Financial inclusion in Early Transition countries

By Lucia Sconosciuto

More than 160,000 people have now been trained, thanks to an EBRD programme, in basic financial literacy, discovering for the first time the benefits of having a bank account, budgeting for expenses and saving money at a formal financial institution.

Between 2011 and 2013, the EBRD ran a project funded by the multi-donor Early Transition Countries Fund aimed at increasing the financial literacy of remittance recipients in Armenia, Azerbaijan, Kyrgyz Republic, Georgia, Moldova and Tajikistan.

The programme, implemented by Developing Market Associates, involved five participating banks in each country where teams of 20 specifically trained financial advisors provided free advice to people who would normally have kept their savings under the mattress.

The Commonwealth of Independent States (CIS) countries are all characterised by relatively low levels of financial inclusion (with less than 35 per cent of the adult population with a bank account and less than five per cent savings in a bank) and a high dependency on remittances (with money sent from abroad constituting up to 45 per cent of GDP).

With more job opportunities and higher earning potential abroad, men and women travel to other countries (predominantly to Russia) to work and send money back home. Many families are thefore dependent on remittances for all or part of their livelihood - to support consumption and investments in housing, education, healthcare and small business development.

In addition, for citizens without bank accounts, collecting remittances sent from abroad is sometimes their only interaction with the formal financial sector. With the decline of the financial sector after the collapse of the Soviet Union, many people had lost their entire savings, their confidence in the banking system and often do not know how to manage their finances.

“The money saved at home, when brought into formal financial institutions, can benefit not only the individual in terms of interest accumulation, safety and a credit history but also the banks and the country’s economy,” said Sibel Beadle, EBRD’s Senior Banker who created the programme.

“Yet remittances are often overlooked when considering approaches for increasing financial inclusion. The EBRD programme therefore was designed to fill a gap.”

Across the six countries an average of 18 per cent of people participating chose to open an account within the first month. Nearly 27,500 new accounts have been opened and the equivalent of over US$ 25 million brought into formal financial institutions as a direct result of the programme.

“Before this one-on-one training I would have never written down my expenses but now I’ve got into the saving habit,” said Anna Petrosyan, an Armenian mother of two with a husband working in Russia and one of its beneficiaries.

“The next thing I plan to do is to open a deposit account for my children that will be set aside for their higher education. This plan gives me a great peace of mind.”

“The programme has increased the confidence of people in the banking system and our employees have learnt to deal with a new client group,” said Gagik Vardanyan of AEB Bank Armenia.

Partner banks have included these financial consultations for customers in their services, training remittance cashiers in how to provide financial consultations and holding webinars with branch managers to discuss lessons learned from the programmes.

The success of these pilots lives on: feedback from participating banks indicates that on average 60 per cent of accounts opened during the programme remain active and in use after six months.

*Donors to the ETC Fund are: Canada, Finland, Germany, Ireland, Japan, Korea, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, Taipei China and the United Kingdom.