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IMPROVING FINANCIAL LITERACY AND ACCESS FOR MICRO AND SMALL ENTERPRISES

SEBON
Regulator
Feb 06, 2020
IMPROVING FINANCIAL LITERACY AND ACCESS FOR MICRO AND SMALL ENTERPRISES

Session Five broadly discussed about the Micro and Small Enterprises (MSEs) challenges regarding the access to traditional sources of finance and lack of financial skills they needed to succeed. Hence, the session aimed to look at different approaches to improve access to finance and to develop financial skills, potential for alternative sources of finance and FinTech developments, together with effective financial programmes for microenterprise.  

The panelists for the session were: (i) Dr Adele Atkinson, Head of Financial Education, OECD, (ii) Mr Keshav Acharya, Former Senior Economic Advisor, Ministry of Finance, Nepal, (iii) Mr Balaram Paudel, Programme Management Analyst, Strategic Planning and Development Effectiveness Unit, UNDP, (iv) Mr Janardan Dev Panta, Micro and Small Enterprise expert and CEO of Nirdhan Utthan Bittiya Sanstha (Pioneer of Micro Financial Institution), Nepal, and (v) Mr Sanjib Subba, Chief Executive Officer, National Banking Institute, Nepal. The session was moderated by Mr Deependra Bahadur Chhetri, Former Chairman of National Planning Commission, Nepal and Former Governor of NRB.

 Moderator:
Mr Deependra Bahadur Chhetri, Former Governor of NRB and Ex-Vice Chairman of National Planning Commission, Nepal.

Panelist:

1. Dr Adele Atkinson, Head of Financial Education, OECD

2. Mr Keshav Acharya, Former Senior Economic Advisor, Ministry of Finance, Nepal,

3. Mr Balaram Paudel, Program Management Analyst, Strategic Planning and Development Effectiveness Unit, UNDP

4. Mr Janardan Dev Panta, Micro and Small Enterprise expert and CEO of Nirdhan Utthan Bittiya Sanstha (Pioneer of Micro Financial Institution), Nepal

5. Mr Sanjib Subba, Chief Executive Officer, National Banking Institute, Nepal

The first panelist for the Session Five was Dr Adele Atkinson, Head of Financial Education, OECD and he gave an overview of 'Financial Education for MSME's. Dr Atkinson initiated her presentation by giving background of OECD. She shared how OECD has been working on financial education and financial literacy since 2002. Moving on in 2008, OECD International Network on Financial Education (INFE) was created and now it has included public institutions from over 110 countries and work stream on financial education for micro, small, and medium sized enterprises (MSMEs) was started with primary focus on micro and small enterprises in 2015. Dr Atkinson further added that urgent attention was needed to educate MSMEs about financial education and make them financially literate in order to help them make better financial decisions. Dr Atkinson in the later part of her presentation discussed about various work OECD was carrying out in the field of MSME since 2015.

          She also talked about some of the other works of OECD that were in progress since 2015. Some of these were: G20/OECD High-Level Principles on SME financing (2015): a) Principle 7 "Enhance SME financial skills and strategic vision", b) OECD working paper on “Financial Education for MSMEs and Potential Entrepreneurs” (2017), and c) OECD paper on Financial Education for MSMEs in Asia (2017).

         Dr Atkinson, as the head of Financial Education Department of OECD, shared the experiences and learning she and the team had during and after the implementation of different projects conducted by OECD. Some of the major ones were:

      • Understand the audience: Knowledge and Concept of 'Financial education' and programmes of 'Financial                    Literacy' may be universal to all the audience. She highlighted how important it was to know our audience                   before disseminating useful information about Financial education/Literacy. She further urged that one should             differentiate financial education based on size of MSMEs, their stage in the business life cycle, their current level of financial literacy, etc.

      • Enhance delivery mechanisms: Dr Atkinson pointed out some very important idea about delivery of financial             education and access to finance such as:

         a) Explore the potential use of technology (online platforms, apps, etc.),

         b) Make financial education a part of a “one-stop-shop” for MSMEs support, Combine financial education with               access to finance,

        c) Consider making the provision of financial education a requisite for intermediaries to disburse public sector                support, and for MSMEs to access it.

     • Monitor progress: Dr Atkinson shared that monitoring progress was the most crucial step after implementation            of any of the programmes. She added that it monitoring progress could be done through:

        a. Developing pilot programmes and testing them before scaling up, and

        b. Identifying KPIs and evaluating the impact of as many programmes as possible.

    Dr Atkinson also presented the Core Competencies framework on financial literacy for MSMEs in 2018. Some of        the important points covered in the framework were:

       a) High-level, outcome-based, internationally relevant

       b) Highlights a range of financial literacy outcomes that may be important to sustain or improve the financial                  literacy of owners and managers of MSMEs and of potential entrepreneurs in their experience of starting,                   running or growing a business and,

       c) Tool for adaptation by multiple stakeholders to local circumstances to develop training, assessment, and                      evaluation

     Lastly Dr Atkinson closed her presentation by emphasizing ‘Work in progress' to continuously measure financial literacy of MSMEs. She mentioned that targeting the owners/managers and self-employed entrepreneurs employing fewer than 50 people. She clarified that if the national definition of micro and small sized enterprises covered firms employing 50 employees or more, these firms could be included in the sample but it was required to identify the number of people working in the firm, for international comparability. Based on the national context, countries could also decide whether and to what extent they would like to cover informal (non-registered) businesses, e.g. via booster samples from the general population

    She shared using similar methodology as OECD/ INFE survey in order to measure financial literacy of adults such as:

     a) Financial knowledge (interest, inflation, diversification, financial documents, taxation, etc.),

     b) Financially “savvy” behaviours (separating accounts, strategies to cope with risk, long term planning),

     c) Long-term oriented or prudent financial attitudes.

      Dr Atkinson emphasised on accessing background information such as demographics, business characteristics, financial inclusion, self-assessed knowledge, business performance.

      The second panelist of the session, Mr Keshav Acharya, Economic Policy Incubator (EPI) of Nepal started off by sharing about improving financial literacy and access for small and micro enterprises. His presentation also included the status of enterprises and its sources for financing. Mr Acharya laid down details regarding total number of different categories of enterprise that existed in Nepal. He shared that out of total number of 923,365 enterprises in Nepal, 50.1 percent were registered.

     Out of which, street business comprised 3.7 percent, home business comprised 41.8 percent, female owner comprised 29.8 percent, and female manager comprised 29.6 percent. Further, he shared that of the total number of enterprises, 18 percent borrowed from financial institutions, whereas 17.5 percent borrowed from non-financial sources. Furthermore, of the enterprises that borrowed from financial institutions, 35.1 percent borrowed from banks, 8.0 percent borrowed from finance companies, and 7.8 percent borrowed from MFIs. Among the enterprises borrowing from non-financial institutions, 31.4 percent borrowed from cooperatives, 14.3 percent borrowed from personal sources, and 3.6 percent borrowed from “other” sources. Mr Acharya added that there were about 91 MFIs with altogether 3469 branches in the country. This was a significant number compared to total number of 175 BFIs with 8205 branches across the country. Population per branch of BFIs equaled to 3560.

       In the later part of presentation, Mr Acharya highlighted about some of the constraints to financial access such as limited financial resources which acted as constraint for expansion and growth. Second, high interest on borrowings impacted on the sustainability of the operations and multiple financing which were detrimental to the industry.

        Mr Acharya offered his suggestions for achieving financial inclusion which included measures such as a) expanding financial services to each municipality, b) expanding MFIs to each ward of municipality, c) Need for government to create substantial amount of revolving fund to meet the need of all deprived people (lower interest rate), f) eliminating discriminatory tax between MFIs (30 percent) vs. cooperatives (10-15 percent), g)evaluation of MFIs’ performance by social indicators (education and health of children, awareness), and h) revising the definition of “deprived sector” to include only the poorer sections of the community.

      The third panelist of the session, Mr Bala Ram Paudel, UNDP Nepal presented on the topic of "Micro Enterprise Development and Access to Finance". He started off by explaining the journey of micro enterprises creation in Nepal starting from year 1998 to 2018. Mr Paudel pointed out major sectors in which MEs were engaged  namely, Allo, Honey Bee, Elephant Grass, Herbal soap, Duna Tapari, Dhaka, Engineering, Procession Food and Agriculture etc. Out of total number of 142588 MEs created, 74 percent were run by women, 26 percent were run by dalits, and 38 percent were run by indigenous nationalities. He further added that the average income of MEs was Rs. 72,280. Mr Paudel shared that out of total MEs created, 36,001 MEs graduated and 231,746 number of employment were created.

      Also, he shared that there were about 741 Common Facility Center and about 44 percent ME's moved out of poverty. Mr Paudel also talked about 'Micro Enterprise Development (MED) Model'. Further he also explained the financing structure/source of microenterprise. The various sources of financing were 'own saving', 'borrowing from informal sector', 'borrowing from formal sector', 'grants' etc. As per the MED Model, creation and development of micro-entrepreneurs included a) Social Mobilisation for Enterprise Development, b) Entrepreneurship Development c) Technical Skills Development, d) Access to Finance, e) Access to Appropriate Technology, and f) Marketing and Business Counselling.

        Lastly, Mr Paudel pointed out some of the challenges MEs were facing in context of Nepal such as a) Scattered MEGs which meant less potential for MFI branch operational sustainability, b) Crowding in Urban Areas, c) Limited Access in Remote Areas, d) Comparatively higher rate of interest on loan, and e) More Focus on Tailor Made Approach. To address the aforementioned challenges, Mr Paudel also put forward some of the strategies which were: (a) Entrepreneurship Development to the Cooperatives and Financial Institutions, (b) Incentives for Access to finance for production based enterprises, (c) Promoting enterprise based cooperatives and financial institutions, and (d) Human Resource Development for connecting dots.

        The fourth panelist of the session, Mr Janardan Dev Pant, CEO, Nirdhan Utthan Laghubitta Bittiya Sanstha Limited presented on the topic 'Access to Finance to Micro and Small Enterprises'. He shared about role of MFI's and the contribution of Nirdhan in making loan accessible to enterprises in general. He added that micro enterprises loan of Nirdhan and MFIs had grown by 46 percent and 83 percent respectively in the year 2018. Additionally, he shared that 75,541 MSEs financed by MFIs had created 226,623 jobs in the economy.

       Further, Mr Pant explained the ongoing strategy about 'Capacity enhancement of existing clients by providing skill and entrepreneurship development trainings for MSEs. He added that Nirdhan aimed at providing basic financial, business literacy trainings and digital business solutions. Mr Pant also mentioned about Nirdhan’s tailormade client graduation strategy and how uplifted existing “A” grade clients into MSE clients. He added that in the next 5 years, Nirdhan aimed to increase MSE portfolio to 33 percent (or maximum regulatory threshold) from current 13.12 percent.

       Mr Pant specifically noted that MSEs supported by people-friendly policies could solve pressing social issues like unemployment, social imbalances, etc. He also put forward the opportunities and challenges while financing for MSEs. Some of the opportunities and challenges were:

 Opportunities:

       • There was huge unmet demand in financing of MSE. NPR 197 billion is the funding gap which is the                            difference between the estimated funding requirement and existing funding from MFI.

       • Relatively stable and secured portfolio in comparison to group based loans

       • Greater socio-economic impact through employment, income, management skills and self-esteem

Challenges:

       • Lack of adequate financial resources (existing short term financial resources financing long term requirement             of MSEs portfolio),

      • Regulatory hassles (like registrations, unfriendly tax regime, etc., lack of incentives to promising rural                           entrepreneurs to register as MSE)

      • MSEs capacity constrain (in documentation requirements, maintaining book of accounts, tax clearance certificate, collateral requirement, etc.)

        He opined that there was policy dilemma from the side of government and existing infrastructures/mechanisms and dedicated support programmes like MEDPA, Women Entrepreneur Development Fund (WEDF) were not enough to support huge gap that existed. He concluded by sharing about some expected intervention to improve SMEs such as a) improving access to finance on MSE ecosystem (availability, price and terms-conditions), b) improving market infrastructure like credit guarantee, Secured Transaction Registry (STR) and c) Incentivising informal MSE to formalise (through simplified registration, tax incentives, etc.).

       Mr Sanjib Subba, CEO, National Banking Institute, presented about National Financial Inclusion Strategy that included national financial literacy strategy, legal and regulatory framework, community engagement, curriculum, entrepreneurship development, monitoring and evaluation. He explained that 'National Financial Literacy Strategy' needs to be formulated under legal and regulatory framework. He shared some data related facts with respect to adult bank account in Nepal.

       As per NRB statistics, the number of adult bank accounts had increased from 25.3 percent in 2011 to 45.0 percent in 2017. He also presented the 'Adult bank Account' data of Nepal in comparison with global (findex), which showed that the percentage of Nepal's Adult Bank Account is not as par the global context.

       Along with that, Mr Subba also put forward challenges associated with MSME and proposed some critical solution. According to Mr Subba, policy formulation needs to be the immediate step after need assessment/gap identification. Supports in the form of 'collateral free loan', 'value chain support', and 'Fintech-digitization' could be some of strategies to improve financial inclusion in the country.

      In the later part, Mr Subba presented the status of SME/ MSME in the country. He specified that SME/MSME constituted 90 percent of the total industrial Gross Domestic Product, 80 percent of industrial employment, 70 percent of total national export, 25 percent GDP contribution was from SME. While this being the contribution from SME/ MSME, they were still facing challenges. He shared that 95 percent of the SME faced credit constraints, 70 percent did not use any formal credit, 15 percent of them disappeared in two years and 40 percent exited the market in 4-5 years.

      He shared that in order to resolve the issues, National Banking Institute (NBI) had launched an application to enhance financial literacy digitally. He added that the app 'NBI Nepal' was available in android version as the target audience is middle- class population who are android users in Nepal. App has features such as loan and savings calculator, FAQs, videos of success stories, songs and power point slides.

     Session five was followed with question and answer discussion. There were queries raised by the participants on lack of access to finance as a result of which people had to resort to multiple borrowing routes/ channels. Participants voiced out their concerns that banks needed to have positive attitude in providing loans to youths without the need for collaterals which would showcase risk taking attitude among banks as well.

    Mr Keshav Acharya responded to the query mentioning that access to financial resources was not a constraint as data suggested that the biggest source of lending for MFI is borrowing from commercial banks. He highlighted that the major issue was about cost. In rural areas, people or borrowers do not like formalities and hence refrained from going to banks. In case of micro finance, it is not the case as women group together and MFIs help them by filling out documents. Microfinance in Dhading have started mobile banking

     Mr Deependra Bahadur Chhetri, Former Vice Chairperson, National Planning Commission and Former Governor of Central Bank concluded the key discussions by sharing that that access to one village from other was difficult due to undiluted landscape of our country. He highlighted therefore if BFIs went for branchless banking, it would reduce cost tremendously. He shared that some of them have been able to reduce cost but not attractively. He added that since 1994, Nepal started linking self-help groups with banking and had some funding too. He clarified they get some banking tools, accounting practices it would be helpful to rural people.

    With this, session five came to end and the panelists and moderator were presented 'Token of Love' as the symbol of gratitude by the officials of SEBON. The official session came to an end with closing remarks by Mr Shigeto Hiki, Head of Special Projects and Outreach Unit, OECD.

    Mr Niraj Giri, Executive Director, SEBON presented his vote of thanks by thanking OECD for giving SEBON the opportunity to host the august gathering. He expressed that SEBON was encouraged to further host such international event of national importance in order to enhance Nepal's exposure to the international arena. Mr Giri shared that financial literacy had become more challenging with the increased use of artificial intelligence and Fintech across the globe. He opined that the two-day conference had been true learning and experience sharing occasion for Nepal. Mr Giri also believed that this conference has provided Nepal the opportunity to understand contemporary issues, prevailing practices, suitability of tools being employed, adequacy of the approaches that were being followed besides providing insights into the objectives and strategies that were required to build resilient, stable and credible financial system. Mr Giri believed that this conference had been an excellent platform to build international, regional networks of regulators and financial educators.

    Mr Giri thanked all the session chairs and panelists for their enriching presentations and sharing their knowledge for making conference meaningful. Further, Mr Giri took time to thank all the international and national participants for taking time out of their busy schedules to be part of the conference. Mr Giri promised to come up with the conference publications and share with all the participants and relevant stakeholders. He expressed his special thanks to Dr Adele Atkinson and Mr Miles Larbey for their guidance and help to SEBON team in planning and organizing the event.

    Lastly, Mr Giri thanked Ms. Paloma Cupello and key members of programme organising committee of SEBON for their untiring efforts in making the programme a success.

                                                                                 ***

Source: OECD-SEBON;CONFERENCE AND ROUNDTABLE ON FINANCIAL CONSUMER
PROTECTION AND EDUCATION IN ASIA-PACIFIC