It is generally acceptable by authorities and scholars that financial literacy, financial innovation, consumer protection and the architecture of the financial system are the among the key levers that drive financial inclusion. These four drivers are briefly discussed in this instalment.
It is important that we understand the meaning of the term financial literacy. The Organisation for Economic Co-operation and Development (OECD) defines financial literacy as “a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing”. It is clear that financial literacy goes beyond understanding the financial terms but rather deals with attitudes and how to behave in a financially responsible manner as well.
It is important to note that financial literacy can be conceptualised in five ways as follows:
- To be considered financially literate, an individual or entity should be able to have some awareness and basic knowledge of financial terms like interest rates, inflation, savings, credit and time value of money.
- Once the knowledge is there it become important have the confidence to communicate and talk about financial concept.
- It is not enough to have knowledge about financial concept but also critical to have the skill and competence of managing personal finances. Financial literate people must have the aptitude to budget, save, invest, and manage debt.
- To complement the above, financial literacy demands that relevant decisions about finance are made all the time.
- Ability by Individuals to competently make long term plans for their future wellbeing. This includes plans for retirement, education for children, big investment, medical and funeral insurances among other issues.
It is clear that the general citizenry can not have the financial literacy without the intervention and support of the entire financial ecosystem. Absa Bank Botswana, for example has a deliberate programme for driving financial literacy as part of its Force for Good strategic focus. A lot of resources are placed in driving this element. Through its partnerships and colleague volunteerism drive the bank reaches thousands of people yearly to drive financial literacy. In addition, the bank has ReadytoWork program which, while preparing youth for employability and entrepreneurial mindsets also acts as a platform for improving financial literacy.Regulators such the Bank of Botswana play a significant part in driving financial literacy. It is a requirement that if a bank for example is to introduce a new product to the market, details of that product are clearly published in the media at least 21 days prior to launch to give the customers time to understand it. Additionally, developments such as changes in Monetary Policy Rate, inflation or exchange rates movement are widely and adequately communicated ways that promote financial and economic literacy in the economy. Broadly, innovation can be product or process oriented, with the former relating to the introduction of a new product or a significant amendment of an existing one, while the later relates to the introduction of a new way of doing things or significant process re-engineering. Without going deeper into the subject of creativity and innovation, suffice to say that scholars such as Boden (2004) identify three broad levels of innovation: combinatorial, exploratory, and transformational. Combinatorial innovation or creativity simply means two or more existing elements; units, process, products, or entities are combined to produce something new. For example, the combination of banking and insurance has resulted in an offering called bancassurance. Exploratory innovation involves exploring new avenues, spaces, and ways of doing things while transformational innovation completely revolutionaries and changes people’s conceptualisation of issues. Within the financial sector we have observed a great deal of financial innovations over the years particularly with the collaboration between financial services providers and Fintech as well as Mobile Network Operators. Mobile money has gained currency as one of the key financial innovations with Mpesa in Kenya being used by over 90% of households. In Botswana mobile money as offered by MyZaka, Orange Money, Poso Money and Smega has witnessed phenomenal growth over the years with almost 70% of the population using the services.In many markets, it has been noted that one of the potential deterrents of financial inclusion is the fact that consumer rights are not fully understood and not entrenched fully. Minimum standards of consumer protection ought to be in place if financial inclusion is to be fully embedded. Different jurisdictions have put in place some of the following as ways of consumer protection:
- Promoting consumer rights.
- The creation and maintenance of customer queries, complaints, and grievance handling mechanisms. This is not the preserve of regulators along, every player in this space has a role to place. Absa Bank Botswana has a mechanism of addressing customers queries and complaints. This ranges from availability of a its staff, branches, a fully-fledged contact centre and social media platforms through which customers can provide feedback as well laid out standard times regarding the timeframe that complaints ought to be resolved.
- Fair treatment of customers.
- Inculcating customer confidence and trust in the overall financial system.
The manner in which customer’s complaint is addressed has a bearing on their continued patronage of any business. Fair treatmnet is what customers demand and if this human justice is not available in financial institutions, people tend to avoid patronising the various service providers. Therefore, absence of positive treatment assist in excluding people from the financial system. The architecture of the financial system in any country is critical to the achievement of full inclusion. A stable and well-developed financial systems architecture plays a crucial role in driving financial inclusion by providing the necessary infrastructure, regulatory framework, and services to ensure that all individuals and businesses have access to financial products and services. For example, a stable financial system builds trust among users through effective regulation, oversight, and consumer protection measures. Ensuring the security of financial transactions and safeguarding customer data are essential to encouraging people to use formal financial services. Additionally, the government and regulatory bodies play a key role in creating policies that promote financial inclusion. This can include regulations that encourage competition among financial service providers, support for innovation, and initiatives to reduce barriers to entry for new market participants.A stable financial system can withstand economic shocks and maintain the continuity of services, which is essential for maintaining public confidence and ensuring that financial inclusion efforts are sustainable over the long term.Finally, a well-developed financial system promotes interoperability among different financial service providers and platforms. This allows for seamless transactions across different networks and enhances the overall efficiency and convenience of financial services.*Dennis Mambure, Head of Marketing and Corporate Relations, Absa Bank Botswana
