interviewBy Masato Masato
ALTHOUGH various studies have detailed the high level of financial illiteracy that haunts the national economy, Event Coordinator with Nuebrand Events Company, Julieth Meenda, in an interview with Staff Writer Masato Masato, expresses optimisms on a future financially literate Tanzania.
Various studies show high levels of financial illiteracy despite reports of booming financial sector in Tanzania. Why?
The latest Fin-Scope survey that we use as our baseline information shows that the better and higher a person is educated, the more likely they would be financially literate and use formal financial services. On the other hand, the less one is educated, the more likely to be financially excluded and financially illiterate.
So, we can point to low level and poor quality of formal education as the root cause of financial illiteracy. Incidentally, financial illiteracy seems to affect both developing and developed countries.
It is argued that part of the reasons that led to the housing market crisis in the US was financial illiteracy becuase financially literate consumers would have been careful not to accept credits they could not afford. The foregoing suggests that both the better and the lowly educated actually still need financial literacy and education.
What impact does financial illiteracy have on the national economy?
Compelling body of evidence demonstrates a strong link between financial literacy and household well-being. One of the most straightforward consequences of limited financial literacy is limited participation in the formal economy. Households that are not familiar with the workings of a bank, for example, are unlikely to open a bank account and may instead choose to keep their cash at home or invest in other avenues, which may offer unattractive returns. Consider too the participation of individuals with limited financial literacy in financial markets.
Out of financial ignorance, for instance, one may end up with an illiquid instrument that charges substantial fees to withdraw. Or borrowers unable to truly understand the terms of a loan may borrow too much, exposing themselves to risk of missing a payment and potentially incurring substantial penalties. If we have to use the US financial crisis as an example on the critical role of financial literacy, it's claimed that loans such as derivative financial products were too complex to comprehend by both consumers and the financial institutions trading them, leading to blind assumption of risks.
What should be done and by whom to address the problem?
Financial literacy education, if we have to avert the dangers of illiteracy, should remain continuous as new and more complex financial products and services enter the market. New players-- consumers and service providers--also enter the market continuously. To address the problem, both the government and the private sector should take charge, although the private sector should lead, as illiteracy, though it poses challenges, it also offers huge business opportunity.
The forthcoming financial literacy campaign initiative under the theme "Financial Services Week," fair at the Mnazi Mmoja Grounds, for instance, is one of the initiatives to address financial illiteracy. The fair will offer players in the financial sector an opportunity to educate consumers on their various products and services as well as recruit new customers.
The event will facilitate smooth entry to safe and affordable formal financial services particularly in poor performing areas--insurance, social security, savings and credit. The four-day programme will feature public financial literacy sessions on consumer protection and Small and Medium Enterprises, as well as a big tent for enterprise development sessions.
NEUBRAND has for sometimes been a key stakeholder in enlightening the public on financial matters. Do you think you have achieved your goals?
Last year we organised the first but highly successful Mobile Money Inclusion Summit, comprising a conference and exhibition and generated great public interest. Our initial plans had targeted 100 attendees but the number doubled on the first day of the conference. In 2005 our team leader was involved in organising a financial technology conference
and a key achievement was the hatching of UmojaSwitch consortium by some chief executives from commercial banks and one technology vendor. UmojaSwitch has to date more than doubled its membership from the four founding banks.
Do you foresee a financially literate Tanzania in the near future?
There is an on-going initiative among public and private stakeholders to develop a national strategy on financial education and I believe once in place, it will offer a clearer direction on how to tackle the problem, with the view of increasing the level of financial literacy. Therefore with a strategy in place, resources and time, yes, it is possible to increase financial literacy levels significantly.
Some critics argue that it's in the interest of financial institutions to serve ignorant clients whom they can deceive easily. Any comment?
I am note sure if that is true. Neither can I comprehend a board or shareholders of a financial institution sanctioning such a business strategy, because numbers tell a different story and as you will agree with me, numbers hardly deceive. The benefits of selling to an educated market segment by far out weigh the choice to sell to an illiterate clientele.
As illustrated by the several cases, firstly ,you will use less resources in terms of time and money to convince an educated market segment to buy your products, particularly so, if your products are of good quality. Secondly, one of the components that help the microfinance institutions to perform better at the low end market, that is, advancing loan products to the SME's, is the fact that, the MFI's first and foremost, offer their would be borrowers financial literacy classes before handing them the loans. As you are well aware, the MFI's have very few defaulters.
Do you have anything you wish to share with the public?
Just to call upon the public to optimise the opportunity by attending the forthcoming free financial education fair, which is not exclusive to the financially excluded but to everybody. Believe me, few people know how to calculate compound interest despite the fact that they are financially included. We also encourage active participation of the financial service providers.