Financial literacy, education and capability: key stepping stones for financial inclusion in Nepal
  • January 10, 2012

The UNCDF project Enhancing Access to Financial Services – EAFS supports the efforts of financial institutions and regulators in deepening, broadening and scaling up outreach of financial services in Nepal. As part of its ongoing work the project has new initiatives focused on financial literacy, financial education and financial capability.  

At the beginning of June, this joint UNCDF-UNDP project delivered a training on Financial Literacy in Khatmandu for Nepalese financial service providers and representatives from Nepal Rastra Bank (Central Bank). The training took the participants through a complete process of developing and implementing Financial Education for specific target groups. 

This enabled the participants to understand all aspects of financial education: target group selection, market research for identifying the needs and demand for financial education, models of delivering financial literacy, monitoring and outcome evaluation of financial education programmes. The training also clarified the definition and nuances of financial education, financial literacy and financial capability.Financial education broadens people’s knowledge of financial options and principles, builds skills to use financial tools, and promotes attitudes and behaviors that support effective money management.

Furthermore financial education provides a foundation for people to exercise financial choices, which is especially useful in the world of microfinance where products and services are expanding rapidly. Financial literacy, on the other hand, is the ability to make informed judgments and effective decisions regarding the use and management of money. Financial literacy develops partly through financial experience so it is inherent in most people’s lives. The third term, financial capability, places financial literacy and financial education in the context of real world choices. It implies that given information and opportunities regarding financial services and resources, people have the ability to make informed financial decisions*

Best practices in financial education and financial literacy were also explored by representatives of the Nepal Rastra Bank, in an exposure visit to Kenya.  The visit took place at the end of June, as part of the EAFS project, to the Faulu Deposit Taking Microfinance Limited, in Nairobi. Representatives of the Nepal’s Central Bank explored, during 4 days, the microfinance sector in Kenya, and specifically Faulu’s work in savings deposits, micro insurance and financial literacy.

According to EAFS National Project Manager, Janak Bahadur Adhikari,  Nepal Rastra Bank “will make good use of the lessons learnt and best practices developed in Kenya. These will serve as inputs in the development of the act regulating the microfinance sector in Nepal, which should be passed by the beginning of the next Nepalese fiscal year (July 2012)”.  

Mr Adhikari also highlighted “the key role of financial education and literacy in building an inclusive financial sector in both Kenya and Nepal”. Though a relatively new concept, financial literacy is very relevant to Nepal's microfinance sector at present. Many, if not most poor people lack the  financial literacy necessary to make important informed financial decisions in their own best interest. Those who are less financially literate are more likely to have problems with debt and to engage in high-cost loans from moneylenders, while they are less likely to save or to plan their finances for the future.

Therefore it is imperative that poor people receive financial education so that they are empowered with sufficient skills and knowledge to make financial decisions which allow them to take control of their lives.The EAFS project is taking a lead in the formulation of the 'National Strategy for Financial Literacy' for Nepal, building knowledge, skills, attitudes and behaviors that enable people to make informed judgments and effective decisions regarding the use and management of money.