…sustained behavior-change was virtually non-existent.”

Ms. Venkatesan explained that “there are a number of things that limit these efforts. They cost a lot of money. Most of these tend to be housed within a non-profit. The minute you start thinking about the scale of an entire country, it [risks being] so proscriptive that it becomes a checkbox. [The goal is] to avoid products that people don’t use – dormancy.”

Mr. Nichols argued that “MFIs have a special responsibility because they are targeting people who haven’t used financial services before. ‘Doing no harm’ is harder for MFIs than banks because, even if you don’t have a social mission, you are working with new entrants to using [formal] financial services.”

Elisabetta Bertotti, MicroFinanza Rating’s Regional Manager for South East Asia, said her organization includes a client-protection assessment as part of both financial and social ratings because it is important to the MFI’s reputation and credit risk profile.

Ms. Venkatesan argued that “it’s the financial services provider’s responsibility and the government’s…. The universe of stakeholders [engaged in developing financial capability] has to expand way beyond the financial service providers.”

Jaclyn Berfond, Specialist in Research, Monitoring and Evaluation at Women’s World Banking, said “banks tend to see financial education as a cost center. We work with them to build it into marketing – into pre-existing touch points – and to measure its results like a marketing campaign…. We think about it as quality of service, for [maximizing] customer loyalty.”

Regarding the line between impartial education versus biased marketing, Ms. Berfond argued that “there is a trust issue…. Women are more likely to accept information from someone they trust. This applies to retention in addition to information usage…. Clients tend to trust their loan officers.” Mr. Nichols agreed, reporting that in studies performed by Good Return “we saw much better adoption of practices from programs delivered by financial services providers rather than a community organization.” Similarly, Voeun Sok, Chief Executive Officer of LOLC (Cambodia), found that a “training of trainers” program administered to village leaders worked less well than having LOLC staff lead the education sessions. One problem was that the “trained” village leader was not able to answer questions well.

A representative of the United Nations Capital Development Fund’s YouthStart program found that engaging youth to train other youth worked because: (1) youth are more open to listening to youth; and (2) it was more cost effective. Ms. Berfond also described success using peer trainers in factories because this allowed people to come back with follow-up questions well after the official training period had ended.

A member of the audience, brought up a similar issue: “How do you find the point when clients need the information so that they will be motivated to learn at that time?” Ms. Venkatesan said “we talk about teachable moments. The service provider is in the best position to deliver financial education messages at the right time.” Ms. Berfond stated “we did a study of people getting frequent, short [lessons] from their loan officers. It got the savings rate three times higher…. Women are time-poor, so time-efficient methods are needed.”

Mr. Nichols described Good Return’s success targeting regions with high levels of delinquency to reduce portfolio-at-risk ratios. In a separate effort, his organization raised money from sources including a private funder in Australia and the US Agency for International Development to launch a video contest to engage youth. The winning video was broadcast to rural kids on television and radio as well as to urban youth on Facebook, where it received 30,000 “likes.”

Chandula Abeywickrema, Chairman of the Banking with the Poor Network, described his past work with Sri Lanka’s Hatton National Bank through which “we created school banks within schools. Wherever they open branches in rural areas, they partner with schools, temples and churches to teach [financial literacy]. Now there are 300 school banks after 35 years. Close to 1 million kids have savings accounts…. We have 5 million pink elephant savings banks in the hands of children…. Is this program viable? Not on a one-year payback, but on five years, yes. There are five students and a teacher that run each school bank. Many started working for the bank. This has been replicated in Africa and Mongolia.”

Regarding the business case for prioritizing financial education, Ms. Pitcaithly said it is “not just about portfolio quality, but: Can you increase your portfolio? For example, do you let people get access to a different product because they finished a class?”

Mr. Nichols asked “who suffers in the absence of financial education? If you look at [the Indian state of] Andhra Pradesh or other regions that have had crises, everybody pays.”

In anticipation of the recently announced Asia-Pacific Financial Inclusion Forum, which will be held in Hanoi, Viet Nam, on March 21 and March 22, 2017, MicroCapital is publishing this story as part of a series from the Banking with the Poor Network‘s Mekong Financial Inclusion Forum, which was held in July 2016. The Foundation for Development Cooperation engaged MicroCapital to assist in documenting the event.

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