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Letting evidence lead the way to financial inclusion

The financial sector needs to be creative to enhance financial inclusion
The financial sector needs to be creative to enhance financial inclusion

It is just a few weeks ago when Malawi had a Financial Literacy Week, led by the Reserve Bank of Malawi (RBM). Great initiative! Surely, it is when one notes that in this time and age, 46 out of every 100 adults are financially excluded. In other words, they neither have nor use any financial product or service.

Yes, you heard me! We have such a group in this country. You still don’t believe me? Then read the latest 2014 Finscope Consumer Survey Report. Nevertheless, we should be smiling given that the figure has been falling over time because in 2008, it was 55 out of every 100 adults. What is saddening though is that lack of awareness on financial products and services offered by the formal finance sector tops the list of the barriers behind this financial seclusion.

Oh! Interesting further is the fact that 80 percent of Malawians don’t use mobile money because they are unaware of it. So when RBM targets financial literacy as the evil that needs to be tackled in addressing financial inclusion, we do give thumbs up! But shall we see the fruits of this initiative anytime soon? Mmmmh! Like you, we are all hoping for the best. Not that I am cynical or pessimistic, on the contrary I believe this country has the capability to achieve accelerated financial inclusion. However, we will have to look beyond financial literacy. The barriers to financial inclusion are multifaceted.

By the way, lack of awareness is not the same as financial illiteracy.

You see, I could not know of a particular financial product, but be financially literate generally—in which case the solution would be better marketing of financial products. I could know of a product, but not know its value or how to use it—the solution then would be product-linked information campaigns or well-designed educational interventions. So beyond lack of awareness and financial illiteracy, there are other barriers that need to be tackled, which include cost of banking, lack of identification especially for low income individuals, lack of savings behaviour, fear of indebtedness when one obtains a loan, especially with the high interest rates and low incomes. Talking of low incomes, imagine only 10 out of every 100 adults in Malawi are on salaried income while 41 out of 100 earn less than K10 000 a month.

Yes, a month—I mean after working for close to 30 days.

Talking of saving behaviour, research has shown that many people find it difficult to meet the savings goals they have set for themselves because of the difficulty in resisting temptation expenditures.

Talking of knowledge gaps, majority of the 23 percent percent population that runs businesses in Malawi can hardly separate business and personal cash; neither can they pay themselves a regular wage.

Instead money for their business is also for their personal pockets.

Research results, without downplaying the importance of and need for financial knowledge, point to the need to dig deeper and find out what works or does not work when designing financial inclusion programmes.

So, the question remains as to whether the many activities outlined in the financial inclusion strategy will be effective at delivering the desired expected outcomes, particularly around savings behaviour. Key to this is the need for innovation. Banks and finance industry generally need to be creative in the products they come up with.

Programmes, strategies and products adopted need to undergo an evaluation.

It is in light of the foregoing that Innovations for Poverty Action (IPA) Malawi and the Global Financial Inclusion Initiative (GFII) at IPA, in collaboration with the Bankers Association of Malawi (BAM), will today and tomorrow at Crossroads Hotel in Lilongwe be bringing reputable local and international researchers together to share findings from financial inclusion randomised evaluations conducted in Malawi and across the continent.

The bottom line is that financial inclusion is very possible in Malawi, but let evidence drive the financial inclusion agenda!

—Thomas Chataghalala Munthali, PhD is country director at Innovations for Poverty Action (IPA)—Malawi

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