Good Practices: Banking Sector

Financial Literacy

Overview

1. 
   Ensuring high levels of financial literacy is one of the most effective forms of consumer protection in the long term. Financially literate consumers are best able to understand their own rights and responsibilities, financial disclosures, and the risks and rewards of financial products. The financial literacy of the population in Tajikistan is relatively low. The household survey of financial capability undertaken in 2012 showed that consumers in Tajikistan lack the basic knowledge required to make sensible financial decisions. On average, Tajiks were able to correctly answer 4.1 out of 7 financial literacy related questions. Slightly more than half of the population was able to provide correct answers to at least 4 such questions. Nevertheless, only around 15 percent of the population was able to answer correctly at least 6 questions, and less than 2 percent answered all 7 questions correctly. Lower financial knowledge is associated with rural areas, lower educational attainment, being a woman, and not saving at an early age. Tajiks’ knowledge about services offered by financial institutions other than currency exchange offices or money transfer points is very limited.
   

2. 
   There are several financial literacy initiatives, but there is no comprehensive financial education program in Tajikistan. There are several NGOs and donors undertaking financial literacy activities, in collaboration with AMFOT, the Center for Training and Development of Microfinancing of Tajikistan (CTMT), ABT, and specific financial institutions, to train clients on financial literacy topics in specific regions of the country. However, there are no comprehensive financial literacy programs led by a government agency, the central bank, or other regulators. In addition, the Consumers Union of Tajikistan does not deal with issues in financial services, and has not been involved in financial literacy activities.
   

Comparison with Good Practices for Financial Literacy

SECTION G	CONSUMER EMPOWERMENT
Good Practice G.1	Broadly based Financial Capability Program A broadly based program of financial education and information should be developed to increase the financial capability of the population. A range of organizations, including those of the government, state agencies and non-government organizations, should be involved in developing and implementing the financial capability program. The government should appoint an institution such as the central bank or a financial regulator to lead and coordinate the development and implementation of the national financial capability program.
Description	There is no comprehensive financial education program in Tajikistan. There are several NGOs and donors undertaking financial literacy activities, in collaboration with the Association of Microfinance Organizations of Tajikistan (AMFOT), CTMT under AMFOT, the Association of Banks of Tajikistan, and specific financial institutions, to train clients on financial literacy topics in specific regions of the country. However, there is no comprehensive financial literacy program led by a government agency, the central bank, or other regulators. The Consumers Union of Tajikistan has not dealt with consumer issues in financial services, and has not been engaged in financial literacy activities.
Recommendation	The NBT should be designated as the lead agency, and in coordination with multiple stakeholders, should develop and implement a national strategy and program on financial education. The NBT could serve this role as the financial sector supervisor with a broad view of the issues in the financial sector. The NBT should then be supported by a working group consisting of a broad range of stakeholders, e.g., ministries (Ministry of Finance, Ministry of Education, and other relevant ministries), SISS, financial institutions, financial industry associations, consumer associations, educational bodies, the media, NGOs, and other relevant partners.
Good Practice G.2	Using a Range of Initiatives and Channels, including the Mass Media A range of initiatives should be undertaken by the lead agency to improve people's financial capability regarding financial products and services. The mass media should be encouraged by the lead agency to provide financial education, information and guidance to the public regarding financial products and services. The government should provide appropriate incentives and encourage collaboration between governmental agencies, regulators, the financial sector industry and consumer associations in the provision of financial education, information and guidance regarding financial products and services.
Description	There is no agency that has taken the lead in establishing a range of initiatives to improve financial capability. Government agencies, regulators, and the industry have not yet formulated a vision to work together on the financial education agenda. The NBT has not led financial capability initiatives yet, but has identified financial education as an important component of the recent Banking Sector Strategy. NBT staff has also participated in training programs organized by AMFOT. AMFOT is the most active actor in the microfinance sector undertaking financial education initiatives. After several years engaged in training staff of microfinance organizations, in 2010 AMFOT founded the CTMT, with the objectives of developing and improving the professionalism and qualification of staff of microfinance organizations and commercial banks; developing microfinance services through implementation of innovative products; and providing high-quality trainings, research and other services to the microfinance sector. CTMT’s trainings are targeted to all types of microfinance staff, including managers, directors, accountants and cashiers. Areas covered in the trainings undertaken in the first half of 2012 include ethics of business, consumer credit, and skills of working with clients. Besides financial training, AMFOT has implemented several financial education initiatives for actual and potential clients. Some microfinance organizations also organize seminars or roadshows to talk with potential or new clients about financial products and services, budget planning, and financial management in cases of farmers and micro-entrepreneurs. The State Anti-Monopoly Body reported that they sponsor a number of local workshops around the country for small numbers of individual consumers on consumer rights in general, but not specifically on financial literacy. SISS provides some training for industry staff (within the constraints of its resources) but does not have power or resources to take action to improve the financial capability of consumers. There is also a limited involvement by the media in providing information to the public about financial services. Asia Plus newspaper periodically publishes articles on personal finance topics. Some recent financial literacy projects in Tajikistan include: AMFOT partnered with the French Agency for Technical Cooperation and Development (ACTED) to provide financial education training to over 8,000 farmers in 2008 and 2009. AMFOT partnered with Development Alternatives Incorporated (DAI), a USAID contractor, to train about 2,500 farmers in the Khatlon region on improving their financial capability, maintaining records of their farm businesses, and understanding requirements for loan applications. An ongoing EBRD funded project managed by Developing Market Associates (DMA) has placed independent financial consultants in five banks providing financial training to recipients of remittances. Between December 2011 and May 2012, more that 23,000 people received financial education. According to the banks, as a result, more than 1,000 deposit accounts have been opened in the amount of US$ 2.5 Million. This project will run until September 2012. Mercy Corps has partnered with Aflatoun to develop a child financial literacy and social empowerment program for middle-school and high scholl children. They have trained student trainers to deliver trainings on budgets, managing savings, etc. In 2011, GIZ’s Microfinance and Financial Instruments Project started a Financial Literacy Improvement Initiative for households and SMEs in the Sugdh oblast. In 2012, the plan is to expand the project and conduct training for a large number of trainers in the Sugdh oblast and build local partnerships for implementation. A pilot project by Imon International (a microfinance organization) and Oikocredit (a Dutch financier of microfinance organizations) was launched in early 2012 with the objective of improving the financial literacy of low-income women. 20 trainings are planned per year, and as of June 2012, 11 trainings had taken place with 160 participating women. The trainings provide information on preparing a financial plan, managing a budget, basic information on financial products, etc. Imon International also organizes financial literacy trainings for students at the university level. In 2009 and 2010, Habitat for Humanity collaborated with the First Microfinance Bank on a “Financial Services for Rural Areas” project, with the objective to promote formal savings of remittances in the Rasht district of Tajikistan. The project designed a remittance-linked housing loan product for low-income rural families. It organized “Training of Trainers” sessions designed to build the capacity of new trainers in delivering financial education workshops on remittances and innovative financial housing products tied to remittances. Trainings included modules such as the use of remittances, saving tools, loan application procedures, and Habitat’s housing model construction. The target group consisted of about 10,000 young males in the Rasht Valley who worked in Russia and their families in Tajikistan, who rely heavily on remittances. Valley. During the project, 30 households received a loan to improve their houses with a savings component and with repayments coming from remittances. Habitat for Humanity is integrating a financial education component in all of their projects. In 2010 and 2011, the Microfinance Centre^13 in partnership with the CTMT under AMFOT^14 designed a “Plan your Future” training and counseling module with the objective of improving the financial capability of low-income households. The main activities included training of trainers of microfinance organizations to deliver financial education and delivering workshops to low-income households. 23 trainers were trained from microfinance organizations and over 500 low-income households were reached (more than 300 low-income people were trained in group trainings and more than 100 with counseling sessions), with around 40% of participants coming from rural or semi-rural areas^15. The module covered topics such as family budgeting, savings, information on basic financial products, etc.
Recommendation	A wide range of programs should be used to deliver financial education. These programs include introducing financial education in schools, in the workplace, taking advantage of “teachable moments,” setting up personal finance websites, producing publications and brochures, etc. The mass media should also be involved. Informational campaigns in the media, popular TV shows, soap operas, radio programs etc. can be used to deliver financial education messages. Experience has shown that financial education works best when delivered to adults during “teachable moments”, such as the time a consumer is interested in taking out a mortgage loan, or when the consumer receives remittances. In Tajikistan, financial education programs should be extended to migrants so that they learn about issues related to remittance transfers. Opportunities to provide financial education in schools need to be explored, as basic principles of financial literacy (such as budgeting, savings, consumer credit, etc.) should be acquired at a young age. Financial institutions can play an important role in supporting and delivering financial education programs, as long as they are trusted by consumers and if they do not mix marketing and educational messages. Often programs by financial institutions are used for marketing purposes. It is important to ensure that consumers receive adequate financial education, by avoiding mixing marketing and educational messages. The NBT should play a more active role in the coordination of financial education initiatives and in the implementation of initiatives. The NBT should also contact the media more frequently to provide objective and easy-to-understand information on financial sector issues that can be retransmitted to the general public. The NBT could also encourage coordination of financial education and consumer awareness activities among relevant stakeholders from the public sector, financial industry, private sector and civil society.
Good Practice G.3	Unbiased Information for Consumers Regulators and consumer associations should provide, via the internet and printed publications, independent information on the key features, benefits and risks –and where practicable the costs– of the main types of financial products and services. The lead agency should encourage efforts to enable consumers to better understand the products and services being offered to consumers by financial institutions, such as providing comparative price information and undertaking educational campaigns.
Description	Currently there is no regulator or Government agency that provides sufficient information about the features, benefits, risks, or comparative prices of financial products on the internet or in printed publications. The Consumers Union of Tajikistan does not deal with issues in financial services, and has not been engaged in financial literacy activities. The NBT, according to Article 44 of the NBT Law, may request from all types of credit institutions information on the “rates of interest received and paid, service charges received and paid”, among others. The same article allows NBT to publish non-confidential information submitted by credit institutions, in accordance with their nature of activity.
Recommendation	The NBT, in cooperation with other stakeholders, should develop a guide on key benefits, features, and risks of financial products. The SISS should follow NBT’s lead and develop similar guides for the insurance market. The regulators (NBT and SISS) should conduct price comparisons of financial products and publish them. They should also provide consumers with reliable and objective information on financial sector issues (e.g. glossary of terms, brochures, etc.), showing them what they should expect and what their rights are. This information should be provided on the internet and via printed publications. The NBT could publish tariff surveys or tables with information on average effective interest rates offered by all financial service providers. The tariff surveys or tables could be published online and in newspapers, along with a consumer awareness campaign to promote comparison shopping. This information could help promote transparency and competition in the financial sector. It is important that this type of campaign use different channels, including radio and road shows and visits to rural villages and community centers.
Good Practice G.4	Consulting Consumers and the Financial Services Industry The lead agency should consult consumers, industry associations and financial institutions to help them develop financial capability programs that meet financial consumers' needs and expectations. The lead agency should also undertake consumer testing with a view to ensuring that proposed initiatives have their intended outcomes.
Description	No regulator or Government institution has been actively involved in consulting with the industry or consumer associations on the development of financial capability programs. The NBT often consults with AMFOT and the Banking Association on new regulatory or legislative proposals. However, NBT does not interact with these industry associations or consumers on financial education or consumer protection activities. The Antimonopoly agency maintains closer communication with consumer associations on general consumer protection matters, but it has not undertaken educational initiatives on financial sector issues. Currently, there is no insurers’ association and the information provided by individual insurers is almost-exclusively promotional in nature.
Recommendation	It is important that all stakeholders are consulted so that they are actively involved in the development and implementation of a financial literacy strategy and program. Stakeholders will benefit from improved financial literacy, and can contribute through determining priorities, funding initiatives, developing materials, undertaking projects, etc. All initiatives should be piloted prior to implementation. The NBT should coordinate closely with AMFOT and the Banking Association regarding the development of a financial education strategy. It could benefit especially from AMFOT’s experience in financial education activities. The NBT should also invite consumer associations to present comments on legal and regulatory proposals, and to participate in financial education and consumer protection events, in order to improve their knowledge of financial consumer protection issues.
Good Practice G.5	Measuring the Impact of Financial Capability Initiatives The financial capability of consumers should be measured, amongst other things, by broadly-based household surveys and mystery shopping trips that are repeated from time to time. The effectiveness of key financial capability initiatives should be evaluated by the relevant authorities or institutions from time to time.
Description	At the request of the NBT, the World Bank organized a nationally representative household survey on financial literacy in June 2012. There have been no other nationwide financial literacy surveys in Tajikistan. A 2010 MFC study to assess the market potential for savings in Tajikistan included some financial literacy questions. Questions were designed to measure the ability to compute percentages, knowledge of the inflation rate, and knowledge of interest rates on bank deposits. The majority of people were able to compute percentages, but knowledge of the inflation rate and deposit interest rates was rather limited.
Recommendation	The results of the survey should be used by the proposed working group (see G.1 above) to inform the design of financial education programs and to evaluate them later. The results of this survey will provide valuable inputs on the main financial literacy issues of the population and inform the development of a national strategy and program on financial education, as well as the regulator’s work on financial consumer protection. Such a survey serves as a baseline for the evaluation of the financial education program. The survey should be undertaken every 3-5 years to measure the impact of financial literacy initiatives, monitor developments, and tailor financial education programs accordingly. The results should be widely disseminated and the data should be made available to all relevant stakeholders. Financial education programs should be implemented using a phased approach, starting with pilots of initiatives that, based on international experience, seem to be more effective in leading to increases in levels of financial capability and positive changes in behavior. Financial education programs should be evaluated. International experience in financial education demonstrates that increasing the number of financial education programs does not automatically lead to increases in the level of financial literacy or positive change in consumer behavior. It is important to evaluate the results of educational programs in order to identify the ones that are the most beneficial. Randomized controlled trials, using control groups as a basis for comparison against the results of education programs provided to treatment groups, provide an effective means of determining the effectiveness of financial education programs. The programs which prove to be the most effective should receive wide support and be widely publicized.