It’s quite noteworthy that investments in the agriculture sector have a much bigger impact on a country’s GDP and economic growth than investments in other sectors of the economy. While the focus has always been on provision of credit to this vital sector of the economy, the educative part has not been given the importance that it deserves.
As much as urban agribusinesses need loans to expand and grow, they also need to be given financial literacy education so that they can upscale their businesses holistically. It is a common feature among Nairobi estates to find a maize roasting micro businessman who has been engaging in that business for the last 3 years without moving an inch from his business spot/location. These businesses have the potential to grow beyond their current levels of operation but they are inhibited by lack of financial education.
Lower financial literacy is linked to lower household savings, as well as higher reported over indebtedness. For instance, individuals with lower levels of debt literacy transact in higher cost manners like in interest rates and fees and report that their debt loads are excessive or that they are unable to judge whether their debt is appropriate. In addition to greater susceptibility to fraud and abuse, the lack of financial literacy might lead to borrower behavior that increases financial fragility which may lead to greater loan losses leading to poor loan performance.
Most agribusiness owners we have interacted with indicated that they don’t save because they only make enough to survive and repay loans from shylocks. This is further from the truth because they don’t keep sales records and other business data and hence need to be trained on the same so that they can decipher the true status of their enterprises.
Informed borrowers (agribusinesses) also exercise innovation-enhancing demand on the financial sector and play an important monitoring role in the market that can help improve transparency and honesty in managing organization. Furthermore, financial illiteracy appears to be particularly severe for key demographic groups: women; less educated; low income; ethnic minorities; and older respondents.
Financial education teaches the knowledge, skills and attitudes that are required for adopting good money management practices associated with spending, earning, saving, borrowing and investing money. Anticipated outcomes include changes in client behaviors and practices in money management such as saving regularly, making a budget, and working towards a financial goal. The changes lead to increased savings, reduced debt and less financial stress leading to financial performance of the organization.
The aim of the financial literacy is to increase clients’ assets, reduce liabilities and therefore increase/improve loan performance of customers. Similarly, lack of business and management skills can magnify financial barriers for micro, small and medium enterprises. Low levels of financial literacy can prevent credit providers from adequately assessing and understanding different financing options, and from navigating complex loan application procedures.
SokoHela acknowledges that financial knowledge and education have an impact on business growth and performance which have a spiral effect on loan repayment. In essence, as much as provision of affordable credit is important, it should be done with a social touch of ensuring that these businesses are actually better than they were yesterday.