Enhancing client financial capability

  • Christian HERTZ, Linklaters
  • Karen LOSSE, GIZ
  • Emmanuel MOYART, EU/ACP


Christian HERTZ introduced the topic by making a reference to the plenary earlier that day. Financial education was proven to be a key pillar for both policy makers and consumers. He stressed the link between financial education and financial returns, and mentioned that this session should provide support to confirm or contradict this link. He then gave the floor to the panellists after introducing them to the audience.

Karen LOSSE started her presentation by stating that financial capability is part of a broader responsible finance agenda. Financial capability is one of three mutually reinforcing pillars of responsible finance. The other two pillars are consumer protection regulation and self-regulation of the industry. Financial capability refers to empowering clients, whereas consumer protection regulations are addressed by regulators (i.e. the state) in order to ensure that providers of financial services are safe and sound and act within the law. If financial services providers do not adhere to the rules and consumers complain, a mandated regulator has to provide mechanisms to solve disputes and thus protect consumers. Self-regulation is the adherence of financial services providers to voluntary codes of conducts, such as The Smart Campaign. According to Losse, it is key to strengthen clients and potential clients in their financial capability, i.e. their knowledge, understanding, attitudes and especially behaviours, in order to make the best financial decisions possible. ‘Knowing' should lead to ‘acting'. Financial capability measures should not only increase skills and knowledge but lead to more and better informed decisions and improve financial well-being.

Clients' and potential clients' low knowledge of financial concepts can result in poor decisions that affect their economic well-being. Financial institutions are also negatively affected in many ways by low financial capability: low deposits, low market growth (clients choosing inappropriate products, resulting in non-repayment of loans, leading to high portfolio-at-risk and ultimately in losing clients). On an individual or household level, low knowledge of financial concepts can result in greater vulnerability to overzealous credit providers or fraudulent schemes. In the workplace, personal financial problems stemming from inappropriate financial decisions can have direct negative impact on employee productivity. According to the Personal Financial Employee Education Foundation in the US, the lack of basic financial literacy is a major reason why employees do not save for retirement.

There are many ways and different channels through which financial capability is enhanced. Measuring the impact of such measures remains challenging. Debt counselling, mentoring and money advice services have shown good results. For example, BMW in South Africa managed to substantially reduce absenteeism (caused by over-indebtedness) of employees by offering such support. Other means to improve financial capability are via the educational system and the implementation of financial education in school curricula, social marketing and public media. Examples for the latter are the use of street theatre plays in Ghana and radio shows in Uganda and Nigeria (and many other countries) that inform listeners and aim at changing their behaviour. We still know too little of the actual impact of such measures. One thing we do know from experience is that taking advantage of "teachable moments" in life works, e.g. when purchasing a house or starting a family, people are receptive to messages of financial capability. Another key path is smart product design. Products can be designed to empower clients and potential clients (e.g. by being very simple to use, easy to reach, adapted to regional or cultural contexts, etc.).

Emmanuel MOYART talked about the ways ACP/EU Microfinance has enhanced financial capability. This program started in January 2010 and finishes December 2014. The aim of the program is to contribute to poverty alleviation through economic growth via pro-poor access to finance, consumer empowerment and capacity building, equitable and efficient local markets. The key areas of support are rural finance and financial education. After the call for proposals, twelve actions were funded. Out of these twelve actions, eleven of them offer financial education with a variety of approaches. Their activities concerning educational approaches, cost management, sustainability, curriculum development and impact measurement were reviewed and assessed in 2014.

Moyart focused on the work of Fiji Fin-Ed which introduced and strengthened financial education within the school curriculum for years 1 to 12. Financial education was integrated into existing subjects so as to not increase the workload of students and teachers. In total, 200 thousand students in 910 schools have access to financial education. Students learn how to manage money, income and wealth, managing risk and financial planning.

According to CHELLADURAI, KGFS' mission is to maximize the financial wellbeing of every individual and enterprise by providing complete access to financial services in remote rural India. KGFS (i.e. Regional Rural Financial Services) have a tight geographical focus, offering access to a broad range of products. KGFS adopts a wealth management approach where they discuss households' financial position, income, expenses, household goals, and products are offered in line with wealth management principles. The process of customer engagement starts with registering all household financial and legal information in the system. A Financial Wellbeing Report (FWR) is generated from the system which contains customized financial plans for the household. The Wealth Manager then engages the household in a detailed wealth management conversation on the ‘Plan-Grow-Protect-Diversify' framework. ‘Plan' is a diagnostic process which helps the household to recollect and plan for all its current and prospective expenditures against current and planned income. ‘Grow' is a process designed to help households realize their total income potential and take appropriate action to increase their income/surplus. ‘Protect' aims to protect human capital, income earning assets and provides a safety net to avoid compromises on goals and aspirations. ‘Diversify' helps allocate funds across diversified assets and assists the household in spreading the risk and optimizing returns. The customer, with the assistance of the Wealth Manager, selects the appropriate product based on the FWR.

Chelladurai explained that this procedure assists both the customers and the financial institutions. Customers benefit as they can better understand their financial position, make balanced investment decisions, choose the right financial products, protect against unexpected shocks and improve their financial wellbeing. Financial institutions benefit as they can better understand the household risk profile, avoid misuse or oversell of products, build quality portfolios, sell more products per household, have better capacity utilization and gain local customers. According to an internal evaluation in 2013, households in KGFS service area had a more than 60% increase in average asset values, 13% decrease in average liabilities, 120% increase in household average incomes, and 72% in increase of household average expenses when compared to 2009. A randomized evaluation by Harvard and Duke University showed that the presence of a KGFS branch increases the number of formal loans by 20% per household.


The discussion revolved around financial training and marketing. When is financial training done by a financial provider considered merely training that aims to increase and enhance financial capability and when does it cross the line into becoming marketing? Hertz explained that there is a risk of conflict of interest. The panellists agreed that when a financial institution wants to promote the correct financial products for each client, it has to take into account the risk profile of that potential client. Marketing in a sense of promotion of appropriate financial products is not harmful.

The audience was interested in particular financial education curricula. The panel referred to providers such as Microfinance Opportunities and many others. Also, the ILO has curricula available on their website.

Thank you to
e-MFP for the perfect organisation of the event