Challenges of improving financial literacy and awareness among migrants and remittance recipients EBRD - Inter-American Dialogue June 1, 2010
Outline Context: Migration and Remittances in Georgia and Azerbaijan Characteristics of Receivers Financial Literacy Results in Georgia and Azerbaijan Financial literacy among migrants from LAC Policy Implications and Opportunities in the CIS region
Geographic Distribution of Migrants from Two South Caucasus Countries Host Countries Georgia Azerbaijan Russia 628,973 60.7% 846,104 61.7% Ukraine 9.2% 122,274 8.9% 95,680 Greece 6.9% 397 0.0% 71,692 Armenia 6.8% 152,213 11.1% 70,138 Germany 2.9% 26,520 1.9% 30,177 Israel 1.7% 23,613 1.7% 17,512 Azerbaijan 1.2% - 0.0% 12,630 Kazakhsta 2,590 0.3% 38,270 2.8% n Other 106,278.00 10.3% 11.8% 161,536.00 Total 100.0% 1,370,927 100.0% Source: Development Research Centre on Migration, Globalization and Poverty (Migration DRC), 2010.
Russia as a driver for immigration: Economic and demographic growth 15.00 1.00 10.00 0.80 5.00 0.00 (5.00) (10.00) (15.00) (20.00) GDP Grow th Population grow th (annual %) 0.60 0.40 0.20 0.00 (0.20) (0.40) (0.60) 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: World Bank Development Indicators.
Migration and remittance flows Country Georgia Azerbaijan Remittances received in 2009* US$732 million US$1,243 million % of country s GDP* 5.7 3.4 % of total coming from Russia** 60 83 Citizens living abroad** 1,035,670 1,370,927 Net migration rate* -4.26/1,000-1.69/1,000 Source: *World Bank; **Orozco, Manuel. Worker Remittances and the Financial Sector: issues and lessons in the South Caucasus, EBRD 2007;
Remittances to Georgia and Azerbaijan $1,800,000,000 $1,600,000,000 $1,400,000,000 $1,200,000,000 $1,000,000,000 $800,000,000 Georgia Azerbaijan $600,000,000 $400,000,000 $200,000,000 $0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: World Bank, 2010
Characteristics of receivers Country Georgia Azerbaijan Portion of population who receives remittances 12% 9% Average number of transfers received per year 8 transfers 6 transfers Average amount received per transfer US$165 per transfer US$169 per transfer Portion of recipients with bank accounts 11% 23% Source: Orozco, Manuel. Worker Remittances and the Financial Sector: issues and lessons in the South Caucasus, EBRD, 2007
Financial access through financial literacy In 2007 the EBRD released a scoping study* identifying four sets of recommendations Public policy: allow MFIs to pay remittance transfers; create incentives for banks to offer financial product intermediation Technical assistance: introduce grant facilities on financial product design, marketing, and IT development (including mobile banking) Private-public partnerships: strengthen and develop financial literacy efforts Loan fund: establish a lending facility to provide lending opportunities for remittance recipients and financial institutions In 2009 the EBRD contracted the Inter-American Dialogue (IAD) to conduct financial education to remittance recipients in Georgia and Azerbaijan. The IAD s financial access strategy has been successful worldwide. This project has been implemented in 7 countries around the World, including Georgia, Azerbaijan, Moldova, the Dominican Republic, Guatemala, Paraguay, and the United States. Results show that around 20% of people that receive financial education also engage in a financial activity. The Inter-American Dialogue hired the Microfinance Centre (MFC) to locally implement its financial literacy methodology. Source: Orozco, Manuel. Worker Remittances and the Financial Sector: issues and lessons in the South Caucasus, EBRD, 2007
Context of financial literacy Low levels of financial literacy are found throughout all socio-economic groups around the world, reflected in many people s struggle to strike the right balance between income and expenditure, a necessary first step to build assets and attain financial independence. Financial education has proven to be an efficient instrument to systematically and effectively build assets as it provides people with the tools to improve their condition. Five main theses inform our financial education methodology: Thesis 1: A persons daily life is informed by how they balance their income and expenses; Thesis 2: An adequate balance between income and expenditure ensures financial independence; Thesis 3: Any person makes use of four instruments to ensure their independence: budgeting, savings, credit, and insurance. Thesis 4: Counseling on how to use these instruments depends on a method that builds a relationship between financial institutions and people. Thesis 5: This counseling, also called financial literacy, consists of a proper definition of its attributes, their explanation, illustration and implication.
Objectives and strategy Objectives: Form partnership with banking financial institutions Our Strategy Conduct one-on-one education following a specialized methodology Inform households about the basic financial tools and their benefits Increase financial inclusion and expand financial services to remittance recipients Financial education occurs in a welcoming environment through a natural conversation on the importance of using and maintaining personal finance skills for today and the future. Train bank staff about the relationship between remittances and finances The expected results are advising 10 clients and banking 2 clients daily per financial educators Monitor the conversion of remittance recipients to bank customers Distribute the financial education manual and brochure
General results in Georgia and Azerbaijan Number of people educated: 19,800 in Georgia (6 months, 6 banks) and 12,000 in Azerbaijan (5 months, 4 banks) Budgeting 70% of those educated in Georgia and 47% of those educated in Azerbaijan do not budget. Saving Remittance recipients have the highest index of saving but the lowest index of owning a financial product compared to non-recipients. This has policy implications for financial institutions: remittance recipients should be targeted to open deposit accounts in formal financial institutions, as they already save but do not participate in the formal financial system. Cross-sales 13% of Georgians educated and 19% of Azeris educated obtained a financial product. More of those who do not receive remittances obtained a product than those who do receive remittances. Estimated amounts deposited were over US$5 million during six months in Georgia and US$2 million in Azerbaijan during five months.
Budgeting results Percent of people who Budget Do not budget Georgia Receive 24.8% 75.2% Send 12.5% 87.5% Total 29.9% 70.1% Azerbaijan Receive 51.9% 48.1% Send 48.0% 52.0% Total 53.2% 46.8% Source: intake evaluation forms from financial literacy
Savings results Save Percent of people who Have financial product Have checkin g account Have saving account Georgia Receive 51.0% 44.7% 29.3% 6.1% Send 37.5% 75.0% 50.0% 12.5% Azerbaijan Receive 79.8% 43.3% 13.5% 2.0% Send 86.5% 73.3% 46.3% 3.5% Source: intake evaluation forms from financial literacy
Cross-sales and next steps results Plan to budget Percent of people who Plan to open a bank account Acquired a product Georgia Receive 46.8% 44.0% 11.6% Send 50.0% 75.0% 0.0% Azerbaijan Receive 45.7% 34.5% 18.8% Send 55.4% 40.4% 25.2% Source: intake evaluation forms from financial literacy
Financial literacy among migrants: Migrants from LAC in the United States Characteristics 65% of migrants in the U.S. remit to their families in Latin America and the Caribbean. They remit approximately 11 times per year, sending $211 per transfer at an average annual total of $2,213. Migrants have approximately $3,000 in savings. 51% of migrants do not have a savings account. The IAD partnered with community organizations and non-bank financial institutions to offer financial education to migrants Ex. CFFC/LEDC model
Policy Implications and Opportunities in the CIS region Stretching the reach of financial literacy: Tajikistan, Armenia, Moldova Common international migration patterns and dependency factors Economies whose financial institutions would greatly benefit from an inflow of capital through savings mobilization Partner institutions that include MFC, IOM, ILO, local commercial banks, Central Banks and other local organizations such as microfinance institutions
Policy Implications and Opportunities in the CIS region Deepening the impact of financial literacy Design products that meet the demands of this population as a strategy to retain clients Internalize financial education within the banks Modernize payment technologies with increased debit card range and by bancarizing merchants A national campaign for financial inclusion and access Partnership with money transfer companies Provide transnational financial literacy with remittance senders and recipients In migrant host countries, partner with community organizations that cater to migrant community