Unbundling Financial Inclusion Field Definitions

Lately, you may have come across financial terms that you find confusing. They are; financial literacy, financial education, financial capability and financial inclusion. I want to clarify them for you.  But before I do so, let me give you a contextual background.

Sociologists say that every society has five institutions under which everything falls. They are Politics, Religion, Education, Family and Economy. Each institution has many elements in it and the bigger the number, the more sophisticated it is considered to be.

If we focus on the Economic institution in the Kenya society for example, we see categories called sectors. Some of them are Tourism, Manufacturing, Agriculture and Financial Services. Further down, under the Financial Services sector, we find players such as Banks, insurance, capital markets, pension schemes, Saccos, MFIs, Rotating schemes among others. These players are categorized as either formal or informal, depending on their legal registration with a government body.

The terms financial literacy, financial education, financial capability and financial inclusion, are anchor functions within the Financial Services sector. Let us explore the context in which they are applied in this sector.

On one side, we have the financial services players who provide financial service.  On the other side, we have consumers of these services. Under normal circumstances, financial service players have services not understood by consumers. They acquire them in ignorance and end up in harm. This informs the need for consumers to be educated about the products on offer. This is where financial education comes in. Financial education is the process of giving to the consumers, the knowledge, skills and attitudes necessary for better money management and choosing appropriate financial products and services.

Financial education is the process of teaching financial literacy. Financial education is a means while financial literacy is an end. A financially literate person is able to manage his or her money better and can acquire with confidence, financial products such as savings, loans, insurance, money transfer and use them for economic well being. Therefore, financial literacy is the ability to manage personal money well and use cleverly, the financial services and opportunities available in the market.

But while a person can be financially literate, financial services may not be available. Also, the person  may not have the drive to acquire the services available. This situation introduces the other term; financial capability. Financial capability is the willingness, readiness and ability on the part of the financially literate person, to manage personal money well and access available financial services. To be considered financially capable, a financially literate person must take action and exercise informed discretion in acquiring the available financial services.

Finally, financial inclusion is everybody’s unlimited access to formal financial services offered by registered financial institutions including until recently, mobile money non financial institutions.

John Gitau


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