The flow of remittances in Armenia has been dramatically rising in recent years, mostly due to a large diaspora, with approximately 11 million Armenians living abroad. In 2012 remittances were estimated at US$ 1.9 million – about 20 per cent of the country’s GDP, and twice as high as foreign direct investment (FDI).
However the flow of savings to the formal financial sector remains low. Remittances are sent via money transfer systems, and are collected at local bank branches by family members who often do not have an account and are unaware of the benefits they can receive from usual banking products. Among the recipients of remittances are also citizens living in rural areas. According to the World Bank’s Global Index 2012, only 17 per cent of people over the age of 15 in Armenia have an account at a financial institution, while only one per cent of the population keep their savings in a bank.
To address this issue, and to help Armenians and the economy fully benefit from these financial flows, the European Bank for Reconstruction and Development (EBRD) has launched a new initiative – Financial Literacy to Remittance Recipients programme in Armenia – which is funded through the EBRD’s multi-donor Early Transition Country (ETC) Fund. The innovative financial education project aims to boost financial inclusion in Armenia, by developing personal finance skills and increasing the confidence of remittance recipients in opening bank accounts.
Under the scheme, over the past year more than 24,000 people across the country have been trained on how to better manage their finances, with over 10,000 of them opening accounts, which attracted more than US$ 4 million in deposits over nine months.
Five Armenian banks joined the initiative, and specially trained financial advisors were engaged in bank branches that handle large numbers of remittance transactions, inviting customers for free one-on-one consultations to help them manage their finances and, if appropriate, to open a bank account.
Mark Davis, Head of the EBRD’s Resident Office in Yerevan, believes making better use of local banks is crucial for leveraging the impact of remittance flows. By developing and encouraging more formal routes for money transfers, the EBRD is able to help integrate these funds in the wider economy.
Said Davis: “It is a question of banks using the opportunity to attract new customers and offer specifically tailored products, while educating people to use local banks and to open accounts. Encouraging beneficiaries to use local banks will help to further strengthen the banking sector, and expand credit availability and new products. It is a win-win situation. Banks and the economy will benefit, and new customers can benefit from products they were never aware existed, such as interest on savings, or leveraging money for mortgages or loans to start a small business.”
Armenak Darbinyan, Board Member of the Central Bank of Armenia, said: “The project proved that financial education is an effective instrument to help people change their financial behaviour and thus improve their financial well-being. Another important aspect is that the project is a success story and a good example for all banks to initiate or get engaged in financial education activities.”
The ETC Fund’s financial literacy project, implemented by the Developing Markets Associates Limited consultancy from October 2012 to September 2013, is part of a larger programme that has been carried out in several early transition countries, including Georgia, Moldova, Azerbaijan, Tajikistan, Kyrgyz Republic and, most recently, Armenia, to strengthen the financial inclusion of remittance recipients. Already 145,000 people have been provided with consultations, 23,000 new accounts have been opened, and a total of US$ 26 million has been deposited in these accounts.