IFC Central Asia Financial Inclusion Program Manager Sakshi Varma told about financial inclusion and capability in Central Asia, key challenges individuals face in this regard, influence of social and culture norms on financial decisions and the work of IFC in this regard.
- You’ve spent the last five years working on financial inclusion and capability in Central Asia. What according to you are some of the key challenges individuals here face in this regard, and how can these hurdles be addressed?
Thank you for your question. My five-year journey toward financial inclusion and capability in Central Asia has been both inspiring and challenging. Barriers to financial inclusion do exist, as in many other emerging economies, but I believe these can be addressed through concerted policy-level actions, combined with tailored products and services from the private sector.
For example, individuals living in remote areas of the Kyrgyz Republic often have limited access to financial services because of geographical barriers and inadequate infrastructure. That restricts their ability to save, invest, and access credit. Low levels of internet connectivity and digital literacy have also hindered the uptake of digital financial services.
Informal financial practices are another issue. Many people rely heavily on borrowing from friends and family or informal savings groups, which lack the necessary legal protections and can be unreliable. This is often due to low financial literacy levels, and a lack of the necessary knowledge and skills to enable informed financial decisions, effective money management, and understanding of potential risks. Social norms can also influence financial behavior.
Addressing these challenges requires a multi-pronged approach. First, a cohesive regulatory framework is essential, along with a focus on improving infrastructure and expanding the reach of banking services to remote areas. This could involve mobile banking initiatives or establishing more accessible banking points or agent networks in rural communities. At the same time, strengthening consumer protection is vital to build trust, including enforcing transparent pricing, promoting responsible lending, and establishing mechanisms for dispute resolution.
Finally, enhancing financial education and social awareness to combat dated and counterproductive norms and practices is imperative. This can be done through educational programs and edutainment campaigns. It's not just about providing services; it's about enabling individuals to build a more secure and prosperous future for themselves and their families.
- You mentioned social norms. Why is it important to address social norms in order to enhance financial capability levels and consequentially financial inclusion among the population?
Financial capability is the ability of a person to act in one's best financial interest, given their socioeconomic and environmental conditions. It includes the knowledge, attitudes, skills, and behaviors of consumers around managing their resources and using financial services that fit their needs.
Social norms can significantly influence financial decisions. For example, women’s agency over their earnings is low in the Kyrgyz Republic, because of strong social norms. The pressure on young women to directly hand over their earnings to their husbands or mothers-in-law is decreasing, but women of all ages are still expected to prioritize their families in their financial decision-making (i.e., spending/saving), resulting in them saving in secret. Spending on events, feasts, and gifts for parties by women and youth is viewed as a way to ensure safety in social networks. Women agree individually that too much money is spent on such occasions.
Improved financial literacy and skills alone aren’t enough to change societal mindsets around financial management and independence—attitude and behavior change are key. Addressing the financial capability and needs of these groups, therefore, requires targeted interventions and concerted efforts to challenge the social and cultural norms hindering financial empowerment.
- You spoke about individuals’ financial capability and the impact of social and cultural norms on it. Can you speak more about the work your team did in this regard, and share some insights or lessons you learned along the way?
Before we could design effective financial literacy interventions, we had to better understand how social norms influenced behavior. So, we started by conducting a study to understand this, focusing on two groups in particular, women and youth. The findings enabled us to pinpoint three specific areas that needed to be addressed: i) savings behaviors—including formal and informal savings; ii) spending behaviors—including overspending on events/gifts/funerals and technology (in the case of youth); and iii) financial management—including financial planning and independence.
With this information in hand, we needed to come up with the best way to reach consumers, again focusing on women and youth. We decided on a three-part edutainment campaign comprising i) a limited (eight-episode) TV series, ii) five in-person events, and iii) two social campaigns. It was widely successful, reaching more than 3.8 million people in the Kyrgyz Republic (>75% of the adult population).
Of the three, the in-person ‘Money Talk’ events were the most effective in changing attitudes and behaviors, especially around financial management and overspending. Kyrgyz women also reported saving more following the campaign. In addition, there was an observed improvement in their personal beliefs about owning bank accounts and managing their finances, although this did not necessarily translate into practice.
- What role does the government and the private sector play in all of this? What are some ways in which IFC collaborated with stakeholders across the aisle to ensure a holistic and sustainable approach towards improving financial inclusion in the region?
Both the government and the private sector play crucial roles in promoting equitable access to financial products and services. For example, the government can establish policies and regulations that promote financial inclusion and develop financial infrastructure. To help enable this, we supported the development of the National Financial Inclusion Strategy in collaboration with the National Bank of the Kyrgyz Republic, relevant ministries, and state agencies.
Private sector support is also incredibly important. Product and service innovation can help cater to the needs of marginalized groups. So, we also worked closely with partner financial institutions and their associations to support the innovation and development of several deposit and loan products. Private sector organizations can also reach out to their clients by conducting financial literacy programs. For example, we helped develop a chatbot for consumers to ask queries about different products and services, and help improve their financial knowledge and skills.
- With an increasing shift towards digital platforms and solutions, especially post-COVID, how according to you can technology be leveraged to improve financial inclusion and capability/ literacy levels? Can you also speak of any challenges or risks that one can expect to encounter when pursuing digital solutions?
Technology can play a significant role in improving financial inclusion and capability levels. It enables financial services to be delivered through digital platforms, such as mobile banking, digital wallets, and online payment systems. These platforms can reach underserved populations, including those in remote areas, and provide them with convenient and affordable access to financial services.
Technology can also be used to develop and deliver accessible, engaging financial education programs tailored to the needs of different demographics through online platforms, mobile applications, or interactive tools.
In addition, the use of alternative data sources for credit reporting, such as mobile phone usage or digital transaction history, to assess creditworthiness, can help individuals with limited or no formal credit history access loans and other financial services. So, technology is a major enabler. For example, the team developed an innovative agent lending model that used milk collectors—with access to tablets and relevant software—as credit agents for dairy farmers living in remote areas.
However, there are also challenges and risks associated with digital solutions. For example, it’s important to ensure robust data protection measures and address privacy concerns around trust and safeguarding personal data. Limited digital infrastructure, unreliable connectivity, and low digital literacy levels can also present barriers and need to be effectively mitigated.
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