Knut Ostby: Launch of Report on Financial Capability, Financial Competence and Wellbeing in Rural Fijian

27 Apr 2010

Mr. Norman Wilson - ANZ CEO Pacific Central and CEO Fiji, the ANZ Board, Mr Inia Naiyaga Representative of the Reserve Bank of Fiji, Mr. Robin Yarrow - Deputy Chair of the National Financial Inclusion Task Force, Excellencies, Distinguished Guests, Ladies and Gentlemen.

Rural Access: As monetisation becomes more important in Fiji including in the rural areas, a large percentage of the population do not have access to reliable financial services .  In the last two decades, rural areas have witnessed a decline in banking services to rural areas as well as a reduction in banking services provided through rural post offices.

A common factor in all studies conducted in Fiji is that women, the unemployed and those with lower income and education levels appear to have less access to financial services.

Emergence of Microfinance: Most of you will recall that in 1998, the Fiji Government set up the National Microfinance Unit. This was an effort to provide low income earners and the rural population access to financial services and a means to reduce poverty in Fiji. This Unit merged with the National Centre for Small and Micro-Enterprise Development (NCSMED) in 2004 and has played a leading role in the development of micro finance schemes in Fiji. However, private sector participation is necessary if provision of financial services is to be fully inclusive and sustainable in the long term – making innovative partnerships a necessary part of the equation.

ANZ Bank & UNDP Partnership – Rural Financial Services Initiative: The ANZ Bank must be commended for introducing the Rural Financial Services Initiative in 2004 through a partnership with the UNDP. As UNDP Resident Representative, I am pleased that as a development partner we have been able to combine our expertise of providing financial literacy training with ANZ as a provider of banking services to rural Fiji. This scheme has proved to be very successful in the area of savings and this is credited to the combination of access to a reliable financial service provider combined with knowledge of how to manage finances.

The success of the ANZ Scheme reinforces the need for private sector (specifically commercial bank) involvement in microfinance, which in the past has been seen as a non-profit product line.   

It is worth highlighting that micro loans introduced a couple of years later has not received the same level of success and is currently under review.  

Report on Financial Capability, Financial Competence and Wellbeing in Rural Fijian Households (PFIP 2010): The Report examines the relationship between the financial competence of those who make decisions on behalf of rural households and the wellbeing of the household and determines whether financial literacy plus access to financial services results in increased financial competence and increased household wellbeing. 

The Report highlights that:

  1. there is a positive relationship between financial literacy, access to financial services and household wellbeing in rural Fijian households.  From households surveyed it was evident that household wellbeing was not dependent on the size of plot farmed or size of the family, but rather the ability of the household to manage household expenditure and re-invest surplus in income generation activities;
  2. functional literacy  is a pre-requisite for financial literacy training.  Those who are more highly educated are more likely to attend financial literacy training and open bank accounts, resulting in savings and reinvestment of cash in the farm or business;
  3. those who have access to financial knowledge and services are less likely to resort to credit for their daily needs and borrowing is for investment purposes.  Those who do not save and resort to credit are very vulnerable and exposed to unscrupulous money lenders and financial scams.  There is very little knowledge of loans and obligations even among those who have attended financial literacy training;
  4. households who are less financially literate tend to over-estimate income and cash availability for discretionary spending and underestimate household expenditure; and 
  5. women’s financial inclusion significantly improves household wellbeing.  Although fewer women attended financial literacy training and fewer women hold bank accounts, they have a key role in managing household finances.  In many cases women were not aware that the training was available or not invited to attend. 

However, the findings of the report suggest that women save more than men, more women plan spending and set financial goals, they understand their family situation and financial needs better and are realistic about their ability to meet these needs. This knowledge and action translates to improved household wellbeing.  Investing in women maximises the impact of financial inclusion.

Other findings: From the report, it is apparent that the combination of financial literacy and access to reliable financial services has a direct impact on achievement of the MDGs, especially helping to lift communities out of poverty. 

Financial literacy provides households with the ability to manage their resources to provide funds for education, food, electricity, water, improved sanitary conditions and medical services.  In addition it has been shown that in well managed households surplus funds are channelled into further income generating activities which impact on production, employment and trade.

The greatest socio-economic and gender gains are made when households have access to both a bank account and financial literacy training. Just one person with a bank account and training has significant impact of h/h well being. That impact is multiplied when that person is a woman. Women need to be a core part and target of all future initiatives.

Way Forward:  From the Report, what villagers are telling us is that there is a demand for rural banking services. Rural people do want to save. People are able to put their surplus cash in the bank and save for future needs.

The future of sustainable microfinance services including micro-insurance will rely heavily on involvement of the private sector with commercial banks leading the process. The role of Government is to provide an enabling environment for financial service providers to work in.  Care must be taken to ensure that regulations are not too constrictive and will allow for these entities to be able to work profitably in this area. 

I am aware that a Medium Term Financial Inclusion Strategy for Fiji is being developed under the capable leadership of the Reserve Bank of Fiji as overall regulator of the financial system in Fiji, which is a step in the right direction.

It is encouraging to note that the National Financial Inclusion Task Force and related working groups that have been set up as part of this initiative are well representative of both providers and beneficiaries of micro financial services.

Partnerships with development partners can be formed to help educate the public regarding use of these products in order to derive the benefits of financial inclusion.  There is great potential for partnership with the telecommunications sector and introduction of electronic banking and other financial transactions to the rural areas. 

In the spirit of genuine partnership, I have great pleasure in launching the 2010 Report on Financial Capability, Financial Competence and Wellbeing in Rural Fijian Households and encourage all stakeholders to use the findings from the Report in developing practical measures that will pave the way forward and make a difference in the daily lives of children, women and men in the rural communities of Fiji.