Kazakhstan: Financial Illiteracy Hampering Economic Recovery
Kazakhstan’s National Bank will embark on research next year to find out just how well people understand how to handle their personal finances. The research will support a state program to enhance financial literacy.
The government is worried that even though Kazakhstan’s financial sector offers a relatively wide range of ways for people to earn some extra cash, loans remain the go-to resource for most households. The reason is obvious. Taking out a loan is not hard. The difficult part is figuring out a way to pay back the debt at a time when interest rates are punishing.
The fact that many citizens haven't found a way to handle debt means that that Kazakhstan’s banks continue to be dragged down by dismal credit portfolios. The credit problem is driving financial institutions to either merge or beg for bailouts. “People’s lack of knowledge and skills in managing personal finances and their poor decisions are what is partly responsible for getting them into woeful situations. And primarily we are talking about taking on substantial debt burdens,” Alexander Terentyev, head of the consumer protection and public information department at the National Bank, told business newspaper Kapital.
A decade ago, the government launched a five-year educational program, costing 4 billion tenge (around $24 million at the time), to improve financial literacy among the population. The plan was to channel advice through the internet, television, newspapers, magazines, specially produced booklets and leaflets, along with lectures. Particular attention was to be paid to teaching households about alternative forms of holding savings, and how to trade in mutual funds, shares and bonds on the Kazakhstan Stock Exchange, or KASE.
The program was a flop.
Experts believe that corruption played a big role in the program's failure. Business newspaper Delovoi Kazakhstan revealed in its reporting that the bulk of funds earmarked for advertising campaigns never reached their intended destination.
Even the initiatives that were undertaken fell far short of requirements. The program’s official website, fingramota.kz, offered little more than reams of text and an abundance of beginner-unfriendly jargon. In 2016, the site was overhauled to feature simplified texts and infotainment video content intended to appeal to a youthful audience with a limited attention span. Still, judging by visitor numbers, the agenda doesn’t appear to be making much impact.
In the years that followed the initial implementation of the financial literacy agenda, the number of people owning bank cards actually fell, as did the number of cards in circulation. Bank cards are still used mainly to withdraw cash from ATMs and online banking continues to struggle.
The next stage in the state’s program to get regular citizens more actively involved in the finance sector was the ill-fated People’s IPO, launched in 2011. The idea was that Kazakhstanis would buy shares in what were perceived as blue-chip entities — like power grid company KEGOC, flagship carrier Air Astana and oil transportation firm KazTransOil — and then make surefire returns.
But even at the outset of the IPO, things began to go wrong. Instead of going with the original plan of floating six companies, the government went with two companies. And then in 2014, the expected completion date for implementation of the People’s IPO was pushed back from 2015 to 2022. The state Audit Chamber in February revealed that 2.2 billion tenge (around $15 million at 2011 rates) had been spent on hiring consultants and raising awareness about this exercise.
For all the clamor, energy and money expended, less than 1 percent of the population took part in the People’s IPO.
In 2015, the People’s IPO was knocked down the rank of priorities as the government turned to developing its new bright hope — the Astana International Finance Center, or AIFC, to be housed on the premises of the EXPO-2017 world fair in the capital. The vision is for AIFC, as detailed on its website, to become “a financial hub for Central Asia, the Caucasus, [the Eurasian Economic Union], the Middle East, West China, Mongolia and Europe.”
Such global reach is far from the minds of small-time savers and investors in Kazakhstan, however.
Kuanysh Koichubayeva, a 42-year old resident of Almaty, is a pretty typical case in that she relies on the tried-and-trusted method of balancing savings accounts and loans. The latter she uses for some crafty speculation.
When Koichubayeva heard rumors that the national currency, the tenge, might be about to drop in value following the closure of the EXPO-2017 fair, she saw an opportunity to make a quick buck. In August, she took out a bank loan in tenge at 25 percent annual interest. With that money, she bought US dollars and deposited them on a dollar-denominated savings account offering 1 percent interest.
The National Bank has repeatedly sought to discourage such speculation by insisting no devaluation is imminent, but Koichubayeva is skeptical of the government and is sticking to her guns. “The government always lies. Before the latest devaluation in August 2015, they had told us not to worry about weakening of tenge, but a couple of months later they dropped it. Seems like history is repeating itself,” she told EurasiaNet.org.
Meiram Kazhyken, an expert at the Applied Economic Research Center think tank, warned against making too many generalizations about the level of financial literacy among Kazakhstanis. Approaches to savings and investments vary according to demography, Kazhyken told Eurasianet.org.
“Rural people are indifferent to securities because their income only suffices for the bare necessities. [Members of} the middle class, who are mostly based in urban centers, are better versed in finances, but these people mainly keep their money in savings accounts. As for more affluent people running small- and medium-sized businesses, they prefer to invest all their spare resources into their projects, and they do not want to risk investing in assets that they do not fully understand,” Kazhyken said.
For the time being, credit will likely remain the most popular financial tool available to households in Kazakhstan.
“Kazakhstanis will always take out loans for all kinds of things, be it cars, televisions or holidays in Turkey,” Kazhyken said.
And as Kasymkhan Kapparov, the founder of the Bureau for Economic Research of Kazakhstan, a consulting agency, told Eurasianet.org, poor financial literacy means that even that money from loans are often used for the wrong purposes. "Many borrowers do not have a proper understanding of the terms of loans. They do not plan and account for the material possibilities. And as we know, this all ends badly for the users of these financial services,” Kapparov said.