DUSHANBE, August 30, 2012, Asia-Plus — The European Bank for Reconstruction and Development (EBRD) is leading a series of financial literacy projects in several countries of operations, most recently Tajikistan and Kyrgyzstan.
According to the EBRD, the projects, which are funded by the Bank’s multi-donor Early Transition Countries (ETC) Fund, aim to strengthen the financial inclusion of remittance recipients in countries where a large part of the population depends on money sent home from abroad, and yet financial education is poor and the flow of savings to the formal financial sector is low.
An in-depth EBRD study of remittance movements in the ETCs revealed that even though most recipients in the ETCs collected their money at a financial institution, only 10-20 per cent of them had a bank account.
Consequently, a financial literacy program aimed at those receiving remittances was developed and implemented in Georgia and Azerbaijan. Here, the project involved over 18,800 and 12,500 individuals, respectively. As a result of the program, 19 per cent of participants in Azerbaijan and 12 per cent in Georgia opened their first bank account right after the training. These pilot schemes led to US$ 5 million worth of deposits in Georgia and US$ 2 million in Azerbaijan.
Based on this initial success, the program is now being implemented in Tajikistan and Kyrgyzstan.
In Tajikistan, inward remittances last year accounted for 50 per cent of GDP. At the same time, the World Bank’s Financial Inclusion Report 2012 found that only 3 per cent of the adult population in Tajikistan had an account with a formal financial institution and even fewer kept their savings at these institutions.
Awareness of sound financial management and of the use of financial tools, such as budgeting and having savings, can help to make a person financially independent. Furthermore, financial education can help to strengthen the banking system, which in the ETCs is still developing, as well as increasing the relatively small size of the deposit base within banks.
Therefore, the financial inclusion project aims to establish a relationship between banks and remittance recipients by: 1) increasing the level of financial literacy of remittance recipients and promoting a culture of saving via the formal banking system through targeted training; 2) making remittance recipients comfortable with the idea of having a bank account or using other banking products; 3) training bank staff about the link between remittances and banking, and providing feedback on the profile of remittance recipients as a potential customer base, their current financial behavior and preferences; and 4) advising banks on the role they can play to increase financial literacy and on measures they can take to attract the “under the mattress” savings of remittance recipients into bank accounts.
This financial education model has been successfully implemented worldwide, particularly in the Americas, Central Asia and the Caucasus. In all places the projects are extremely well received by the banks and participating remittance recipients.
In Tajikistan, financial education sessions for the benefit of remittance receivers have been taking place for over six months. 20 financial consultants have been working in Tajikistan with five local banks: Agroinvestbonk; Amonatbonk (Tajikistan’s savings bank), Eskhata Bank, FirstMicroFinance Bank and Tajik Sodirot Bank (TSB).
Due to the regulatory environment in the country remittance recipients can only collect their money by visiting a bank branch, where the consultants offer them one-to-one, independent and free financial advice.
Results so far are very encouraging. Between December 2011 and May 2012 more than 23,000 people were reportedly engaged in financial education activities in Tajikistan. 59 per cent of remittance recipients in Tajikistan who took part in the training had never budgeted nor had any savings.
70 per cent of Tajik respondents reported they did not have enough money to use financial products.
According to the participating banks, as a direct result of the financial education projects 1,169 accounts had so far been opened in Tajikistan and a total of US$ 2.45 million deposited (with an average deposit size of approximately US$ 2,000).
Not all remittance recipients who took part in the financial education bought a financial product right away. However, a large percentage of them indicated that they were interested in buying some of the products they were introduced to (for example, a current account, child savings or term deposit) and would start to save if they were not already doing so. Around 75 per cent of participants indicated that they would use taught methods to start or increase savings and 38 percent of participants indicated that they planned to open a bank account in the near future.
Financial consultants have clients returning to them regularly to discuss their financial practices and help them identify how they can change spending habits to start saving. Those potential customers engaged in consultancy sessions appreciate the one-to-one approach. And the fact the bank consultants are independent adds credibility to the information disseminated and helps to build trust.
All of the participating banks are extremely supportive of the project and as a result they are keen to improve marketing and financial products to attract remittance recipients.
Many are planning to run the project on a wider basis and Developing Markets Associates (DMA) will be providing bank staff “training for trainers” to ensure sustainability.
The project is managed by DMA.
