As the U.S. Zigs Tiny Azerbaijan Zags on Financial Education
By Dan Kadlec
June 27, 2018
While the Trump administration dismantles consumer protections in the U.S., the tiny middle eastern nation Azerbaijan is going the other direction. What do leaders of this oil-rich land bordering Iran on the Caspian Sea know that we may have forgot?
The economy and markets work best when individuals have confidence they are being treated fairly. Confidence is bolstered by financial industry oversight, along with individual financial knowledge and empowerment. This, anyway, is the central tenet of Azerbaijan’s new strategy for economic stability.
The government recently formed a public-private working group to prepare a comprehensive plan for improving financial literacy. This group will study the nation’s education system and make recommendations as to how universities can better prepare students to save, borrow and invest.
Part of the broader strategy includes training for financial firms’ employees and stricter regulation of banks and insurance and investment companies. This is the part we are backing away from in the U.S. President Trump’s appointees have taken much of the bite out of the Consumer Financial Protection Bureau. Today, payday lenders, banks and others are enjoying the greatest freedom to operate as they wish since the financial crisis.
Azerbaijan is now emerging from its own financial crisis. Collapsing oil prices five years ago curbed growth and led to two currency devaluations. Inflation soared. More than a dozen banks were forced to close. Individuals lost faith in their economic leadership.
“Consumer protection and financial capability are becoming an essential element of the financial sector stabilization and development agenda in Azerbaijan,” according to a report from the Asian Development Bank Institute. This two-pronged approach, also popular in Saudi Arabia, is seen as a way to encourage individuals to budget, save, cut spending and invest.
Much of the onus is being placed on financial educators. Azerbaijan is a bank dominated economy where individuals often don’t understand their credit and investment choices. Fewer than 1% of Azerbaijanis own any type of investment; banks hold 88% of all loans. Things like bonds and insurance are readily available as an alternative to low-yielding bank deposits. But they are grossly underutilized.
Only a third of adults in the country have a mainstream bank account. Of particular concern…
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…is the underdeveloped microfinance infrastructure, which should be providing capital to far more of the nation’s many small businesses.
On the consumer protection front, the government intends to more forcefully require lenders to disclose conflicts and take other steps to build consumer confidence. Currently, Azerbaijanis perceive such a power imbalance that just one in five seek any kind of resolution from a bank they believe has dealt with them unfairly. In general, they feel consumer protection laws are inadequate and that regulators do not do their jobs well.
If that sounds like the U.S. in 2009, it is because individuals here felt much the same during the Great Recession. Now housing values and stocks are fully recovered, and oversight is being scaled back. Because of that—not in spite of it—financial education remains a front burner issue here and around the world.