Friday, December 1, 2023

Heightened financial inclusion, literacy important for ingredients for economic development

The financial inclusion blueprint, a product of the Making Access Possible (MAP) Botswana research and programme was conducted at the instigation of government in order to inform the financial inclusion agenda in Botswana.

The flagship roadmap lays out the national priorities for the enhancement of financial inclusion in Botswana, in order to help improve citizens’ welfare and support national objectives. The roadmap is based on the diagnostic findings contained in the MAP Botswana Country Diagnostic report, 2015, which in turn draws on in-country research and interviews, demand-side analysis from quantitative data provided by the Botswana FinScope Survey 2014 and qualitative research.

The roadmap proposes six priorities to support the financial inclusion goals being: development of a payment ecosystem; facilitation of low cost savings; development of accessible risk mitigation products; improvement of the credit market; consumer protection and empowerment; as well as national coordination.

The research demonstrates that the issue of basic access in Botswana has been largely resolved: formal access stands at 68%, with most segments having broad access to financial services – 46% of adults use more than one product category ( i.e. savings, credit, insurance and payments). However, access still a challenge in certain segments, and 24% are completely excluded, mainly in the lower income, rural and remote populations. Men have a slightly higher level of formal access (71%) compared to women (65%).

According to the research, more than two-thirds (68%) of adults are formally served – a number that is relatively high in regional terms.  A further 8% use informal services only and 24% are totally excluded. These statistics rank Botswana in the top quartile of formal access, and in the top half in terms of banked access in the African countries where FinScope has been conducted.

The research also finds that across products categories, savings and transactions are the formal products that reach deepest into the adult population (formal access of 55% and 44% respectively while lower penetration is observed for insurance and credit (26% and 18% respectively).

More than 70% of adults do not use any credit.  A similar proportion is also without any risk cover although the 26% of adults using formal insurance is fairly high compared to many developing countries. Most remitters send money through non-formal channels while 60% of adults do not send or receive remittances.

“Access in Botswana is in general quite broad, and of those who use formal financial services, the majority are broadly served, meaning they have a formal financial service across more than one product market”, concludes the research.

It is acknowledged in the report that the most perceived barrier to financial inclusion is that people do not have enough money, or their income is too low, to use formal financial services. There are also problems of lack of appreciation of the attributes of financial products, and a lack of understanding of how they operate.

It is critical to empower consumers through education and protection so that they fully benefit from finance, bearing in mind the need to maintain a cost effective approach and it is recommended that improved consumer protection can be met through the introduction of a financial ombudsman, and reorganization of prudential regulation and market conduct responsibilities across relevant regulators.

In terms of financial literacy, consensus has been growing among financial experts that developments in the financial sector of most developing countries, including Africa are continuously evolving and because of many factors, including , globalization, privatization, development in ICT and public policy initiative targeting poverty reduction through enhancing access to finance . Thus, basic knowledge in personal finance becomes an essential skill that people in developing countries need to acquire to gain from emerging developments in the financial world.

A research paper on Financial Literacy for Developing Countries in Africa: A Review of Concept, Significance and Research Opportunities posits that the recent trend in finance and economics make financial knowledge not just a convenience, but an essential survival tool because of the fact that lack of financial knowledge “leads to poor financial choices and decision, which could result in financial and economic consequences to individual, financial system and the entire economy”.

The importance of improving personal financial literacy of populations, thus, become important concern in policy making, education and financial service industry both in developed and developing countries. The need for personal financial management has gained a surging popularity following the last recession of 2008/09 that showed that the complexity of financial systems and clients’ inability to cope with has been emerging as a challenge to well-functioning financial systems.

Financial literacy has been described as people’s ability to process economic information and make informed decisions about financial planning, wealth accumulation, debt, and pensions which become increasingly important to enable individuals and households to cope with the ever growing complexity of products and services in the financial markets.

It has also been argued that financial literacy implies “a person’s minimal knowledge of financial terms such as money, inflation, interest rate, credit and others, but besides this the abilities and skills of that person to use the information in personal life, being aware of the consequences of its financial actions”.

The concept of financial literacy suggest that financial literacy is useful life skill in the modern financial world where people are responsible in their short term and long term financial decisions.  

The paper further acknowledges that financially literate clients make optimal financial and economic decisions including, savings, borrowing, investment as well as properly managing of daily money. Increasing number of empirical studies have also evidenced the role financial literacy plays in managing personal finance, both asset and liability.

“If improvement in financial literacy is needed in more developed contexts, it is even more critical for people living in the developing world in which the landscape of financial products and services is changing rapidly and people live more on the margins”, it is argued in the paper.

Financial experts also believe that “promoting financial education in Africa could have a potential impact on poverty reduction and economic growth” and the emerging positive outcomes of financial education in African countries, though few in number, are encouraged to furthering of financial education in the continent.

A research paper on The Case for the Need for Personal Financial Literacy Education in Botswana Secondary Schools authored by Gosaitse Solomon, Trust Nhete and Burman Sithole also emphasizes that personal financial literacy (PFL) is an imperative life skill that al  21st century students should have.

Their research showed that the levels of financial literacy in both developing and developed countries are very low across people of all ages. “This deplorable state of affairs has negative implications on the well-being of the populace, as evidenced by increased indebtedness, lower saving, poor planning for retirement, and the making of many poor personal financial decisions. Recognizing the potential benefits of financial literacy at both individual and national levels, many countries have started to offer financial education in their schools”, it is stated.

The authors in conclusion recommended that PFL should become a compulsory and examinable subject in secondary schools. First and foremost, taking PFL course should be mandatory at secondary school due to the question of need.

“Without proper training and discipline, people are more inclined to make misinformed decisions about the use of financial resources. We cannot rely on financial institutions that exist to make profit from the nation to provide people with financial literacy. Their aim is to make profit, and the more gullible and ignorant members of society are the most likely to be exploited. This is evidenced by the recession of 2008 and credit card companies giving the youth who just turned 18 years old credit cards in some countries”, argued the authors.


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