Developing Financial Literacy in Kenya: Marketing, Consumer Protection and Business Opportunities
Tuesday, 27 May 2008
Andrea Bohnstedt talks to David Ferrand, Director of the Financial Sector Deepening (FSD) Trust, about efforts to develop a national financial literacy framework and what the industry response has been. Since 2006, when the Financial Sector Deepening (FSD) Trust carried out the first FinAccess study to determine what kind of access to financial services and institutions Kenyans have, the financial sector has changed considerably, and to the benefit of smaller retail clients: Equity Bank has demonstrated that banking with this market segment can be profitable, and subsequently, other commercial banks have followed suit, reversing their previous strategy of branch closures and reaching out to new target clienteles. The Pesa Point network of ATMs has grown widely, and Safaricom’s introduction of a mobile phone banking service, M-PESA, has started a slow revolution in financial services and payment systems.

Acknowledging the momentum gained on the supply side, FSD Director Ferrand stresses the need to devote more attention to the demand side. Understanding financial services and using them wisely can contribute to individual and national economic growth. But, Ferrand notes, this also has a consumer protection angle: With the expansion of financial services, there are not just more opportunities, but also more potential for clients to take the wrong decisions.

A National Vision – with National Players

In order to gain a better understanding of how key initiatives to improve financial literacy can be developed, FSD held a workshop for participants from banks, semi and informal financial institutions, insurance companies, the central bank, ministries, the education sector and communications companies. According to Ferrand, the objective of the workshop was to talk to broadest group of stakeholders possible to develop ideas for a national financial education agenda. This and the previous workshop on the same topic met with good overall interest, but, as Ferrand cautions, the undertaking remains both broad and very complex if its is to have a tangible impact. Through the workshop, FSD volunteered to support a scoping exercise to determine how a national framework for a financial literacy strategy can be developed. Given the scope of the exercise, FSD, Ferrand says, will not be able to drive all of it, but aims to support some of the emerging opportunities: “We don’t think it makes sense to merely have a collection of small worthy exercises – which is inevitably how one starts. We have to have a long-term vision, even if over the next five years we take small steps towards this.” He stresses that any initiatives that FSD will support need to have the potential to be scaled up.

In the long term, in line with Vision 2030, a comprehensive financial literacy approach should emerge. Ferrand is aware that the success of this initiative depends on the involvement of the industry and the government: “What we do today has to contribute to this vision in the long run. If everyone has to have access to financial education, you need to bring in the big guns – i.e. the large commercial banks and governments through its ministries.” Although the overall response so far has been encouraging, this leverage has not yet happened: “We can’t engage the MDs of the big banks yet because the necessity and the advantages are not yet clear to them. We need to show them first how this can yield benefits.” In the US, he notes, much of such kind of work is financed by the financial sector, driven simply by their self interest. In Kenya, research and action research will still be necessary to determine what would deliver real value to the banks. One immediate issue that Ferrand highlights is the need to avoid overindebtedness in clients: As retail loans become more readily available, this threat increases, and could negatively affect the health of financial institutions. Therefore, getting clients to understand how to manage debt should definitely be in the interest of the banks.

Recent developments in Kenya’s financial market showed that the need for financial education and literacy among poorer people may actually surpass what FSD and similar actors had in mind: The workshop moderator, by her own admission, had a background in microfinance and did not feel confident contributing anything to the debate on stock market investment. She may have been surprised by the constant mention of the Safaricom IPO, but in Kenya, this issue had been on everyone’s mind for quite some time, despite the difficult economic environment following the violence in early 2008. Many Kenyans had sold off their assets, and taken out loans, to be able to participate in this IPO. Although there had been some attempts in the media to urge caution in the face of what had seemed like a gold rush, it became clear that a large number of people were drawn by the windfall earnings of previous IPOs, and did not really understand the fundamentals of the company they invested in nor any of the related risks.

Looking Forward: Business Opportunities

As Ferrand noted, the success of this initiative to sketch a framework to develop financial literacy framework will crucially depend on both government and industry response. If key financial sector players can be convinced that financial education and literacy development can work to their own benefit, they are likely to throw both their financial means as well as their dynamism behind the initiative, especially when tied in with their marketing activities. The Kenyan banking industry remains one of the most profitable sectors and already sponsors vast marketing and advertising campaigns.

Ultimately, this will offer interesting opportunities to research-focused consultants, communications firms and professionals to assist banks in developing financial literacy initiatives. If banks and other financial institutions to date still lack the capacities to both develop and implement such campaigns, they will look at outsourcing opportunities. Especially on the implementation side, event management firms could also offer interesting inputs.

Background on FSD:

The Financial Sector Deepening (FSD) project, funded by the UK’s Department for International Development (DFID), the World Bank, and the Swedish International Development Agency (SIDA) aims to support the development of financial markets.
The project works in o-operation with the financial services industry to expand access to financial services and generally improve the strength of the financial markets as a key actor in Kenya’s economic development. It carries out and funds research, training and communication on financial sector issues to develop policy recommendations and create a more enabling environment for competitive financial services, but also show opportunities for commercial financial institutions to expand their clientele. One of FSD’s current activities is to work with the Central Bank of Kenya (CBK) on establishing a standardised annual interest rate to make bank rates and charges comparable.

More information on FSD is available on

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