The World Bank Supports Russia’s Government Efforts to Improve Financial Literacy, Education, and Consumer Protection of Citizens

The World Bank Board of Executive Directors today approved a US$25 million loan for the Financial Education and Financial Literacy Project for the Russian Federation. This innovative Project will assist the Russian Government in its continued efforts to improve the financial literacy of Russian citizens and their protection as financial consumers.

Rather than higher income households and more sophisticated financial products and services, the target group for the Project is the public-at-large, with an emphasis on school and college students, future consumers of financial services, and potentially active low- and middle-income consumers of basic financial services. The Project will establish access to critical financial information presented in a simple manner and with extensive use of the modern technologies, and will help people in making informed decisions regarding personal finance and protecting their rights on the financial market place. The Project would be implemented by both the national and regional governments.

The global financial crisis had triggered demand for better public information and services to consumers all around the world. The Russia initiative in spearheading a systemic approach to create capacity for financial education and financial consumer protection would offer valuable lessons, especially to developing countries.

The Project is the first World Bank investment operation supporting financial literacy and consumer financial protection in the same operation”, said Pedro Alba, World Bank Country Director for Russia. “It cuts across education, social protection, financial supervision, and consumer protection in financial services, which are individual areas that are extensively supported by various World Bank operations. In the long run, the Project will contribute to improving Russian citizens’ prudent financial behavior and responsible participation in financial services markets, and their more effective protection as consumers of financial services.”

Financial literacy is the ability to make informed decisions about the use and management of one’s financial resources. Financial education is a process to help financial consumers improve their understanding of financial products and concepts, and by obtaining information, instruction and/or objective advice, develop their skills and confidence to become more aware of financial risks and opportunities, make informed choices, know where to go for help, and take other effective actions to improve their financial well-being. Thereby, development and implementation of educational programs and public information campaigns, and the scaling up of on-going Government initiatives to foster financial literacy of the Russian citizens, at both national and regional levels, comprise the core of the Project.

Improved financial literacy yields results only in combination with effective consumer protection. Therefore, among its priority actions, the Project will engage in strengthening the internal capacity of the Consumer Protection Service.  It will also work with professional associations and civil society at both federal and regional levels through, for example, the co-financing of sound financial literacy and consumer protection initiatives and programs developed by these two groups.

The Project builds on extensive diagnostic work in Russia on consumer financial protection and a financial literacy survey, which in turn draw on comparative experience in OECD countries.  It also builds on a solid track record of lending to the education sector in Russia.  Nevertheless, as many of the activities are innovative, the Project design incorporates a phased approach with initial pilots, frequent surveys, and wider dissemination of the successful practices.

The first phase will include activities that can be quickly rolled out (“early wins”), focus on pilots that generate know-how, and develop basic capacity for financial education and consumer protection primarily in banking and credit.  During the second phase, the Project would support the scaling up of financial education programs which proved to be successful during the first phase, and the expansion of consumer protection activities to other financial products and sectors.

Total financing of the Project is US$ 113 million, of which the Government of the Russian Federation co-finances US$ 88 million from its own resources. The IBRD will provide a US$ 25 million flexible loan with an interest rate equal to 6 months Libor, plus variable spread, with final maturity of 14 years including a grace period of 5 years.

Background
Improving financial literacy and consumer protection in financial services is a priority of the Russian Government as the share of the country’s population that saves sufficiently for the future, plans regularly for important lifetime expenditures, and participates in basic financial services, such as bank account, is insufficient. In 2006, Russia – during its G-8 Chairmanship – put financial education on the global agenda. Before the 1990s, Russia’s population had limited access to only a few financial services provided by State organizations. During the early 2000s, the financial industry in Russia expanded, following positive trends in economic growth and reforms in the financial and social sectors. Population’s incomes and savings increased, but its financial literacy did not follow accordingly.

After the 2008 global financial crisis, the demand for consumer protection and financial literacy programs increased since individuals fear that they would not be protected adequately as financial services consumers. The nationwide financial literacy survey conducted in June 2008 showed that financial literacy of the Russian citizens remained low. The survey indicated that up to 40 percent of the population still believes that the Government would compensate for financial losses associated with their personal investments.