Do financial management tools improve credit access among disadvantaged sectors? Evidence from the use of an Integrated Platform for Company Management (PIMEX).Andrés Cuba Borda.Sharim Ribera Camacho Center for the Studies of Social and Economic Realities Washington DC, November, 2014

BACKGROUND Bolivia has made substantial progress in increasing financial services over the last decade

 The increase in coverage benefited all departments in Bolivia BACKGROUND

 We found there is greater inclusion with respect to savings than to credit  Why? Due to the lack of financial understanding of the credit application process MOTIVATION

 How can this be improved?  Overall financial education  Financial capability and management  Assessment for credit applications.  We cover all three MOTIVATION

 Do financial management tools improve credit access among disadvantaged sectors? RESEARCH QUESTION

1.Identify potential borrowers / credit beneficiaries 2.Conduct baseline survey 3.Small scale field experiment 4.Comparison of results METHODOLOGY AND FIELD EXPERIMENT

 We conducted a baseline survey to all 110 potential borrowers  Socio demographic profiles  Administration of expenses to measure Financial Management (FM)  Savings practices and behavior  Credit access and credit use  Use and access to other channels for Financial Exposure (FE)  Greater FE is related to financial education METHODOLOGY: BASELINE SURVEY

THE TREATMENT GROUP  50% randomly selected as part of a “treatment group”  We give them a short induction on financial education  Basic notions of financial terminology  Use of a financial calculator and budgeting  Training on the PIMEX tool  Three hour session for groups of people on how to use PIMEX  We have run the first session, three more to come…  Elaboration of credit application  Use a credit-assessment tool to generate list of legal requirements  Use PIMEX to produce information on income/revenue, expenses/costs, cash flow  Preparation of credit application file METHODOLOGY: FIELD EXPERIMENT

THE CONTROL GROUP  50% will be part of a regular “control group”  We only collect baseline information with our initial survey  No additional training is provided  Keep track of their credit application with help of loan officers from ECOFUTURO AND BCO  MONITORING  We check on the status of application of the control group with the loan officer every week  We do not contact the applicants anymore after the initial survey  Credit officers do not know which individuals are from the control or treatment group METHODOLOGY: FIELD EXPERIMENT

 Three sources of data for this project 1.Regional Forum Survey  Measure overall financial inclusion indicators in three main metropolitan areas 2.Baseline Financial Inclusion Survey  Applied to control and treatment groups 3.Personalized financial assessment reports (Pimex Relev) DATA COLLECTION

 Main content of the sessions included: 1.Financial Education 2.Financial and Business Management (Pimex Relev) 3.Orientation and assessment on accessing credit. FINANCIAL TRAINING SESSIONS FOR TG (FIELD EXPERIMENT)

 The PIMEX Tools produces the following outputs 1.Total units sold 2.Total amount generated per unit sold 3.Total income per product 4.Total income 5.Average sale prices 6.Profit margins 7.Product/service destination 8.Product Inventory Report 9.Packaging Inventory Report 10.Stock report  Use (1) – (10) to generate two reports: 1.Monthly income report + detail of production+ 2.Fix and variable costs + monthly financial flow THE FINANCIAL MANAGEMENT TOOL (PIMEX RELEV) CREDIT EVALUATION

BASELINE SURVEY RESULTS (SOCIO DEMOGRAPHIC PROFILE)

BASELINE SURVEY RESULTS (SAVINGS BEHAVIOR)

BASELINE SURVEY RESULTS (CREDIT BEHAVIOR)

CONCLUSIONS How does the result connect with the broader objective ?  There is an interesting and increasing use and demand for financial services in Bolivia  The formal financial system has been expanding their financial services, which is reflected in a greater number of credit approvals and lower rates of credit dismissals  However, there is an overwhelming number of small entrepreneurs that DO NOT ask for credit  We have designed an experiment to evaluate the importance of financial management tools to increase credit access  We implemented two surveys.  One to document financial inclusion in main metropolitan areas in Bolivia  Baseline survey about financial inclusion including savings and credit behavior  We are currently working on implementing the second, third and fourth rounds to administer the PIMEX  Hopefully interesting results from the experiment for next time…

THANKS!