Financial Sector Development in Africa: Opportunities ... - World Bank

24 Jarotschkin
In six different loan facilities, Equity Bank offers loans from K Sh 1,000
to over K Sh 10 million with competitive interest rates and flexible
repayment rates. A special feature of Equity Bank loans is that it also
provides other discounted services, such as access to business improvement
training and the chance to network with other business start-ups
(Equity Bank 2010; for more details, see table 1.2).
Being proactive: financial literacy training. Providing market research
and product suites that have been modified to reflect the results of that
research is not yet the end of the story. Being proactive and trying to
remedy demand constraints with financial literacy training might help
bring down barriers to banking one step further. Recently derived evidence
shows that, in the case of Tanzania, 25.8 percent of people do not
bank because of knowledge barriers (FinScope 2010b). In Zambia at least
5.1 percent do not use banks, claiming they “do not understand how a
bank works” (FinScope 2009b). This is likely to be correlated with people
who cannot afford formal bank accounts, but it might also have to do
with financial literacy issues. At least a percentage of people will not
know about the possibility that they can access or be denied finance
because they have insufficient knowledge about the potential benefits of
accessing financial services.
Financial literacy training is costly, but it helps MFIs to strengthen their
current client base, as well as build up a future one by increasing banking
knowledge and trust in financial services among their customers, going
against a “banking-is-not-for-me” sentiment that many people now hold.
In particular, this is true for women for the reasons mentioned above.
Women in Africa are less likely to make financial decisions because these
decisions are mainly the province of their husbands. Of course, this is a
very general statement, and the actual situation varies by the country and
tribal context. Through financial literacy training, women might gain a
different self-understanding with respect to finance. Furthermore, current
clients are more likely to make sound financial decisions when they learn
how to factor in their economic possibilities; thus, they are more likely to
understand the consequences of overindebtedness. Looking at the current
situation and the concerns expressed by the industry (credit quality concerns
rank number one in the 2011 Banana Skins report), financial literacy
training might have the power to improve credit discipline, thus
paying out not only in the longterm but in the short-term as well.
Data compiled from surveys by the Social Performance Task Force
database (by MIX and CGAP) show that—when compared with other