Financial Literacy

Images from ZAFRAN-HERAT

Images from ZAFRAN-HERAT

My Money HeaderAlthough men are typically involved in public functions such as business and politics, women tend to be the strongest drivers of economic and social development. It is generally the husband, father, or brother who officially owns the company, deals with banks and clients, and reaps the financial benefits, but women are more likely to make the important business and personal decisions, and undertake a significant share of the actual workload.  There is, however, an observable trend for women to take control of their own enterprises. Many of these small enterprises have started from home, and although they provide a reasonable income for the family, they hardly grow beyond this stage. One of the main reasons for this is a lack of finance. In Iraq multiple companies offer financing to micro and small and medium sized enterprises (MSME) – many sponsored by international donors such as USAID and Relief International, with branches in different regions of the country.

One of the key indicators for SME finance in Iraq from August 2012 clearly shows that the number of female borrowers is significant, at 23%. Interestingly enough, personal experience tells me that the average amount women borrow is typically lower. Take, for example, the case of two saffron co-operatives in Afghanistan. One is a male-led co-operative, the other is run by a woman. Both need to expand their packing facility and both are a similar size. The male-led co-operative approached a financial institution with a request for $500,000. The co-operative gave some justification, but the amount was obviously at least twice as high as was really needed. The lady requested $100,000, which was probably a little on the low side, but her request was much more balanced. Female borrowers are more conservative; they will consider their ability to repay in a worst-case scenario, how much money they need to look after their family, and what the business can comfortably absorb at its current stage of development. Men, on the contrary, will go by the notion that bigger is better, and deal with the (potentially negative) consequences later.

An important element of providing much-needed access to finance is associated with financial literacy, or the understanding of money. Whether you keep your money in a bank or in a jar at home, there are four key elements to consider for individuals, as well as businesses: earning, spending, saving and borrowing.

The underlying principles are generally quite simple and have certainly been hammered into me when I grew up. You don’t spend more than you earn, you save for something you really want, and only in exceptional circumstances do you take out a loan. In the end, any loan will have to be repaid, occasionally, just the amount borrowed, but more likely, with an additional interest or profit charge.

Understanding how interest rates are determined and how banks function is important to be able to assess the impact of savings and borrowings on personal and business budgets. Banks often are able to help with this, but it has to be considered that the primary purpose of the bank is to make a commercial profit from lending. It is therefore of the highest importance for everyone to understand their own budget, financial needs and possible solutions prior to entering into a conversation with a financial institution.


  1. Write a business plan
  2. How much do you really need
  3. What are the possible sources to obtain the funds
  4. What is the price for each of these
  5. How are you going to pay it back