Enhancing Financial Capability and Inclusion in Angola a Demand-Side Survey

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FINANCE, COMPETITIVENESS, AND INNOVATION GLOBAL PRACTICE Enhancing Financial Capability and Inclusion in Angola A Demand-side Survey

ANGOLA, OCTOBER 2020 Finance, Competitiveness & Innovation Global Practice Financial Inclusion, Infrastructure and Access Unit

This work is a product of the staff of the World Bank with external contributions from the National Bank of Angola (Banco Nacional de Angola) and the executive secretariat of the National Council on Financial Stability (Secretariado Executivo do Conselho Nacional de Estabilidade Financeira). The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

RIGHTS AND PERMISSIONS The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes if full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Pub- lisher, the World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@ worldbank.org. CONTENTS

Preface v Acknowledgements vi Abbreviations and Acronyms vii Key Findings ix EXECUTIVE SUMMARY 1 Recommendations 4 Summary of Key Recommendations 8 BACKGROUND ON THE ANGOLA SURVEY 9 1. INTRODUCTION 11 2. FINANCIAL SECTOR LANDSCAPE 12 2.1 Commercial Banks 12 2.2 Non-Banking Financial Institutions 15 3. FINANCIAL SECTOR REACH AND INCLUSIVENESS 17 3.1 Accounts 17 3.2 Money Transfer and Mobile Financial Services 22 3.3 Saving and Risk Management 25 3.4 Credit 28 3.5 The Unbanked and Barriers to Owning a Formal Account 31 4. FINANCIAL CAPABILITY 34 4.1 Knowledge of Financial Concepts 34 4.2 Knowledge of Financial Products 42 4.3 Financial Behavior and Attitudes 44 5. RELATIONSHIP BETWEEN FINANCIAL INCLUSION AND FINANCIAL CAPABILITY 50 5.1 Financial Literacy and Financial Inclusion 50 5.2 Knowledge About Financial Products and Financial Inclusion 53 5.3 Financial Attitudes/Behavior and Financial Inclusion 55 6. FINANCIAL CONSUMER PROTECTION 59 6.1 Awareness of Consumer Rights and Concepts 59 6.2 Dispute Resolution Mechanisms 60 6.3 Satisfaction Rates among Financial Consumers 63

i ii Enhancing Financial Capability and Inclusion in Angola

REFERENCES 66 APPENDIX 68 A. Survey Respondent Characteristics 68 B. Regression Tables 71

FIGURES, TABLES, BOXES AND MAPS Figure 1. Asset structure 13 Figure 2. Liabilities structure 13 Figure 3. Default and transformation ratio 14 Figure 4. Solvency ratio 15 Figure 5. Financial inclusion by socio-demographic characteristics 18 Figure 6. Financial inclusion by socio-demographic characteristics 21 Figure 7. Financial inclusion by income, historical savings behavior, and media consumption 21 Figure 8. Money transfer service use across socio-demographics 22 Figure 9. Domestic remittances by transfer method 23 Figure 10. Mobile phone use by sociodemographic characteristics 23 Figure 11. Mobile phone use by sociodemographic characteristics 23 Figure 12. Mobile cellular subscriptions (per 100 people) 24 Figure 13. Number of mobile money accounts per 1,000 adults in Sub-Saharan Africa in 2018 24 Figure 14. Formal and informal saving 25 Figure 15. Types and sources of savings 25 Figure 16. Risk management products 25 Figure 17. Formal and informal saving by sociodemographic background 26 Figure 18. Formal and informal saving by employment category 27 Figure 19. Formal and informal credit 28 Figure 20. Formal and informal credit by sociodemographic background 29 Figure 21. Formal and informal credit by employment status 29 Figure 22. Types and sources of borrowing 30 Figure 23. Formal account barriers (% of unbanked Angolan adults without an account) 31 Figure 24. Insufficient cash as a primary barrier of account ownership by income 31 Figure 25. Top 6 formal account barriers by gender 32 Figure 26. Top 6 formal account barriers by age 33 Figure 27. Top 6 formal account barriers by urban/rural setting 33 Figure 28. Financial literacy overview 35 Figure 29. Financial literacy quiz question overview 36 Figure 30. Financial literacy score by socio-demographic background 37 Figure 31. Financial literacy score by educational attainment 37 Figure 32. Financial literacy score by socio-economic background 38 Figure 33. Awareness on financial terminology 39 Figure 34. Understanding compound interest by ability to repay debts 40 Figure 35. Understanding compound interest by use of leftover money in repaying debts 40 Figure 36. Understanding compound interest by total indebtedness 40 Figure 37. Self-reported awareness on financial concepts and products 41 Figure 38. Self-reported financial concept awareness vs. quiz performance 41 Figure 39. Distribution of financial products awareness scores 42 Figure 40. Media consumption by sociodemographic groups 43 Figure 41. Financial product awareness by service provider 44 Figure 42. Average financial capability scores 45 Figure 43. Average financial capability scores by education 47 Figure 44. Average financial capability scores by financial literacy level 47 Figure 45. Average financial capability scores by age 48 Figure 46. Average financial capability scores by child saving behavior 48 Figure 47. Average financial capability scores by media usage 49 Enhancing Financial Capability and Inclusion in Angola iii

Figure 48. Average financial capability scores by income 49 Figure 49. Average financial capability scores by employment category 50 Figure 50. Financial literacy score by financial inclusion characteristics 51 Figure 51. Financial literacy score by formal financial products and services ownership 51 Figure 52. Financial literacy score by usage of formal and informal savings products 52 Figure 53. Financial literacy score by usage of formal and informal credit products 52 Figure 54. Financial product awareness score by reasons for not having a formal account 53 Figure 55. Financial product awareness score by formal/informal credit products 54 Figure 56. Financial product awareness score by formal/informal savings products 54 Figure 57. Financial awareness by financial inclusion 55 Figure 58. Financial attitudes and behaviors and financial inclusion 55 Figure 59. Ever started a business 56 Figure 60. Source of capital by business type 57 Figure 61. Accepted payments by business type 58 Figure 62. Purpose of consumer protection 59 Figure 63. Perception of abusive commercial practices 60 Figure 64. Perceptions of consumer rights when dealing with financial services 60 Figure 65. Complaint resolution by institution type 62 Figure 66. Approach to deal with financial service provider conflicts 62 Figure 67. Expectations for resolution of conflict with financial service providers 62 Figure 68. Sociodemographic characteristics of inaction in potential financial service provider conflict 63 Figure 69. Client satisfaction with services provided by different financial institutions 64 Figure 70. Multiple-service client satisfaction with services by different financial institutions 64 Figure 71. Bank satisfaction rates across sociodemographic characteristics 65 Figure 72. Estimated population break-down by urban/rural 68 Figure 73. Estimated population break-down by income 68 Figure 74. Estimated population break-down by gender 69 Figure 75. Estimated population break-down by age groups 69 Figure 76. Estimated population break-down by education groups 69 Figure 77. Estimated division of stable/unstable income groups 69 Figure 78. Estimated population break-down by household size 70 Figure 79. Estimated division by head of household vs. not head of household 70 Figure 80. Estimated division of literacy 70 Figure 81. Estimated division of employment category 70

Table 1. Distribution of EAs by province and setting 9 Table 2. Comparison between census and Financial Capability Survey profile 10 Table 3. Number and amount of operations processed in the SPA subsystems 16 Table 4. Measures of financial inclusion and development across economies 18 Table 5. Mobile money use from 2015 to 2018 24 Table 6. Credit access by urban setting 30 Table 7. Cross-country comparison of financial literacy scores 38 Table 8. Cross-country comparison of financial capability scores 46 Table 9. Financial service provider conflicts and resolutions 61 Table 10. Financial inclusion by social and demographic factors 71 Table 11. Financial literacy score by social and demographic factors 72 Table 12. Financial capabilities by social and demographic factors 73 Table 13. Financial literacy and financial behavior scores 75 Table 14. Financial inclusion by financial literacy (Fin. Lit.) score 75 Table 15. Financial inclusion by product awareness 76 Table 16. Financial inclusion by financial behavior scores 77

Box 1. Evolution of Bankita accounts 19 Box 2. CNEF Survey of Market Traders 20 Box 3. Financial literacy quiz 35 iv Enhancing Financial Capability and Inclusion in Angola

Box 4. The S&P Global Financial Literacy Survey 36 Box 5. Media consumption overview 43 Box 6. Financial literacy and attitudes toward debt 52 Box 7. Entrepreneurship in Angola 56 Map 1. Financial inclusion and average income by province 19 Map 2. Spatial distribution of formal saving and informal saving 27 Map 3. Spatial distribution of formal borrowing and informal borrowing 30

PREFACE

In this report, financial capability refers to the capacity the National Council on Financial Stability (CNEF, Con- to act in one’s best financial interest, given socioeco- selho Nacional de Estabilidade Financeira), which is the nomic and environmental conditions. It encompasses coordination and oversight body for the Financial Sector consumer knowledge (literacy), attitudes, skills, and Development Strategy (PDSF, Projecto de Desenvolvi- behavior with respect to understanding, selecting, and mento do Sistema Financeiro). CNEF has a special focus using financial services and the ability to access financial on financial inclusion, stability, and consumer protection services that fit consumer needs (World Bank 2013). and comprises the following permanent members: Min- ister of Finance, as coordinator; Governor of BNA, as Financial capability has become a policy priority for deputy coordinator; and the chairs of the Capital Market policy makers seeking to promote beneficial financial Commission and the Angolan Insurance Regulation and inclusion and to ensure financial stability and function- Supervision Agency (ARSEG). Additionally, the minister ing financial markets. Today, people are required to take can invite representatives of other ministries and financial increasing responsibility for managing various risks over and private sector representatives to CNEF’s meetings the life cycle. Those who make sound financial decisions based on the topics discussed. Moreover, the results of and effectively interact with financial service providers are the survey will be used to inform priority actions, outcome more likely to achieve their financial goals, hedge against indicators, and targets of Angola’s Financial Sector Devel- financial and economic risks, improve their household’s opment Strategy (PDSF). welfare, and support economic growth. Boosting financial capability has therefore emerged as a policy objective The key findings and recommendations of this report that complements governments’ financial inclusion and cover three main areas: financial inclusion, financial consumer protection agendas. To this end, policy mak- capability, and financial consumer protection. The ers increasingly use surveys as diagnostic tools to iden- remaining chapters are structured as follows: Chapter tify financial capability areas that need improvement and 1 introduces the report and summarizes recent legisla- vulnerable segments of the population that could be tar- tion and policies related to financial inclusion. Chapter 2 geted with specific interventions. reviews the current financial sector landscape in Angola, while Chapter 3 explores the financial inclusion landscape. As part of its broader engagement in support of finan- Chapter 4 gives an overview of adult levels of financial cial sector development work in Angola, the World capability, in particular regarding financial knowledge, Bank has implemented a financial capability survey. attitudes, and behaviors. Chapter 5 examines the rela- The survey constitutes a key diagnostic tool that aims tionships among financial inclusion and financial literacy, to provide guidance on the approach to, tools for, and knowledge, and attitudes and behaviors. The last chapter implementation of delivering financial education and to investigates financial consumer protection, conflicts with set quantifiable and concrete targets for the National financial institutions, and consumer perceptions of those Bank of Angola (BNA, Banco Nacional de Angola) and institutions.

v ACKNOWLEDGMENTS

The World Bank greatly appreciates the close collab- report, Lilian Sousa and Delia Dean, for their valuable oration with the executive secretariat of the National comments. Council on Financial Stability (CNEF-ES), Secretariado Executivo do Conselho Nacional de Estabilidade Finan- The team expresses its deepest appreciation to all other ceira) and the National Bank of Angola (BNA, Banco Angolan authorities including the Ministry of Finance, National de Angola) in the preparation of this report. the National Institute of Statistics of Angola, the Angolan Specifically, chapter 2 is based on draft inputs from BNA Insurance Regulatory and Supervision Agency (ARSEG), and box 2 on inputs provided by CNEF- ES, which are the Pensions Authority, Angola’s Capital Markets Com- greatly appreciated by the team. The team preparing mission, and many others, for their cooperation and col- this report was led by Siegfried Zottel (senior financial laboration during the preparation and implementation sector specialist)1 from the World Bank Group’s (WBG) of the survey. Finance, Competitiveness & Innovation Global Practice and included Justin Archer (research consultant), Mazen The team would also like to express its gratitude to the Bouri (program leader), and Delfim Mawete (financial team at Ipsos Kenya, which implemented the survey, and sector specialist). to all supervisors and enumerators whose efforts and commitments made this project possible. The report was produced under WBG’s Angola Financial Sector Reimbursable Advisory Services (P147800) led by The team thanks Leila Aghbarari for research assistance, Mazen Bouri (program leader), who provided technical Tora Estep for editorial assistance, and Naylor Design, guidance and support to the team. Inc. for design and layout assistance.

Olivier Lambert (country manager) and Rashmi Shankar Finally, the team owes particular appreciation to all the (practice manager) provided overall guidance to the women and men in Angola who patiently responded to team. The team is grateful to the peer reviewers of this the survey.

1. The corresponding author can be contacted at [email protected].

vi ABBREVIATIONS AND ACRONYMS

AML/CFT anti-money laundering and combating financing of terrorism ARSEG Angolan Insurance Regulation and Supervision Agency AKPK Credit Counseling and Debt Management Agency (Malaysia) BNA National Bank of Angola (Banco Nacional de Angola) BODIVA Angolan debt and securities exchange (Bolsa de Divída e Valores de Angola) CNEF National Council on Financial Stability (Conselho Nacional de Estabilidade Financeira) CNEF-ES National Council on Financial Stability–Executive Secretariat (Secretariado Executivo do Conselho Nacional de Estabilidade Financeira) EA enumeration area IMF International Monetary Fund INADEC National Institute for Defense of Consumers (Instituto Nacional de Defesa do Consumidor) INE National Statistics Institute (Instituto Nacional de Statistica) M&E Monitoring and evaluation MFI microfinance institutions NFIS National Financial Inclusion Strategy NGO Nongovernmental organization PCA principal component analysis PDSF Financial Sector Development Strategy SPA Angola’s payment system SSA Sub-Saharan Africa WBG The World Bank Group

vii

KEY FINDINGS

49% How ﬁnancially included are Angolans? 49% of surveyed adults 41% of women and 29% of rural residents have access to in Angola have access an account, compared with 55% of men and 58% of urban residents. to a transactional 58% account. 55% 41% 29% Adults without an account report lack of money, insufﬁciient documentatoin, lack of knowledge, and preference for cash as the main reasons Angolan adults either use formal, informal, or a mix of both methods to borrow and save both formally and at home

I have no I have no I don’t I prefer money documents know how41% cash CREDIT 16% 14% 8% SAVINGS 7% 24% 31% 29% 18% 12% 11% Formal Both Informal Formal Both Informal

1 2 How financially capable are Angolans? 3 4 On average adults were In analyzing an array of financial behaviors and attitudes, able to answer 2.6 out of 6 respondents scored lowest in behaviors related to 5 6 financial literacy-related farsightedness but showed the most strength in prudence. questions correctly. Capability in underlying components of prudence:

Disciplined (STRONGLY) AGREE 79% While 71% were able to perform simple divisions, Learns from mistakes (STRONGLY) AGREE 87% only 31% were familiar 31% COMPONENT with the concept of inﬂation, and a similar Capability in underlying components of farsightedness: 31% were capable of Live for the present 49% (STRONGLY) DISAGREE calculating compound interest. Act without thinking 68% (STRONGLY) DISAGREE

COMPONENT Impulsive 65% (STRONGLY) DISAGREE

35% How financially protected are Angolans? Only 35% of respondents More vulnerable populations are 59% were familiar with the less likely to act in the event purpose of consumer of a financial provider protection. conflict. 45%

Few complaints were ﬁled within the past 3 years:

5% Only 5% of adults 92% reported a conﬂict. 92% of This is common complaints within countries against banks 45% of men and 59% of women that have a low were resolved would take no action in case complaints culture. satisfactorily. of conﬂict

EXECUTIVE SUMMARY

Financial inclusion is a key enabler of reducing pov- The COVID-19 pandemic has hit Angola hard, espe- erty and boosting prosperity. Financial inclusion means cially affecting poor and vulnerable Angolans. While the that individuals and businesses have access to useful and direct health impact of COIVD-19 in Angola has been lim- affordable financial products and services that meet their ited, with 2,654 confirmed cases and 108 deaths recorded needs—transactions, payments, savings, credit, and insur- as of the beginning of September 2020, the economic ance—delivered in a responsible and sustainable way. The fallout of the pandemic is expected to significantly and ability to access a transaction account is a first step toward adversely impact poor and vulnerable populations, further broader financial inclusion, because a transaction account amplifying the deep inequality that has become a target allows people to store and receive payments. Financial of the Angolan government. Lack of access to the finan- access facilitates day-to-day living and helps families and cial sector can amplify this shock, and so understanding businesses to plan for everything from long-term goals to the relevant landscape is essential in informing current unexpected emergencies. As account holders, people are strategies and plans that seek to improve financial access more likely to use other financial services, such as credit and capability. and insurance, to start and expand businesses, invest in education or health, manage risks, and weather financial Shortly prior to the COVID-19 outbreak, approximately shocks, which can improve the overall quality of their lives. 49 percent of surveyed Angolan adults reportedly had At the same time, paying attention to financial capability access to a transactional account, a commonly used and consumer protection to promote responsible, sus- metric for international comparison. As compared with tainable financial services is critical. other developing countries in Sub-Saharan Africa (SSA), Angola has a relatively high level of financial inclusion Financial capability, as seen through the three key across most indicators, although the country lags other areas of financial inclusion, financial capability, and lower-middle-income economies. This pattern is consis- financial consumer protection, has expanded in Angola tent with the other financial sector indicators for Angola as even in the face of significant macroeconomic and compared with its country peers, though the country does pandemic disruption. Notable challenges exist within contain a greater density of access points than its peers. each of these key areas, and these challenges along with recommendations from the World Bank to policy makers Socioeconomic and demographic categories—espe- in Angola on measures to address them are detailed in cially gender and urban/rural residence—vary mean- the following. ingfully in the commonly used measure of financial

1 2 Enhancing Financial Capability and Inclusion in Angola

inclusion. Women are 14 percentage points less likely Thirty percent save using formal savings or deposits at than men to be financially included. This gender gap a commercial bank or bank that deals with micro-credit. in Angola is slightly higher than the gender difference Women save 4 percent less than men and rely more on observed in SSA where on average men are 12 percent- informal savings. Only half of rural residents undertake age points more likely than women to own a transactional any savings, while two-thirds of urban residents do, with account. Account ownership reaches 58 percent in urban the latter group utilizing formal savings products at a rate areas but falls by almost half to 29 percent in rural areas. more than double the former.

The use of money transfer services is low in Angola, Thirty-eight percent of Angolan adults report some with 17 percent of survey respondents reporting type of borrowing, across a range of formal and infor- current use of money transfers, which is likely linked mal sources. Sixteen percent of respondents use exclu- to the low level of remittance flows that account for sively formal credit products to borrow, while 8 percent less than 1 percent of GDP2. High transaction costs, of adults meet their borrowing needs by relying only including transfer fees and foreign exchange margins, on informal sources. Fourteen percent of adults blend are the key obstacle to sending and receiving remit- informal and formal sources of borrowing. Significantly tances, which lessens the benefits of these money trans- more men than women report any type of borrowing (42 fers. Reducing these costs could immediately improve percent vs. 34 percent). Urban areas outpace their rural the lives of migrants and their families. While the use counterparts in overall credit use, driven primarily by their of money transfer services is limited, those who do use adoption of borrowing from formal lenders. these services fall significantly into several key socioeconomic categories. For instance, those living in urban The most commonly reported obstacles to formal areas utilize these services at nearly twice the rate as account ownership are lack of enough money to use rural dwellers do. one—reported by 29 percent of adults without an account—and insufficient documentation—reported Whereas in other African markets where mobile money by 18 percent. A lack of trust in financial institutions is mostly drives inclusion of the unbanked, this is not not an issue in Angola, with only 3 percent reporting it the case in Angola where mobile wallets have not yet as a significant obstacle to greater financial inclusion. taken off. Mobile money usage remains underutilized Other commonly cited barriers such as distance and lack in Angola, despite its huge potential with mobile phone of knowledge can be directly addressed by public policy. usage reaching 64 percent of the population and most of Twelve percent report a lack of understanding of how to the unbanked living in rural areas that conventional brick open an account, and 10 percent of unbanked adults are and mortar channels with their high fixed costs struggle deterred from opening an account due to a lack of phys- to reach. The country’s 9.2 mobile money accounts per ical access. 1,000 adults is eclipsed by its neighbors’ rates of adoption, where the regional average nears 650 such accounts While access to financial services is of headline impor- per 1,000 adults. In recent years, a few mobile money ini- tance, financial knowledge and skills are essential, tiatives have launched, such as Xikila from Banco Postal, especially in an environment where financial prod- which was an immediate success. However, Banco Postal’s ucts are increasingly complex and delivered through license was revoked due to nonadherence to prudential new distributions channels. This report assessed the norms. E-Kwanza from Banco Angolano de Investimentos knowledge, attitudes, skills, and behaviors of consumers and BNIX from Banco de Negócios Internacional remain related to managing their resources and understanding, operational and, although these two platforms are not selecting, and making use of financial services that fit interoperable, indicate the potential of these services. their needs.

Sixty-two percent of adults in Angola report some Knowledge of basic ﬁnancial concepts is a challenge form of saving, including formal and informal savings, in Angola, as revealed by the fact that, on average, investments, private pensions, or car or building insur- survey respondents were able to answer 2.6 out of ance. More than half of all adults in Angola report saving 6 ﬁnancial literacy–related questions correctly. More at home or with informal or semi-formal savings groups. than half of the population answered at least three questions correctly, but few scored five correct answers (9.9 percent) and merely 2.1 percent managed to provide 2. See the World Bank Migration and Remittances database. Avail- able online at https://www.worldbank.org/en/topic/migrationre- correct responses to all six questions. Seventy-one per- mittancesdiasporaissues/brief/migration-remittances-data. cent of respondents were able to correctly calculate sim- Enhancing Financial Capability and Inclusion in Angola 3

ple division, while questions on inflation and compound expenses, they perform favorably with peer countries interest both generated a correct response rate of 31 when compared in terms of other measures of financial percent. Like most other countries, women display less capability. financial knowledge than men with female respondents on average underperforming men by 0.4 points overall. Financially included consumers need to be adequately Rural residents underperformed urban residents by 1.0 protected to ensure expanded access to financial ser- point. When compared with peer countries, Angolans vices is beneficial. Adequate protection allows them to performed relatively poorly where comparable scores make well-informed decisions, builds trust in the formal are available. For instance, Angolan adults rank near the financial sector, and contributes to healthy and competi- bottom in calculating simple division and understand- tive financial markets. Without adequate protection, con- ing inflation among all countries in the developed and sumers can be harmed if they cannot exercise their rights developing world for which comparable indicators are as consumers; cannot select products that suit them best; available. and are not protected from mis-selling, fraud, and other market abuses. Awareness of financial products in Angola is low, with respondents being familiar with products and The survey results suggest that although commercial services from an average of 1.9 different types of banks have the highest financial sector outreach, their service providers. Fourteen percent reported familiar- services generate less satisfaction than those of other ity with products from more than half of the available financial institutions in Angola. Specifically, the Angola providers. More than half of respondents were familiar Capital Market exchange, brokerage houses, money with products from at most one provider, and 35 percent transfer agents, and other nonbanking financial institu- were not aware of a financial product provided by any tions all have satisfaction rates exceeding 92 percent, financial institution. Fifty-eight percent of respondents while commercial banks rate at 87 percent. A closer look were familiar with products from commercial banks and into satisfaction rates among different user segments the next most common familiarity was with bureaus de reveals that banks are less likely to cater to women, rural change, with 29 percent reportedly knowing products or households, those without high levels of educational services offered. Money transfer agents and brokerage attainment, and those who are informally employed or houses rated the lowest. unemployed as compared with their respective counterpart groups. Financial behaviors identified through principal component analysis reveal that Angolans are generally Consumers rarely report complaints or other conflicts well capable at translating attitudes into beneficial with financial service providers. Only 5 percent of the financial behavior. As compared with other aspects surveyed adult population reported a dispute with a finan- of financial capability, Angolan adults show relative cial service provider in the past three years. This low rate strengths in terms of their ability to be disciplined and could be due to low awareness of when rights have been learn when managing money, to focus on financial and infringed, or of a diminished complaint culture. The inci- employment achievement, and to control their budgets. dence rate of reported disputes with providers of financial Survey respondents in Angola struggle the most with services is comparable to the few countries for which this long-term financial planning. Despite respondents’ con- indicator is available. trol of their budgets and self-restraint, the lowest overall financial capability scores indicate that poor planning for When conflicts occur, almost all Angolans reportedly old age and impulsiveness in financial decision making attempted some form of action to resolve the issue, are strong limitations. regardless of institution type, and were satisfied with the result. Rather than lodging a complaint with the finan- An international comparison with survey participants cial service provider, the majority of Angolan adults sub- in 12 countries confirms that Angolans generally mitted claims to appropriate government authorities. In exhibit good financial behaviors, but they would do addition, those who did not encounter a service provider well to improve upon planning for old age expenses. conflict indicated that they would prefer to resolve con- Survey participants in Angola perform equivalently to flicts with banks using social mechanisms and direct action similar countries on measures of saving and living within with the bank, while their preference for conflicts with their means. The cross-country comparison also shows other financial institutions is to utilize external authorities. that while respondents in Angola display weaker per- More vulnerable populations are less inclined to seek con- formance in farsightedness and in planning for old-age flict resolution. 4 Enhancing Financial Capability and Inclusion in Angola

RECOMMENDATIONS3 demand side of financial inclusion, and further research covering financial services providers would cover the Implement Angola’s PDSF and develop a National supply side of the equation and should therefore also Financial Inclusion Strategy (NFIS), while developing a be undertaken. Empowerment of CNEF-ES through the detailed action plan for implementing the work outlined implementation of the Financial Sector Development by these policies. To better coordinate efforts to increase Strategy is critical to enable monitoring and measur- the levels of financial inclusion among financial system reg- ing of progress toward increased financial inclusion and ulators, the government, and other stakeholders, develop- the successful execution of the NFIS action plan. Going ing an NFIS is essential. An action plan is a table of actions, forward, Angola could build on the existing data and programs, and reforms to be undertaken within the time- research initiatives and leverage INE staff expertise avail- frame of the strategy implementation, as agreed upon by able to facilitate measurement and monitoring. key public and private stakeholders. Ideally, the action plan should address the key challenges and opportuni- Implement the newly enacted reforms to the 2005 Pay- ties identified through this survey and should outline (i) a ment Systems Law, which will enable private mobile concrete and self-explanatory description of the actions to money operators to provide nationwide coverage of be implemented; (ii) the entity (or entities) responsible for digital financial services and allow for interoperability execution; (iii) the time of implementation of said action; among existing payment service platforms. Use of dig- and (iv) the priority of execution (high, medium, or low) ital financial services, such as mobile money, is minimal taking into account budget considerations. Such an action in Angola but has the potential to lower costs; increase plan can also be aligned with the activities of the Financial speed, security, and transparency; and allow for tailored Inclusion Observatory that BNA is developing to promote financial services that serve the poor at scale. The recently a more effective and efficient process to achieve significant passed update of the 2005 Payments System Law is improvements in financial inclusion. CNEF, which is coor- expected to impel the development of digital financial dinated by the Ministry of Finance, in collaboration with services as it will allow for a wide range of digital financial BNA, other public authorities, and private sector actors services providers and will equip the Angolan Payments involved in the implementation of the strategy should sign System with modern regulations while offering innovative off on all actions and reforms outlined in the action plan. and inclusive services. These services would also enable programs like the WBG’s COVID-19 response program A clear framework for results monitoring and evalu- Kwenda to safely transfer cash to its target poor and vul- ation (M&E) to be implemented as soon as possible nerable families. Digitizing such payments represents an should accompany the NFIS. CNEF-ES and other key opportunity to substantially increase financial inclusion, stakeholders could consider setting forth ambitious but particularly among the poor and vulnerable, and enhance achievable quantitative targets for increasing financial women’s economic empowerment. inclusion in Angola. Well-defined, publicized, and moni- tored targets can be a powerful tool for translating ambi- Harness the potential of agent-based models made tious goals into practice outcomes. Tracking progress possible through the Payment Systems Law reform against targets can provide valuable insights into obsta- and the recently approved BNA regulations (Notice cles and/or opportunities for financial inclusion which is a 07/2020) to help close the identified gender gap and critical activity for the next cycle of NFIS and is expected the gap between urban and rural populations in access- to be reviewed every five years to ensure alignment with ing financial services. Agent-based models in which the National Development Plan. Embedding financial service providers use third parties such as retail shops inclusion modules into regular household surveys, such to provide unserved segments of the population easy as the Angola Employment Survey (Inquérito ao Emprego access to their services near where they live and thereby em Angola), is another critical element of a robust M&E expand outreach at low cost have so far not succeeded framework for financial inclusion and would ideally be in expanding access points in Angola. The development based on an agreement among BNA, CNEF-ES, and of Xikila, a mobile money service focusing on basic pay- the National Statistics Institute (INE, Instituto Nacional ments and transfer services that enjoyed rapid growth de Statistica). This report provides research into the especially among low-income segments, showed that a strong demand exists in these areas for mobile money services. The development of a legal framework of subse- 3. Note that the recommendations provided in this report mainly arise from this demand-side survey of adults in Angola, not from quent regulations, already in place, will certainly allow the the supply side of financial institutions, nor from the relevant legal, development of sustainable agent networks and further regulatory, and supervisory framework. Even though references are help reach remote locations and rural populations that made as appropriate to these other dimensions, such references are not an exhaustive treatment of these dimensions. were previously excluded from financial services. Enhancing Financial Capability and Inclusion in Angola 5

Address major barriers to account ownership by con- In addition to providing basic accounts, promote the sidering policies that encourage the uptake and usage development and sustainable provision of diversified of simplified accounts, including Bankita accounts, financial services geared toward the specific needs of which effectively support poverty reduction efforts by the poor, rural dwellers, and women. Despite existing making it possible to send and receive money electron- efforts to extend products and services to low-income cli- ically at no cost and to store value safely. Insufficient ents, the survey data indicate a lack of suitable products money, insufficient documentation, and a lack of under- addressing the needs of large parts of the population. standing of how to open an account represent the main Even though many Angolans indicated they lack sufficient barriers to account access for nearly half of Angolans. The funds, this survey revealed that they still save, although Bankita savings account product4 was designed to reduce mainly relying on informal channels. Formal savings prod- these barriers, yet only 24 percent of respondents indi- ucts thus have potential, and their promotion could con- cated awareness of its existence. Research shows that the tribute to safeguarding savings that can help households uptake of similar accounts, when accompanied by other manage cash-flow spikes, smooth consumption, and build expansions of other novel bank products, may increase lump sums. Widening the range of insurance products financial inclusion (Dupas et al. 2016), leading to lower could be another approach given that insurance is a use- rates of poverty and improvements in income inequality ful instrument to mitigate shocks and manage expenses in developing countries (Omar and Inaba 2020). Interna- related to unexpected events such as medical emergen- tional experience in countries such as India and the Philip- cies, a death in the family, theft, or natural disasters. Given pines shows that the introduction of basic accounts must that the rural population relies heavily on agriculture as a be complemented with public awareness campaigns to main source of income, a need exists to offer insurance mitigate the risk of low uptake of these products. While products (e.g., harvest insurance, index-based weather BNA has supported awareness through the Financial Edu- insurance, and index-based livestock mortality insurance) cation Program, the gap in awareness reveals that a sig- that would allow agri-dependent households to smooth nificant portion of the population has yet to be reached. fluctuations in rural household incomes due to seasonality Previous awareness campaigns were shown to be effec- and to mitigate external risks associated with conducting tive, and so these efforts should be scaled up further, with business. While the private sector is likely to play a key a focus on reaching all who might use and benefit from a role in developing more suitable products for larger parts Bankita account. Further, incentivizing banks to promote of the population, the government’s role would be to pro- the product should be undertaken with the understanding mote innovations through incentives and to develop the that banks may have little economic incentive to voluntarily enabling regulatory framework. offer these accounts to their customers. Experience from countries such as Mexico shows that increased uptake A dedicated financial capability section in the broader and usage of products like Bankita could be achieved NFIS could be an important organizing framework to by channeling government-to-person payments, such as scale up and maximize the effectiveness of financial social cash transfers, government employee salaries, and capability interventions in Angola. The NFIS action plan pensions, through these accounts. To address the lack of should outline a set of priority programs to enhance finan- adequate documentation available to the poor, adopting cial capability levels of the overall population and specific a tiered approach to customer due diligence could be subgroups that would address shortcomings identified considered, wherein Bankita and other basic accounts (up through this survey (e.g., more than 40 percent of respon- to certain transaction limits) can be opened with a reli- dents to this survey face poor planning for old age and able official identity document or potentially with a let- making decisions with too much focus on the present). ter from a community leader. BNA has already approved Priorities could be set based on several criteria, includ- regulations to that effect by passing Notice 12/20, which ing the need, goals, costs, and availability of resources. allows simplified accounts for individual and commercial A lesson learned from countries that have developed and purposes.5 implemented such action plans or strategies is that the essential elements of such a document should include the roles and responsibilities of all involved stakeholders, 4. The Bankita account product is a basic account that allows custom- the main groups to target, the timeframe of implementa- ers to open an account immediately and has no maintenance costs tion, and, most importantly, the resources for implement- and a low required opening balance of Kz 100. 5. To open private accounts, clients can present a document issued ing the action plan. An essential step to initiate this work by the traditional community leader. Simplified commercial is the mapping and review of existing financial capability accounts allow informal merchants to request an automatic pay- initiatives in Angola to identify programs with potential ment terminal. Moving forward, continuing to promote the use of such initiatives through educational campaigns in rural areas and to be scaled, such as the Bankita awareness campaigns. informal markets will be important. Ideally, the action plan should provide guidance to stake- 6 Enhancing Financial Capability and Inclusion in Angola

holders on how to test programs before they are rolled examples of the use of entertainment education for out, how to monitor and evaluate programs that are finance are Scandal! in South Africa or Mucho Corazon being implemented, how to report the results, and how in Mexico. As with other soap operas, people watch to disseminate the results to stakeholders generally. This these edutainment dramas because they identify with work also helps to ensure that the action plan and future the characters and enjoy the stories, but in the course programs are informed by existing experiences, benefit of watching the shows, they benefit from the financial from lessons learned, avoid duplication, and potentially capability–enhancing messages and ultimately change leverage successful programs. For more information their behaviors. At the same time some research findings about the process of developing a financial capability indicate a possible short-lived impact of these interven- action plan see WB 2017 Good Practices for Financial tions (Di Maro et al. 2013). Consumer Protection.6 In addition to TV and radio programs, possible chan- To scale up financial capability efforts in Angola and nels to specifically reach out to young adults include address areas for improvement identified through this youth development associations, mobile applications, survey, it will be necessary to leverage the potential and social media websites that are popular with of mass media, and edutainment in particular, which, youth. For instance, in Malaysia, the Credit Counseling if properly done, can be an effective channel to help and Debt Management Agency (AKPK) undertakes an reach a large number of adults.7 Television is the most initiative known as POWER!, which is targeted to young reported source of entertainment in Angola with 79 per- adults and first-time borrowers and aims to equip them cent of adults indicating they watch regularly. With 78 per- with practical money and debt management skills that cent of adults reporting regularly listening to the radio, will help them to become more financially responsible these entertainment platforms combine to reach 93 per- adults.7 AKPK also provides briefings, docu-dramas, cent of the population and can be used to deliver effec- e-newsletters, a handbook, and classroom exercises, tive messaging, akin to similar efforts in other countries and has also created a social media website. Given that looking to address gaps in financial capabilities. Research this survey indicates that around 85 percent of young shows that conveying financial messages in innovative adults regularly use mobile phones, mobile applica- ways, such as through the use of popular TV soap operas, tions could be another promising outreach channel. A films, videos, or radio programs, can be quite effective, good example of a mobile app is the mobile budget not only in improving knowledge but also in altering app (Mobile Financial Assistant) developed for young behavior (Berg and Zia 2013). Edutainment programs are adults by the Polish Financial Supervision Authority. This also presumed to be more effective if messages are deliv- mobile app is designed to help monitor and analyze ered in an engaging and entertaining manner through personal spending and to facilitate budget planning and appealing and memorable stories and if they are repeated is available free of charge to users of mobile phones and and reinforced over time. other mobile devices.

Given overall low product awareness levels, mass Effective measures to address poor long-term financial media campaigns that provide information about planning go beyond traditional financial capability pro- key features of financial products may be an effec- grams by using nudges8 and reminders, default options, tive means of increasing beneficial use of financial and smart product design. Studies in Bolivia, Peru, and products. The survey results suggest that, with 71 and the Philippines show that simple, timely text messages 58 percent respectively reporting regularly listening or reminding people to save can boost savings rates in line watching, radio and television would be effective chan- with earlier established goals (Karlan et al. 2010). Because nels to reach populations that are the least familiar with adults in Angola struggle with long-term financial decision financial products. An example of how to address low making, periodic reminder messages could induce them product awareness levels is a popular television soap to attend to the benefits and tasks of saving regularly and opera in Kenya with more than six million viewers, Maku- putting money aside for old-age expenses. The Philip- tano Junction, which incorporated financial education pines study in particular shows that commitment devices messages into some of its stories. These messages have can have a strong and positive effect on people’s finan- included encouraging people to open a bank account, cial behavior. Specifically, the study shows that individuals rather than keeping money under a mattress. Other who were offered and used savings accounts without the

6. Available online at https://openknowledge.worldbank.org/ 7. http://www.akpk.org.my/services/financial-education/power handle/10986/28996 8. Nudges within behavioral economics are small changes to an environment that can channel decision making and behavior in new ways. Enhancing Financial Capability and Inclusion in Angola 7

option of withdrawal for six months increased their sav- ment financial capability efforts. To address issues of ings by 82 percent more than a control group that was not muted response related to the culture surrounding con- provided with such an account. sumer complaints, BNA in consultation with the National Institute for the Defense of Consumers (INADEC, Insti- As the survey results suggest that starting early can tuto Nacional de Defesa do Consumidor) should consider have value, early-age financial capability interventions whether existing legal and regulatory provisions follow should also be encouraged. As seen across many mea- international best practices and require banks and other sures of financial inclusion and capability, saving as a financial institutions to disclose in all precontractual and child is a strong predictor of participating in the financial contractual disclosure documents detailed information sector as an adult and is closely associated with higher on the right to lodge complaints, the manner in which scores on measures of financial acumen. If people form complaints may be filed, and the mechanisms for how sound money management habits from a young age, complaints are handled (including contact information of they are more likely to adhere to them throughout their the person or division within the institution authorized to lives. International evidence on the effectiveness of receive and respond to complaints and time limits). At school-based financial education programs in changing a minimum, contact information and a reference where student behavior is mixed. Nevertheless, other coun- more information can be found should be disclosed. The tries that have implemented such programs provide disclosure documents could also summarize next steps some lessons. For example, the rigorous evaluation of the consumer may take if not satisfied with the reso- a large-scale school-based financial education program lution, including the option to use BNA’s client portal, in Brazil shows that such programs are particularly effec- through which complaints can be submitted. tive when financial education is provided in ways that students find relevant to their lives, either currently or in To ensure that adequate mechanisms are in place the near future, and if it is interactive (Bruhn et al. 2013). to handle complaints fairly in-house, BNA should High-quality material or textbooks are therefore required, consider reviewing and assessing whether minimum and teachers need to be well trained on the content and standards for complaints handling within banks and techniques. Several websites provide links to teaching nonbank providers could be established or further resources.9 CNEF ES in partnership with the Ministry of enhanced by setting more specific rules. For instance, Education has started an initiative aimed at developing in line with WB 2017 Good Practices for Financial Con- a curriculum that integrates financial education lessons sumer Protection,10 minimum standards with respect to for young people that should be further advanced. As the complaints-handling function and procedures could existing curricula may already be saturated, integrating require banks and nonbank providers, among others, financial education into various existing subjects includ- to make available a range of channels—telephone, fax, ing math, economics, or social studies may be advisable, email, and web—for filing consumer complaints appro- rather than adding a new subject into the curriculum. In priate to the type of customers served and their physical case resources to train teachers and to develop and pro- location, including offering a toll-free telephone number vide teaching materials are limited, focusing, at least at to the extent possible, depending on the size and com- the onset, on incorporating financial education into one plexity of the operations of the financial service provider. or two subjects over three or four consecutive academic Given the survey results and to level the playing field, semesters may be best (Bruhn 2013). providers should prioritize channels that can reach vulnerable segments—women, rural dwellers, and those Some of the aforementioned survey findings suggest with lower levels of educational attainment—that were that measures to strengthen the financial consumer found to be less inclined to act in the event of a financial protection framework, including the disclosure of service provider dispute. consumer rights and recourse, would need to comple- Finally, consideration should be given to assessing

9. These include the Australian Securities and Investments Commis- whether ﬁnancial institutions comply with consumer sion’s MoneySmart Teaching website (https://moneysmart.gov. protection requirements, including information dis- au/), which lists a range of educational materials that have been closure, fair advertising, and complaints handling and vetted by a quality assurance process, and the U.S. Jump$tart Coalition Clearinghouse (https://www.jumpstart.org/what-we-do/ redress, and to promoting sound business practices support-financial-education/clearinghouse/) and the U.K. Personal by using adequate market conduct supervisory tools. Finance Education Group website (https://www.young-enterprise. org.uk/). Some resources are available free of charge and others are available for purchase. The Citigroup Financial Education Cur- 10. For more information see https://openknowledge.worldbank. riculum contains interactive lessons, facilitator tips, and printable org/bitstream/handle/10986/28996/122011-PUBLIC-GoodPrac- lesson plans (that are available in several languages) for use from tices-WebFinal.pdf?sequence=1&isAllowed=y kindergarten and up. 8 Enhancing Financial Capability and Inclusion in Angola

Mystery shopping is a powerful tool to achieve this and practice of consumer protection in the industry11 and can be used to gain additional insights into why banks oversees the BNA portal for financial services’ consum- and their products appear to satisfy their clientele less ers, which provides information about financial products, than other type of providers. Mystery shopping can consumer rights, latest market information including be a very powerful tool to test banks’ compliance with interest rates, and provides a link for consumers to make specific requirements and to determine the quality and complaints. In that regard, BNA should consider analyz- quantity of information consumers receive or if suitable ing consumer complaints statistics submitted through its advice is given (Giné and Mazer 2016). However, to real- client appointment portal and by financial service pro- ize the benefits of this supervisory tool, mystery shop- viders and use this information as inputs into its super- ping needs to be well structured and needs to cover a visory and regulatory activities. Because many financial reasonable sample of providers, and the shoppers need consumers tend to approach INADEC to lodge com- to ask the same questions at each provider based on plaints, BNA should consider coordinating with INADEC a simple and plausible scenario. The BNA Department to share its complaints data as additional input to BNA’s of Market Conduct Supervision has already undertaken supervisory and regulatory activities. Based on analysis several initiatives to strengthen the framework for and of consumer complaints and inquiries, BNA could pro- pose guidelines and instructions or conduct awareness

11. The department monitors and promotes transparent and campaigns that address the main problems identified in efficient functioning of financial institutions by reviewing proce- such analyses. dures for the licensing and marketing of financial products and services; safeguarding contractual aspects, including rights and obligations of consumers; and conducting regular onsite and The following table summarizes key recommendations offsite supervision to ensure that regulations relating to product within the areas of interest. transparency, marketing, and dispute resolution are being followed.

Summary of Key Recommendations

RECOMMENDATIONS RESPONSIBLE TERM2 Financial Advance PDSF implementation action plan and M&E CNEF-ES/BNA ST/MT Inclusion framework Leverage agent-based models to expand outreach to rural BNA LT and underserved areas Promote diversified financial services geared toward BNA, CNEF-ES, banking and private MT/LT specific needs of the underserved sector Financial Scale up financial capability via standalone initiatives or BNA, CNEF-ES, industry associations, MT Capability within PDSF financial capability action plan consumer associations, and other relevant stakeholders Consider engaging mass media and edutainment to BNA, CNEF-ES, industry associations, MT enhance financial product awareness and financial consumer associations, and other capability among adults relevant stakeholders Consider integrating financial education into existing BNA, Ministry of Education LT curricula Consumer Assess whether regulatory action is needed to improve BNA and other financial sector ST Protection disclosure of consumer rights and recourse regulators Review and assess if minimum standards for complaints BNA and other financial sector ST handling could be established or further enhanced by regulators setting more specific rules (e.g., prioritize channels to reach marginalized groups) Use a broad range of supervisory tools, including analysis of BNA, INADEC, and other financial MT consumer complaint data from the BNA client appointment sector regulators portal for supervisory and regulatory activities

Note: PDSF, Financial Sector Development Strategy; M&E, monitoring and evaluation; CNEF-ES, National Council on Financial Stability– Executive Secretariat (Secretariado Executivo do Conselho Nacional de Estabilidade Financeira); BNA, National Bank of Angola (Banco Nacional de Angola); ST, short term, indicates action can be undertaken in 0–6 months; MT, medium term, indicates 6 months–1 year; LT, long term, indicates 1+ years. Enhancing Financial Capability and Inclusion in Angola 9

BACKGROUND ON THE for the future, choosing financial products, and staying ANGOLA SURVEY informed. To jointly analyze financial capability and inclusion, the survey instrument captures information on usage The financial capability questionnaire used for this sur- of different kinds of financial products and providers. The vey was extensively tested in the context of middle- financial consumer protection section gathers information and low-income countries. The survey instrument used on incidence of conflicts with financial service providers is based on a questionnaire developed with support from and levels of satisfaction with financial products offered by the Russia Financial Literacy and Education Trust Fund different financial institutions. and is tailored to measure financial capability in low- and middle-income countries, although it can also be used The Angola survey is representative of the financially in high-income countries. Extensive qualitative research active population of the covered regions and comprises techniques were used to develop this survey instrument, a total sample of 1,189 adults. To fulfill the requirement including about 70 focus groups and more than 200 cog- of a scientifically sound survey that allows inferences to nitive interviews in eight countries to identify the concepts the whole universe of financially active adults in Angola, that are relevant in middle- and low-income settings and a stratified three-stage cluster sampling method was to test and adapt the questions to ensure that they are used. The first stage involved the selection of geograph- well understood and meaningful across income and edu- ical areas (enumeration areas or EAs) using a probability cation levels. The instrument is currently used or planned proportion-to-size approach where the survey was con- to be used in 14 countries in Africa, East Asia and the ducted. The second stage of sampling entailed randomly Pacific, Latin America, and the Middle East. selected households within each EA. The third stage of sampling entailed the random selection of one individual The survey instrument used allows financial capability, 15 years or older per sampled household using a Kish financial inclusion, and consumer protection issues to grid. To achieve the sample of 1,200 individuals 15 years be assessed and measured. Financial capability is mea- or older, 150 EAs were sampled during the first stage of sured in terms of knowledge of financial concepts and sampling and eight households per EA were selected products and in terms of attitudes, skills, and behavior during the second stage of sampling. Households with related to day-to-day money management, planning household members 15 years or older constituted the

TABLE 1. Distribution of EAs by province and setting URBAN RURAL TOTAL Province EAs Number of interviews EAs Number of interviews EAs Number of interviews Cabinda 3 24 2 16 5 40 Zaire 3 24 2 16 5 40 Uíge 3 24 7 56 10 80 Luanda 21 168 2 16 23 184 Cuanza Norte 3 24 2 16 5 40 Cuanza Sul 4 32 9 72 13 104 Malanje 3 24 4 32 7 56 Lunda Norte 3 24 3 24 6 48 Benguela 8 64 5 40 13 104 Huambo 5 40 7 56 12 96 Bié 3 24 5 40 8 64 Moxico 3 24 3 24 6 48 Cuando Cubango 2 16 2 16 4 32 Namibe 2 16 2 16 4 32 Huíla 4 32 8 64 12 96 Cunene 3 24 4 32 7 56 Lunda Sul 3 24 2 16 5 40 Bengo 3 24 2 16 5 40 Angola 79 632 71 568 150 1200 Source: WBG Financial Capability Survey, Angola 2019 Note: EA, enumeration area. 10 Enhancing Financial Capability and Inclusion in Angola

sample frame per EA.12 Table 1 shows the distribution of TABLE 2. Comparison between census and the EAs by province and setting and the target number of Financial Capability Survey profile interviews within each province and setting. FINANCIAL INE CAPABILITY To adjust for different probabilities of sampling across SURVEY the population, weights were calculated and used for Population distribution all analyses in this report. Individual responses were 15–24 years 27.8% 19.6% weighted based on their probability of selection, which was 25–65 years 65.2% 77.8% based on the probability of their household being selected 65+ years 6.9% 2.6% within its EA, the number of EAs within the stratum, the number of households in its EA, the number of households Gender distribution in its stratum, the number of households sampled within Male 51.3% 53.5% its EA, and the number of households listed in its sample Female 48.7% 46.5% EA within its stratum. Regressions used these household Setting weights while also designating the urban/rural, household, Urban 63.2% 67.8% and respondent strata within the survey design. Rural 36.7% 32.2% Between November 2019 and January 2020, a survey Province firm implemented the survey using computer-assisted Bengo 1.5% 1.0% personal interview methods. Ipsos, in conjunction with Benguela 8.4% 5.6% its Angolan supplier HFC Research, was hired to conduct Bié 5.7% 3.1% the Financial Capability Survey in Angola. To ensure the Cabinda 2.7% 2.5% highest data quality and avoid common errors associated with paper-and-pencil surveys, an electronic version of Cuando Cubango 2.1% 3.3% the questionnaire that included checks for consistency Cuanza Norte 1.7% 1.1% was programmed and the survey was administered from Cuanza Sul 7.2% 7.2% tablet computers using the iField platform. Cunene 3.8% 1.8% Huambo 7.9% 6.9% The profile of the Financial Capability Survey matches Huila 9.6% 6.8% key characteristics of Angola’s general census. Table 2 shows minor differences between the population distri- Luanda 27.3% 41.9% bution and the surveyed population, in part due to the Lunda Norte 3.3% 3.5% selection criteria of the Financial Capability Survey (adults Lunda Sul 2.1% 2.6% 15+). Appendix A provides additional characteristics of Malanje 3.8% 1.8% the survey’s respondents. Moxico 2.9% 2.4% Namibe 1.9% 0.7% 12. The final sample size of 1,189 was lower than the targeted 1,200 for two reasons. Permission to survey within one EA was denied Uíge 5.7% 6.4% by administration and subsequently omitted due to the gap in Zaire 2.3% 1.5% survey date that would result if replaced. Also, four EAs did not achieve the target of 8 complete interviews each due to an insuf- Source: National Statistics Institute (INE, Instituto Nacional de ficient number of households within each EA boundary. The final Estatistica), Integrated Survey on Welfare of the Population, data sample included few respondents aged 15–17 primarily due to acquired via website; WBG Financial Capability Survey, Angola 2019 the restriction of eligibility to those who are responsible for either their household or personal financial decision making, or if they personally have an income. When a youth was randomly selected and found not to have the required eligibility, another household member was randomly selected in their stead. Enhancing Financial Capability and Inclusion in Angola 11

1. INTRODUCTION sector can amplify this shock, and so understanding the relevant landscape is essential for informing the strategies Inequality marks the Angolan economy, but strong and plans that seek to improve financial access and capa- political movement now aims toward policies that bility currently being developed and implemented. promote more inclusive economic growth. The administration of President João Lourenço, inaugurated in Sep- As in many other countries, increasing access, usage, and tember 2017, has begun implementing reforms to refocus quality of financial products and services has become a the Angolan economy away from a reliance on oil reve- priority in Angola. Over the past years, the authorities in nues and growth driven by public spending and toward Angola have made considerable efforts to ensure that the macroeconomic stability, sustained private-sector-led inclusiveness of Angola’s financial sector matches its rela- growth, and improved human development and poverty tively advanced depth and diversification. Among the var- outcomes. An initial six-month interim plan implemented ious measures taken by public authorities, the creation of shortly after the beginning of the presidency’s term was the National Council on Financial Stability (CNEF, Conselho followed by a macro stabilization program and a national Nacional de Estabilidade Financeira) marks an important development plan that lays out a road map for a more milestone. Composed of various financial sector regula- diversified and inclusive growth model for 2018–2022 tors and chaired by the Ministry of Finance, this new body (World Bank 2019a). aims to strengthen financial stability and consumer trust in financial institutions. In 2018 the CNEF Cabinet Council The COVID-19 pandemic has hit Angola hard, primar- approved Angola’s Financial Sector Development Strategy ily through depressed oil prices. Prior to the pandemic, (PDSF). Financial education is one of the main policy areas Angola’s GDP was expected to grow 2.9 percent in 2020. of the PDSF financial inclusion pillar. The dual shock of the pandemic and a collapse in the global price of oil has had a severe impact on the Ango- In line with the PDSF and its strategic plan 2018–2022, lan economy, which is now expected to contract by 4.0 the National Bank of Angola (BNA, Banco Nacional de percent this year. Faced with a sharp decline in global Angola) has implemented a set of measures aimed at demand, oil prices have fallen, as of April, by more than increasing the population’s financial literacy. Among 50 percent compared with 2019 levels. Angola is very others, the PDSF defines measures related to the imple- dependent on crude oil exports, which account for 96 per- mentation of financial education programs to standardize cent of exports and 60 percent of central government rev- and open simplified bank accounts called Bankita accounts enues. A depressed oil sector has spillovers for the non-oil (see Box 2 later in chapter 3). To this end, BNA concluded economy and the measures taken to mitigate the spread the Adhesion Agreement with the following 13 banks, of COVID-19 will have an additional adverse impact on Banco de Fomento Angola, Banco de Comércio e Indús- the Angolan economy, especially on the services sector. tria, Banco Comercial Angolano, Banco de Poupança e Crédito, Banco Sol, Banco de Businesses Internacional, The COVID-19 shock has affected poor and vulnera- Banco Bic, Banco Keve, Banco Bai Microfinanças, Banco ble Angolans, and they would be especially hurt by Económico, Banco Millenium Atlântico, Banco Yetu, and a failure to safeguard macro-stability, resulting in an Banco de Investimento Rural, to commercialize Bankita expected increase in the poverty headcount in 2020 products such as Bankita à ordem accounts and Bankita à from 32 to 38 percent. While the direct health impact crescer—the latter with incentives for saving. In addition, of COIVD-19 in Angola has been limited, with 2,654 con- BNA conducted 40 campaigns and 136 lectures across the firmed cases and 108 deaths recorded as of the beginning country to increase awareness of and promote the opening of September 2020, the economic fallout of the pan- of Bankita accounts. These efforts translated into 83,186 demic is expected to significantly and adversely impact new accounts opened in the first half of 2019 (see box 1). poor and vulnerable populations. Most Angolans work in subsistence agriculture or in the informal economy in In a joint effort with the Angolan Financial Information urban areas, which leaves them highly vulnerable to eco- Unit, BNA conducted a series of activities related to nomic shocks with little access to social protection. The anti-money laundering and combating the financing oil price decline has resulted in further depreciation of the of terrorism (AML/CFT) and de-risking that may help Angolan kwanza. Rising inflation, driven by exchange rate to advance financial inclusion. The measures related to pass-through and especially higher prices for imported the published law considered the urgent need to review foodstuffs, presents a significant threat to the livelihoods the system for preventing and suppressing money laun- of the urban poor, who are also the most exposed to job dering and terrorism financing to strengthen the level of and income losses due to measures aimed at mitigating compliance with international standards. The AML/CFT the spread of COVID-19. Lack of access to the financial National Risk Assessment, launched in 2017 and com- 12 Enhancing Financial Capability and Inclusion in Angola

pleted in June 2019, contributed to the revision of the Nº NAME INITIALS REGISTER AML/CFT framework, which was then approved by Par- 1 BANCO ANGOLANO DE BAI 40 liament in November 2019. This exercise will also help INVESTIMENTOS, S.A. to identify simplified customer due diligence measures BAI 40 that can support financial inclusion, while appropriately 2 BANCO YETU, S.A. YETU YETU 66 mitigating the money laundering and terrorism financing risks. Finally, in its role as the supervisor and guarantor 3 BANCO BAI MICRO BMF 48 of financial stability, BNA coordinates, annually, comple- FINANÇAS, S.A. tion of the De-Risking Form for the Eastern and South- 4 BANCO BIC, S.A. BIC 51 ern African Anti-Money Laundering Group by Banking 5 BANCO CAIXA GERAL BCGA 4 and Non-Financial Institutions, whose objective is to ANGOLA, S.A. BCGA assess the existence, nature, extent, drivers, impact, and 6 BANCO COMERCIAL BCA 43 responses to de-risking in the region.13 ANGOLANO, S.A. 7 BANCO COMERCIAL DO BCH 59 HUAMBO, S.A. 2. FINANCIAL SECTOR 8 BANCO DE COMÉRCIO E BCI 5 LANDSCAPE14 INDÚSTRIA, S.A. 9 BANCO DE DESENVOLVI- BDA 54 The following section provides a macroeconomic over- MENTO DE ANGOLA, S.A. view of the national financial system of Angola, which 10 BANCO DE FOMENTO BFA 6 will serve to provide a better understanding of the facts ANGOLA, S.A reported therein from a financial system stability and 11 BANCO DE INVESTI- BIR 67 integrity point of view. MENTO RURAL, S.A. 12 BANCO DE NEGÓCIOS BNI 52 INTERNACIONAL, S.A. 2.1 COMMERCIAL BANKS 13 BANCO DE POUPANÇA E BPC 10 Banking Sector Size CRÉDITO, S.A. Commercial banks dominate the ﬁnancial sector in 14 BANCO ECONÓMICO, S.A. BE 45 Angola. By the end of 2019, 26 banking financial institu- 15 BANCO KEVE, S.A. KEVE 47 tions were authorized to operate in the Angolan financial system. These comprise three public banks, 17 national 16 BANCO KWANZA INVESTI- BKI 57 private banks, five subsidiaries of foreign banks, and one MENTO, S.A. foreign branch. Regarding nonbank financial institutions, 17 BANCO PRESTÍGIO, S.A. BPG 64 113 were authorized, comprising 66 currency exchange offices, 27 microcredit companies, 15 remittance ser- 18 BANCO MILLENNIUM ATL 55 ATLÂNTICO, S.A. vice companies, two credit unions, one financial leasing company, and two payment service providers—mobile 19 BANCO SOL, S.A. BSOL BSOL 44 banking. 20 BANCO VALOR, S.A. BVB 62

The concentration of agencies and bank branches is 21 BANCO VTB ÁFRICA, S.A. VTB 56 high in Luanda, Benguela, and Huíla provinces com- 22 FINIBANCO ANGOLA, S.A. FNB 58 pared with the rest of the country. The overall Angolan banking system was composed of a total of 1,579 agencies 23 STANDARD BANK DE SBA 60 and bank branches, 119 agencies and currency exchange ANGOLA, S.A. branch offices, 45 agencies and branches of microcredit 24 STANDARD CHARTERED SCBA 63 BANK DE ANGOLA, S.A.

13. Given regulatory reforms at the international level, a termination 25 BCS – BANCO DE CRÉDITO BCS 70 and restriction scenario within the relationships resulting from the DO SUL, S.A. de-risking phenomenon has been apparent in the global financial 26 BANCO DA CHINA L BOCLB 7 system, in which global financial institutions increasingly termi- IMITADA – SUCURSAL EM nate or restrict business relationships with remittance companies and local banks in certain regions of the world, such as the South- LUANDA ern African Development Community, where Angola is located. 14. Chapter 2 is based on draft inputs from BNA. Enhancing Financial Capability and Inclusion in Angola 13

companies, 24 agencies and branches of remittance com- FIGURE 1. Asset structure panies, and one credit union agency. Fifty-five percent of 18 30% all agencies and bank branches are in Luanda, 8 percent 26.11% 16 in Benguela, and 5 percent in Huíla provinces. 25% 14 22.21% Banking System—Assets 20.55% 12 20% At the end of the 2019 financial year, banking system 17.65% assets were valued at approximately Kz 15.76 billion, 10 an increase of about Kz 2.86 billion (22 percent) from 15% 8 the end of the 2018 financial year, influenced, funda- Billion Kz mentally, by the 58 percent increase of investments 6 10% 7.25% in banks and other credit institutions. Assets denom- 4 inated in foreign currencies had greater representation 5% with the share of 51 percent and a greater increase of Kz 2 1.15% 1.78 billion (28.14 percent) compared with Kz 1.08 billion (16 percent) of assets in local currency. This was associ- 0 0% 2014 2015 2016 2017 2018 2019 ated with the sharp depreciation of the national currency Other fixed assets Hedge derivatives with positive against the foreign currency that occurred throughout Commercial and industrial inventories fair value 2019. Amid the economic slowdown, the structure of and advances to suppliers Marketable securities the banking sector’s aggregate assets remained like that Other assets Investments in central banks and other credit institutions recorded in 2018. Thus, although it has slowed down (15 Net credit Foreign exchange operations Cash and available funds percent vs. 28 percent in the same period), the growing Credits in the payment system Annual change in assets trend continues in state funding via bonds and securities, Source: remaining the largest item in banking assets representing The National Bank of Angola (BNA, Banco Nacional de Angola) 32 percent (Figure 1). FIGURE 2. Liabilities structure Banking System—Liabilities 16 30% 27.45% The total liabilities of the banking sector were around Kz 14.12 billion in 2019, an increase of Kz 3.04 billion 14 24.14% 25% (27 percent) from 2018, influenced mainly by depos- 15 its of around Kz 2.35 billion (25 percent). Resources 12 19.78% 20% from customers and other loans remains the main source 17.08% of funding for bank financial institutions, with a weight of 10 83 percent of total liabilities. This liability corresponds to 15% Kz 11.77 billion, of which 53 percent represented time 8 deposits, which increased by Kz 1.64 billion (35 percent), 8.30% 10% higher than the increase of Kz 735.14 billion (16 percent) Billion Kz in demand deposits. With regard to the economic activ- 6 ity sector, the banking sector registered higher levels of 5% deposits in the fields of “individuals” (30 percent), “real 4 estate activities, rentals, and services provided to com- –0.75% 0% panies” (21.28 percent), “wholesale trade and retail” (12 2 percent), and “other collective, social, and people services” (10 percent) (Figure 2). 0 –5% 2014 2015 2016 2017 2018 2019 Credit Evolution Technical provision Hedge derivatives with negative At the end of 2019, gross credit issued by the banking Provisions fair value sector was Kz 4.76 billion, an increase of 18 percent Industrial and commercial suppliers Financial liabilities at fair value through profit or loss Other liabilities over the Kz 4.16 billion registered in the previous year, Liabilities represented by securities Client advances essentially resulting from the impact of the national Resources from central banks and Subordinate debt other credit institutions Foreign-exchange operations (P) Resources from customers and other Payment system obligations 15. US$ to Kz exchange rate as of December 31, 2019, was 1:482.39, loans so liabilities totaled US$24.5 million in 2019. Annual assets variation Source: The National Bank of Angola (BNA, Banco Nacional de Angola) 14 Enhancing Financial Capability and Inclusion in Angola

currency depreciation. Regarding credit issued by the December 2019, the default ratio worsened from 27 per- institutional sector, the private nonfinancial business sec- cent to 32 percent. As a result, the appetite for credit risk tor received around 75 percent of the total portfolio, fol- remained limited, and given this scenario, the transforma- lowed by the individuals sector with 15 percent. Within tion ratio continued a downward trend, having decreased the “wholesale and retail trade” sector, Angolan banks from 44 percent to 42 percent (Figure 3). issued credit primarily to businesses engaged in repair work (23 percent of the credit to the sector), individual Solvency Ratio trades (15 percent of the credit to the sector), and real Regarding the solvency ratio, after a sharp growth of 7 estate (14 percent of the credit to the sector). percentage points in 2018, due to reinforcement of the share capital by banks,16 a decrease of 2.41 percentage Evolution of Overdue Credit points was noted, due to the negative results recorded in Default loans worsened signiﬁcantly, registering an the period. However, the banking sector remained solid increase of 43 percent for a total of Kz 1.60 billion. and robust with capital levels above the regulatory limit From mid-2014, when structural imbalances in the Ango- (10 percent) (Figure 4). lan economy began, until 2019, nonperforming loans have tripled with an increase of approximately 336 percent. Considering the volume of nonperforming loans in 16. Under Notice No. 02/2018, BNA dated 2 March 2019.

FIGURE 3. Default and transformation ratio

Default ratio 6 32.40% 35%

28.85% 30% 5 26.97% 4.93

4.16 25% 4 3.59 3.62 3.62 3.21 20% 3 15% Billion Kz 2 12.67% 1.60 11.42% 11.48% 10% 1.04 1.12 1 5% 0.37 0.41 0.46 0 0% 2014 2015 2016 2017 2018 2019

Gross credit Nonperforming loan Default ratio

Transformation ratio 14 70% 11.77 12 60% 59.90% 58.96% 49.32% 10 9.42 50% 51.53% 40% 8 7.02 7.33 44.15% 41.88% 6.09 6 5.35 30% Billion Kz 4.93 4.16 4 3.21 3.59 3.62 3.62 20%

2 10%

0 0% 20142015 2016 20172018 2019

Total gross credit Total deposits Total gross credit/Total deposits

Source: The National Bank of Angola (BNA, Banco Nacional de Angola) Enhancing Financial Capability and Inclusion in Angola 15

FIGURE 4. Solvency ratio

2.5 30% 25.61% 2.00 25% 2.0 2.08 19.83% 19.79% 19.74% 23.20% 18.79% 20% 1.5 1.42 1.33 1.12 15% 0.92

Billion Kz 1.0 10%

0.5 5%

0.0 0% 2014 2015 2016 2017 2018 2019

2016 Regulatory own funds Regulatory solvency ratio

Source: The National Bank of Angola (BNA, Banco Nacional de Angola)

Angola’s Payment System and instant payments system. In terms of innovation, Angola’s payment system (SPA) is regulated by the single state payment reference was implemented in the National Bank of Angola (BNA, Banco Nacional de Angola Automated Clearing House retail subsystems to Angola), with a view to fulfilling the public interest facilitate revenue collection. Lastly the Angola Payment with the following objectives: safety, operational reli- System Innovation Laboratory was created, which will pro- ability, efficiency, and transparency. In this context, SPA’s vide a favorable ecosystem for the development of finan- 21 stakeholders include, among others, BNA and the Tech- cial technologies (see Table 3). nical Council of Angola’s Payment System. SPA is made up of five retail subsystems: the check clearing subsys- 2.2 NONBANKING FINANCIAL INSTITUTIONS tem (SCC),17 the Multicaixa subsystem (MCX),18 the credit transfers subsystem (STC),19 the direct debit system, and The microfinance sector is largely untapped or nonex- the real-time payment system (SPTR).20 Currently, appro- istent. A few players that offer limited services dominate priate actions are being taken to implement the mobile the sector. Twenty-seven microcredit institutions exist in the country; of these 25 are in Luanda and two are in Ben- guela. There are two credit cooperatives, both based in 17. In SCC, the use of checks is significantly reduced, which is a pos- Luanda. Also, four commercial banks in the country offer itive factor—i.e., the use of electronic instruments such as cards and transfers to the detriment of checks. microfinance services: Banco Sol, Banco de Poupança e 18. At the retail level, the 24/7/365 environment was implemented Crédito, Banco de Comércio e Indústrial and, Banco Bai in the Multicaixa subsystem, through Notice no. 06/17 of July Micro Financas.After the sale of NovoBanco to BMF, only 10, 2017, National Bank of Angola. This establishes Multicaixa network service levels and guarantees the full availability in real one nonbank microfinance institution (MFI) remains in time of the internal information systems of Multicaixa network Angola, KixiCredito. In 2006, KixiCredito was created out participants, which is necessary to implement operations in real of the Sustainable Livelihoods Project, which had been time, as is the case of transfers. A new payment channel, called Multicaixa Express, was also added to the Multicaixa network. This set up in 1999 by Development Workshop Angola with channel enables mobile-phone-based operations similar to those support from United Kingdom–based One World Action. of ATMs, or a withdrawal functionality without a card, which allows Although the government has actively provided microcre- the cardholder to generate a code that allows cash withdrawal without using a card. dit through state-owned financial institutions, the private 19. The government of Angola has executed all public expenditures sector has been mostly crowded out due to a limiting via the STC, initially through the approval of withdrawal orders. legal framework. High operating costs, the predominance This has been a great success, due to the ease of checking account credits, the return of funds, and the significant reduction of informality, and the difficulty of targeting urban resi- in claims for undue credits. for the STC also enables savers to buy dents due to a lack of fixed addresses are also key reasons government bonds using ATMs. for the slow development of the microfinance sector. 20. As regards the SPTR, the ongoing process for implementing the 24/7/365 environment deserves special attention. This will allow high functionality of the application, enabling the uninterrupted settlement of retail payment system operations, including mobile 21. Over the reference period, the payments system underwent sig- and instant transfers, depending on the programming of the nificant changes, with a positive impact on infrastructure and the clearinghouse operators, among other possibilities. gradual replacement of physical instruments with electronic ones. 16 Enhancing Financial Capability and Inclusion in Angola

TABLE 3. Number and amount of operations processed in SPA subsystems 2016 2017 2018 YEARLY VARIATION (%) Number 95,284,828 131,873,792 169,437,071 28.48% SPTR 248,364 219,081 239,170 9.17% SCC 447,000 319,181 228,617 –28.37% STC 6,681,641 9,979,572 10,612,200 6.34% MCX 87,907,823 121,355,954 158,357,084 30.49% Amount 53,103,845 61,291,508 68,989,296 12.56% SPTR 48,477,409 54,461,352 60,447,009 10.99% SCC 1,199,968 927,934 800,107 –13.78% STC 1,671,636 3,246,298 3,996,765 23.12% MCX 1,754,831 2,655,925 3,745,416 41.02%

Source: The National Bank of Angola (BNA, Banco Nacional de Angola) Note: SPTR, real-time payment system; SCC, check clearing subsystem; STC, credit transfers subsystem; MCX, Multicaixa subsystem

Several international and national nongovernmental of a sizeable senior population. A challenging economic organizations (NGOs) and government departments environment will present headwinds to overall growth and have microﬁnance programs in Angola. NGOs CARE development, though efforts by authorities to enhance and World Vision have been present in Angola since 1991, the regulatory framework and spur demand for insur- originally focusing on emergency interventions such as ance will support rising premiums. Neither insurance nor food shortages and health and water concerns. They both pensions are used to promote long-term finance. The now have microfinance programs targeted at rehabilitating insurance regulator, Angola Agency for Regulation and the population from the effects of civil war. World Vision is Supervision of Insurance (ARSEG), has been working with a community saving group for women in Porto Amboim the sector to increase the range and sophistication of set up as part of the Women Entrepreneurship program. insurance services. Participation by foreign insurers is lim- Through the saving group, participants have access to ited by government restrictions. Poverty and low levels of loans from Banco Sol. Other NGOs known to have microf- disposable income for much of the population is a serious inance operations in Angola include the U.K. Department impediment to growth. for International Development, the United Nations Devel- opment Program, and Caritas. The Angola Youth micro- Angola’s capital markets remain underdeveloped and credit program was launched in 2007 by the Ministry of limited mainly to government bond issuance. The capi- Youth and Sports, with funding of approximately US$5 mil- tal markets (bond and equity, leasing, venture capital, etc.) lion from BPC. This program is an example of government are at an early stage of development. Their main feature involvement in the provision of microfinance in Angola. is the sale and purchase of government bonds with short Kilapis, the process of traders receiving goods from other and long maturities. The Angola Stock exchange (BODIVA, traders or factories on credit, is another form of micro-lend- Bolsa de Divída e Valores de Angola), formed in 2006, is in ing in Angola. Goods are then sold at a margin before the its infancy, having only launched in March 2014. No com- trader pays the money to his or her creditor. Unfortunately, panies are listed yet. Initially, a listing of 10 companies was no data or estimates on the size of this market are currently planned for Q3 2020. Initial public offerings estimated at available (G:ENESIS, 2011). US$6.0 billion were planned for 2020 as well. The debt platform, BODIVA, has traded government bonds since Despite the increasing number of players and the intro- May 2015. Sixteen financial institutions are currently reg- duction of new products, the insurance sector remains istered to operate in BODIVA (the stock exchange) (World small, representing 1 percent of ﬁnancial sector assets. Bank 2019). Of these, 14 are banks and two are brokerage Five insurers dominate the Angolan insurance market: houses. However, market share is concentrated, with only Saham, Ensa Seguros, Fidelidade, Nossa Seguros, and two institutions responsible for 70 percent of the trades Global Seguros. The life sector accounts for a tiny frac- on this platform in 2017. Market turnover remains low. At tion of total premiums, and the nonlife sector is expected the same time, because Angola does not have large vol- to remain dominant, led by compulsory products such as umes of exports (beyond oil), no relevant capital markets travel and auto insurance. The life insurance segment is or sophisticated investment instruments such as the possi- extremely small due to high poverty levels and the lack bility to trade in the derivatives market do not exist either. Enhancing Financial Capability and Inclusion in Angola 17

3. FINANCIAL SECTOR REACH Women in Angola are less likely than men to be finan- AND INCLUSIVENESS cially included. Figure 5 shows that women are 13.8 percentage points less likely than men to be financially The information in this chapter describes the state of included. The 2014 Global Findex found this same gap the financial sector and inclusion landscape in Angola with 22.3 percent of women and 36.1 percent of men and provides valuable context for interpreting the reporting ownership of an account at a formal financial institution.24 This gender gap exceeds that of the devel- financial capabilities survey results. Collecting survey oping Sub-Saharan African region, where 37 percent of data from individuals—that is, from the demand side— women have account access compared with 48 percent can provide valuable insight into the usage, value, and of men.25 Three specifications of a multivariate regres- limitations of existing financial services. Demand-side sur- sion model in Table 10 in appendix B indicate that the vey data also facilitate analysis of how patterns of financial main drivers of financial inclusion are illiteracy, employ- inclusion vary across population segments and the degree ment category, and media consumption, and that gen- to which financial behaviors such as saving, borrowing, der does not significantly explain financial inclusion. and making payments overlap. The data and analysis pre- Angolan women endure higher rates of illiteracy, are sented in the following chapters can be used to identify more frequently self-employed or out of the labor force, priority populations, set national financial inclusion targets, and consume fewer sources of media, all of which are and design reforms and interventions to advance financial significantly associated with lack of transactional account inclusion in Angola. Finally, the data can provide a base- access. So, while the difference in inclusion between line survey against which to measure progress of reforms genders is significant when comparing directly via chi- and initiatives. Future rounds of surveys will shed light on square test (p=0.000), other underlying factors better the degree to which the financial inclusion landscape is explain the gap. shifting in Angola and to what extent progress is evenly distributed across population segments and region. While overall inclusion is fairly high, the differences between urban and rural areas are huge. Figure 5 3.1 ACCOUNTS shows that the rate of financial account access reaches According to the 2019 Financial Capability Survey’s 58 percent in urban areas but falls by almost half to 29 findings, approximately 49 percent of surveyed adults percent in rural areas. Overall financial inclusion is closer in Angola report owning an account at a formal finan- to the rate for the urban population as 68 percent of cial institution, which is a commonly used metric for Angolans reside in urban areas (Figure 72 in appendix A). international comparison. Compared with other West Rural Angolans are less educated with only half receiv- and Southern African economies, Angola has a relatively ing any education after completing the primary school high level of financial inclusion, though it lags behind level, whereas almost 80 percent of urban residents have other lower-middle-income economies (World Bank clas- done so. Average incomes are also lower in rural areas. sification). This pattern is generally in line with the other Sixty-seven percent of rural residents earn incomes in financial sector indicators for Angola as compared with its the lower half of the income distribution, while only 43 26 country peers, but Angola does compare more favorably percent of urban residents fall into this category. Illit- with lower-middle income countries in density of access eracy also affects rural residents disproportionately. points, for example, commercial bank branches and ATMs Twenty-seven percent are unable to read and write in per 100,000 adults (Table 4).22, 23 Portuguese, substantially more than the 6 percent of

22. According to the 2014 Global Findex survey in Angola, 29.3 of 1,189 adults. Global Findex also uses random walk sampling percent of adults have a formal account. This was a decrease techniques, while this survey listed all households within the from 2011 when 39 percent of adults had access and is almost selected enumeration areas, generating an updated sampling half that found in the 2019 Financial Capability Survey. Box 1 frame from which the sample of eligible adults to be interviewed describes a survey of market traders conducted by CNEF in was randomly drawn. Finally, when comparing statistics across 2019-2020 that found 37 percent had access to accounts, a figure surveys, considering margins of error is also important. For below that from this survey but explainable considering different example, the 21 percent value in the Global Findex survey is sampling frames. Other recent surveys are nonexistent; therefore, associated with a margin of error (95 percent confidence interval) comparing this study’s findings with an external source using of +/-2.9 percentage points, and the 15 percent value in this nationally representative sample is difficult. Potentially explaining study is associated with a margin of error of +/-2 percent (95 the growth in accounts are efforts by BNA to promote awareness percent confidence interval). and use of Bankita accounts, as described in Box 2. 24. The 2014 Global Findex survey found that the gender gap for 23. While transactional account ownership has likely increased since account ownership within Angola developed post 2011, when 2014, differences between the values likely reflects differences account ownership rates were equal. in survey methodologies, such as differences in sample size 25. 2017 Global Findex Survey and selection approach. While Global Findex interviewed 1,600 26. The 2020 Angola Poverty Report found that the incidence of adults, the current study is based on a slightly smaller sample poverty rates is almost three times higher in rural areas than in urban areas (54.7 percent vs. 17.8 percent). 18 Enhancing Financial Capability and Inclusion in Angola

TABLE 4. Measures of ﬁnancial inclusion and development across economies

FIRMS USING DOMESTIC FINANCIAL COMMERCIAL BANKS TO CREDIT PROVIDED GDP PER ACCOUNT BANK BRANCHES ATMS FINANCE BY FINANCIAL CAPITA OWNERSHIP (PER 100,000 (PER 100,000 INVESTMENT SECTOR (CURRENT (% OF ADULTS) ADULTS)g ADULTS)g (% OF FIRMS) (% OF GDP)n US$)n Angola 48.8a 9.5 18.9 13.1i 23.8 3,432 Cameroon 34.6d 2.2 4.8 15.8l 19.2 1,534 Côte d'Ivoire 41.3d 5.1 6.9 23.6l 39.1 1,716 Eswatini 28.6b 7.0 40.8 30.4l 27.7 4,146 Ghana 57.7d 8.5 11.5 21.2j 26.1 2,202 Kenya 81.6d 5.0 9.2 31.6m 39.1 1,711 Lesotho 45.6d 3.7 14.4 51.8l 17.6 1,299 Mauritania 20.9d 10.9 10.5 12.8k 43.5 1,189 Mozambique 41.7d 4.2 10.8 11.4m 30.7 499 South Africa 69.2d 10.2 67.0 34.8h 79.1 6,374 Sudan 15.3c 3.4 6.4 6.7k 31.1 977 Zambia 40.2e 3.9 11.6 12.2j 48.0 1,540 45.9d Lower-middle income 57.8d 8.0f 18.1f — 62.5 2,217 SSA (developing) 42.6d 3.9f 5.3f 19.7m 48.5 1,584

Source: See lettered notes for details. d WBG Global Findex Database, 2017 i WBG Enterprise Survey, 2010 Note: SSA, Sub-Saharan Africa e WBG Financial Capability Survey, Zambia 2016 j WBG Enterprise Survey, 2013 a WBG Financial Capability Survey, Angola 2019 f IMF Financial Access Survey, 2014 k WBG Enterprise Survey, 2014 b WBG Global Findex Database, 2011 g IMF Financial Access Survey, 2018 l WBG Enterprise Survey, 2016 c WBG Global Findex Database, 2014 h WBG Enterprise Survey, 2007 mWBG Enterprise Survey, 2018

FIGURE 5. Financial inclusion by sociodemographic characteristics

60.0% 58.3% 55.2% 53.7% 50.0% 48.8% 48.0% 41.4% 40.0%

30.0% 28.7% 28.6%

20.0%

10.0%

0.0% All Female Male Urban Rural < 35 35–54 >= 55 years years years

Source: WBG Financial Capability Survey, Angola 2019

urban residents who cannot do so. As in the case of the Financial inclusion varies signiﬁcantly by province impact of gender on financial inclusion, the regression across Angola. Map 1 shows that northwest and west cen- model suggests that living in a rural area is not signifi- tral Angola have higher rates of financial inclusion, while cantly associated with account access when controlling provinces in the east have relatively high rates of financial for other sociodemographic factors. These other factors access while being less populated (World Bank, 2020). are more impactful, and policies to improve inclusion Diamond exploration in Lunda Norte and Lunda Sul could rates should focus on addressing them. explain the relatively higher average income and higher rates of financial access in those regions compared with Enhancing Financial Capability and Inclusion in Angola 19

BOX 1 CNEF survey of market traders

The National Financial Stability Council (CNEF) conducted surveys in the main informal markets in Luanda, which included the Asa Branca, Kikolo, Congolenses, 1º de Agosto Market (Catin- ton) and the 30Km Market, between August 2019 and March 2020. These surveys covered 2,940 respondents, representing 25,000 registered traders. The purpose of the survey was to identify the degree of financial inclusion among traders, identify the barriers to products and service uptake, assess savings habits, understand the level of insurance uptake, and investigate the use of digital financial services. ers have savings, but only 26 percent have savings devoted to retirement. Cash is by far the most used payment instrument, Preliminary results from the surveys indicate that account with traders reporting 88 percent of transactions carried out access is below national levels, with 36.7 percent of traders with physical money. Of those who obtained credit, 56 percent reporting bank usage. Of nonbanked traders, 69 percent would have sought to invest in their business, 12 percent paid health like to be a bank account holder. Barriers to account ownership expenses, and 10 percent paid family expenses. Only 10 per- among the traders included insufficient money (28.1 percent), cent of respondents requested bank loans. Only 6 percent of lack of time (17.3 percent), lack of knowledge (12.6 percent), traders owned any type of insurance. Interest in selling prod- and distrust of banks (10.6 percent). The main reasons for bank ucts online is moderate, with 28 percent of traders indicating account usage are security (37.2 percent), savings (29.4 per- an interest in doing so. cent), and deposits (11.0 percent). Fifty-seven percent of trad-

MAP 1. Financial inclusion and average income by province

Source: WBG Financial Capability Survey, Angola 2019 the lower average income in the more densely populated Access between young and middle-age populations Huila province. The capital, Luanda, has nearly the highest is nearly equivalent, but older adults are ﬁnancially rate of financial inclusion at 59.9 percent, eclipsed only by included at nearly half that rate. Figure 5 shows these nearby Bengo (63.7 percent) and Cabinda (67.2 percent). differences in access across age groups. Older adults aged Central Angola experiences the lowest rates of financial 55 and older have access to a bank account at a rate just inclusion, where Malanje and Bié are the provinces with more than half of the middle aged (29 percent vs. 43 per- the least access (11.3 percent and 12.2 percent, respec- cent). When looking deeper at gender splits in the elder tively) and the lowest average incomes (Kz 12,850 and Kz population, only 17.9 percent of women aged 55 and older 16,320, respectively). 20 Enhancing Financial Capability and Inclusion in Angola

report account access as compared with 32.7 percent of seem counterintuitive but is explained by the character- men in this age bracket. Account access is highest among istics of those identified as “out of the labor force.” In middle-aged men, who report inclusion at a rate of 61.3 comparing these two groups, the former can rely more on percent. This finding makes sense as they are more likely income support from family, friends, and community assis- to be economically active compared with young and older tance (40 percent vs. 11 percent), are better educated (76 age cohorts. The regression model presented in Table 10 percent with a high school or greater education vs. 50 in appendix B indicates that the middle-age tier is signifi- percent), and reside in households with higher incomes cant and positively associated with financial inclusion. (47 percent above median income vs. 39 percent). Further supporting this finding is the composition of those who Financial access is lowest among the most vulnerable are “out of the labor force” where 57 percent are studying segments of the population. Access to accounts among and 25 percent are caring for their household, suggesting those with no ability to read or write and with no school- sufficient financial support to incentivize the opening of ing is almost nonexistent (see Figure 6). Only 6.9 percent a transactional account. Unemployed Angolans are rel- of the illiterate population reports access to an account. atively well set in terms of financial inclusion, with 54.1 Meanwhile, the rate of access to accounts is 43.8 percent percent reporting access to a bank account. While 54.9 among those with literacy in Portuguese. Of Angolans with percent of survey respondents indicated that they are no schooling 8.8 percent report being financially included not the head of their household, 76.2 percent of unem- by the current survey’s headline measure, while rates soar ployed respondents did so. Average household income to around three quarters among those who have com- is also significantly higher for unemployed respondents at pleted vocational and university level school. Within all Kz 33,000, compared with the median household income categories of employment status, self-employed workers of Kz 18,000. This suggests that the relatively improved report financial inclusion at the lowest rate: 26.4 percent. financial access of the unemployed is in part due to sup- Those in formal employment have access to accounts port from others in their households and is therefore only at rates greater than 84 percent. Angolans who are out an option for those in high-income households where of the labor force have a higher rate of access than the otherwise job loss would necessitate the uptake of some self-employed (41.2 percent vs. 26.4 percent), which may form of informal low-wage work. Further explaining this

BOX 2 Evolution of Bankita accounts

Since the launch of Bankita in 2011 through June 2019, Concerning monitoring and prospects for ﬁnancial inclu- 710,095 accounts have been opened. During this same sion, the ﬁrst half of 2019 saw an increase in the number period, 351,204 ATM debit cards were issued, and 1,177 of Bankita accounts opened, with an additional positive Bankita savings accounts were created with Crescer. The vol- impact on balances, which is evidence of a positive effect of ume of deposits traded reached Kz 30.15 million in the period the campaigns and lectures developed by BNA. The devel- under review. opment of various financial inclusion initiatives and programs may contribute to the increase in the literacy rate, a decrease in A greater proportion holding these accounts are men at 65 banking fees, and improvements in financial inclusion going for- percent, while women represent 35 percent of the total. ward. These initiatives and programs include the financial inclu- Work has been done to raise awareness levels such as aware- sion observatory that is under construction, which should assist ness campaigns and lectures. A greater proportion of holders authorities in identifying more assertive policies and better are individuals between 18 and 34 years when considering decision-making behavior; policies related to the survey on the Bankita account ownership by age group. These individuals rep- financial capacity of households that will allow for the collection resent 82 percent of all account owners followed by individuals of statistical reference data on the population’s levels of finan- from 35 to 44 years of age, which form 11 percent of account cial capacity; the simplified accounts regime, which defines the holders. In the first semester of 2019, students were the most rules and procedures associated with opening, operating, and prevalent social identity of account holders with 41 percent of closing simplified bank accounts; the National Risk Assessment, the total open accounts despite having reduced 0.64 percent in which is aimed at the identification, assessment, and under- absolute ownership numbers. standing of the vulnerabilities, threats, and money laundering/ financing of terrorism risks associated with financial inclusion products; and the introduction of instant mobile payments. Enhancing Financial Capability and Inclusion in Angola 21

counterintuitive finding may be the country’s robust of adults who saved as children access banks over those unemployment policy.27 who did not (Figure 7). When comparing the number of sources of media consumed, those who read, watch, Sixty-one percent of those who earn above the median or listen more than the average amount of all adults income are ﬁnancially included, outpacing those with have a financial inclusion rate of 66 percent, while only incomes below the median, where just more than 17 percent of those with below-average media access one third have access to a transactional account. This have access to a bank account. Angolans with unstable income disparity resembles that found in other financial incomes were more financially included than those with capability surveys. Other indicators in historical savings stable incomes (50 percent vs. 46 percent). When look- behavior and media consumption show stark differences ing within the sources of income for these two groups, in rates of financial inclusion. An additional 13 percent the self-employed seem to drive this counterintuitive result. For those with unstable incomes, adults who receive financial assistance from family, friends, or their 27. The General Labor Law of Angola, implemented in 2015, formal- ized an unemployment compensation policy that stipulates differ- community report access to a transactional account at a ing levels of payment that hinge upon the reason for dismissal. higher rate than those with stable incomes (48 percent

FIGURE 6. Financial inclusion by sociodemographic characteristics

90% 84.1% 80% 74.3% 70% 58.2% 60% 54.8% 54.1% 50% 45.2% 41.2% 40% 30% 27.1% 26.4% 20% 8.8% 10% 6.9% 0%

Formal Illiterate Primary force Informal Illiterate— No school Secondary University Out of labor Portuguese and higher Unemployed Self-employed employment employment Source: WBG Financial Capability Survey, Angola 2019

FIGURE 7. Financial inclusion by income, historical savings behavior, and media consumption

Above median income 61.9%

Below median income 36.5%

Saved as a child 57.5%

Didn't save as a child 45.1%

Above average media consumption 66.1%

Below average media consumption 16.8%

Stable income 46.0%

Unstable income 50.1%

0% 10% 20% 30% 40%50% 60% 70%

Source: WBG Financial Capability Survey, Angola 2019 22 Enhancing Financial Capability and Inclusion in Angola

vs. 36 percent). Additionally, adults formally employed with money transfer services at a rate comparable to men in the private sector with stable incomes report low (17.2 percent vs. 17.4 percent). Angolans aged 55 or older account access; the inverse is true for those with unsta- are significantly less likely to use money transfer services ble incomes from formal private sector employment (6.6 percent), while use among other age cohorts is equiv- (23 percent vs. 91 percent). The multivariate regression alent (Age < 35: 18.4 percent; age 35–54: 18.0 percent). model in Table 10 in appendix B shows that of these four sociodemographic categories discussed, only media One quarter of Angolans sent or received domestic consumption significantly explains financial inclusion. remittances in the previous year, according to the 2014 Global Findex Survey. Of these, almost none were sent through a mobile phone (Figure 9). Domestic remit- 3.2 MONEY TRANSFERS AND MOBILE tances were most frequently transferred in person and in FINANCIAL SERVICES cash only, where 17.7 percent of all Angolans reported Use of money transfer services is low within Angola, engaging in this type of transaction. Transacting in per- but the potential for growth is huge, speciﬁcally son and in cash only was reported by 62.6 percent of through digital services. Seventeen percent of Angolans those who had sent or received domestic remittances. reported use of money transfer services, either through a Sending domestic remittances through a financial insti- transfer service such as Western Union, Internet banking, tution and by using an account were roughly equivalent. or mobile banking. Underlying the relatively little activity Seven percent of Angolans reported the former and 6.8 for these services is a lack of incoming remittance pay- percent the latter. Of those who sent remittances, 24.6 ments, which according to World Bank staff estimates was percent sent through a financial institution and 23.8 per- only 0.001 percent of GDP. cent sent by using an account.

Seventeen percent of Angolan adults reported using Mobile phone use is near ubiquitous in some sociode- a money transfer service, a category that includes mographic sectors in Angola, but lags severely in oth- Internet banking, services such as Western Union, and ers. Sixty-four percent of Angolans overall reported mobile mobile banking. Use of these services is not equal across use. Of the financially included, 88 percent reported mobile the population. Urban residents reported use of a money phone use, and of those with above median incomes transfer service nearly twice as often as rural residents 81 percent reported mobile use (Figure 10). These num- (20.1 percent vs. 11.5 percent; Figure 8). Across employ- bers are eclipsed by Angolans with a university degree or ment categories, formally employed Angolans used higher, who report mobile phone use at 90 percent (Figure money transfer services significantly more frequently than 11). The formally employed use mobile phones at a rate any other, where 36.1 percent report use. The second of 85 percent. In contrast to these figures, only 42 percent most frequent user is those out of the labor force at 21.2 of adults with no access to a transactional account and percent. Women have had significantly less access across only 48 percent of those with below median incomes use many of financial inclusion indicators, but they do engage a mobile phone. Angolans with no education use mobile

FIGURE 8. Money transfer service use across sociodemographic indicators

40% 36.1% 35% 30% 25% 20.1% 21.3% 20% 17.2% 17.4% 18.4% 18.0% 15.2% 15% 11.5% 11.3% 8.0% 10% 6.6% 5% 0%

Urban Rural Male Female Formally Age <35 Informally Out of the Age 35–54 Age > = 55 employed employed Unemployed labor force Self-employed

Source: WBG Financial Capability Survey, Angola 2019 Enhancing Financial Capability and Inclusion in Angola 23

FIGURE 9. Domestic remittances by transfer method

70% 62.6% 60%

50%

40%

30% 24.6% 23.8% 20% 17.7% 11.7% 10% 7.0% 6.8% 9.1% 3.3% 2.6% 0.1% 0.3% 0% In person and in Through a Using an Through money Through an over Through a cash only financial account transfer service the counter mobile phone institution service

Overall Percent of senders

FIGURE 10. Mobile phone use by sociodemographic characteristics

100% 90% 88% 79% 81% 80% 69% 70% 64% 60% 58% 50% 48% 42% 40% 32% 30% 20% 10% 0% All mobile No access Financially Urban Rural Female Male Below Above phone usage to formal included median median account income income

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 11. Mobile phone use by sociodemographic characteristics

100% 90% 90% 85%

80% 75% 70% 70% 66% 64% 58% 60% 55% 50% 43% 40% 40% 30% 30% 19% 20% 10% 0%

Primary Formally Age <35 Informally No school University Out of the Age 35–54 Age > = 55 Secondary employed employed Unemployed labor force and higher Self-employed

Source: WBG Financial Capability Survey, Angola 2019 24 Enhancing Financial Capability and Inclusion in Angola

phones the least (19 percent), and those out of the labor The National Bank of Angola (BNA, Banco Nacional force do not report high levels of use (30 percent). The gap de Angola) recently prioritized the implementation of between urban and rural residents is also significant (79 a mobile and instantaneous transfer system. A friendly percent vs. 32 percent). Women (58 percent) use mobile regulatory environment still suffers from continued legal phones less than men (69 percent), but the gap is smaller gaps; however, despite those gaps mobile banking has when compared with these other sociodemographic char- slowly been introduced—currently three mobile money acteristics. Figure 12 shows that overall mobile phone use providers are on the market but no interoperability exists is low when compared with other countries in the region, in among them. In June 2020, BNA enacted a reform of the which Angola is near the bottom for the number of mobile 2005 Payment System Law with the goals of covering the phone subscriptions per 100 people. national territory, being accessible to the entire population, and improving the interoperability of all payment Mobile money is a nascent industry in Angola that has platforms. Selection of a technological operator will be started to see exponential growth. Table 5 shows signif- announced in September of 2020.28 icant growth in Angola since 2015 across several key indicators of mobile money use. When compared with other 28. The Pedido de Informação. Sistema de Transferências Móveis countries in Sub-Saharan Africa, use in Angola (Figure 13) e Instantâneas. Available at https://www.bna.ao/Newsletter/ is still in its initial stages with significant capacity to grow. anexos/RFI-STMI.pdf

TABLE 5. Mobile money use from 2015 to 2019

NUMBER OF NUMBER OF REGISTERED VALUE OF MOBILE MONEY NUMBER OF MOBILE REGISTERED MOBILE MOBILE MONEY TRANSACTIONS (DURING MONEY TRANSACTIONS MONEY AGENT OUTLETS ACCOUNTS PER 1,000 REFERENCE YEAR) (DURING THE PER 1,000 KM2 ADULTS (% OF GDP) REFERENCE YEAR) 2015 0.11 0.14 0.00 34,091 2016 0.12 0.06 0.00 34,128 2017 0.33 8.35 0.02 635,952 2018 0.46 9.23 0.10 2,689,262 2019 0.14 12.26 0.26 373,257

Source: IMF Financial Access Survey

FIGURE 12. Mobile cellular subscriptions (per 100 people) FIGURE 13. Number of mobile money accounts per 1,000 adults in Sub-Saharan Africa in 2018 Mauritius Namibia Botswana Zambia Lesotho Botswana Namibia Zimbabwe Zimbabwe Uganda Zambia Rwanda Rwanda Mozambique Cameroon Lesotho Uganda Cameroon Mozambique Mauritius Angola Madagascar Madagascar Angola 020406080 100 120 140 160 0 200 400 600 800 1000 Source: International Telecommunication Union, World Telecommunication/ Information and Communication Technologies Development Report and Source: IMF Financial Access Survey database Enhancing Financial Capability and Inclusion in Angola 25

Two out of ﬁve Angolans with access to transactional 3.3 SAVING AND RISK MANAGEMENT accounts report use of Internet or mobile banking. Use Sixty-two percent of adults in Angola reported some of e-banking by financially included women is significantly form of saving. Angolans place a significant percentage lower than that of financially included men (21.5 percent of any accumulated wealth in informal avenues with more vs. 41.4 percent). When considering the entire population, than half of the population reporting saving by storing 8.9 percent of women and 22.9 percent of men use these cash at home or with an informal savings group (Figure services. Financially included rural populations take advan- 14). In Mozambique, 17 percent of the population in rural tage of e-banking at a higher rate than their counterparts areas and 26 percent of the population in urban areas in urban areas do (41.1 percent vs. 31.8 percent). This may saved in formal community-based savings. Rural Ango- be due to ease of access where the costs of traveling to a lans save in formal savings at a comparable 17.4 percent, bank are higher in rural areas. Income also affects use of but urban residents relied more heavily on these products e-banking. However, the comparative rate of e-banking with 37.2 percent reporting doing so. Few adults report use between urban and rural residents is inverted when saving strictly through formal avenues, for example, sav- including the non-financially included. Only 11.8 percent ings or deposits at any form of commercial bank (30.8 per- of all rural residents use e-banking services and 18.6 percent, Figure 15). Product design should also reflect recent cent of urban residents report their use. Those with below research, including experiments conducted in the Philip- median incomes access these services at a rate of 22.9 pines that found that accounts with savings reminders can percent, while above median income earners use them boost savings (Karlan et al. 2010). at a rate of 40.3 percent. While not ubiquitous, Internet and mobile banking do exist within Angola. Expanding One quarter of Angolan adults use products designed such use to the remaining 66 percent of nonusers among to manage risk. General insurance is owned by 26.3 per- the financially included and the 83 percent of all nonusers cent, and private life and health insurance cover 24.7 per- would have a significant impact on the cost of account cent of adults (Figure 16). Both insurance product types access and thus financial inclusion. are relatively more popular in urban areas, where residents

FIGURE 14. Formal and informal saving FIGURE 15. Types and sources of savings

Formal savings/deposit 30.8% at commercial bank Informal savings (Kixiquila 23.7% self-help groups, money 54.7% 38.2% kept at home)

7.2% 0% 10% 20% 30% 40% 50% 60% Source: WBG Financial Capability Survey, Angola 2019

31.0% FIGURE 16. Risk management products

Access to Risk Management Products and Services

General insurance (car, None Only formal household contents, 26.3% Only informal Formal and informal building)

Source: WBG Financial Capability Survey, Angola 2019 Private life & health Note: “Only formal” includes adults who report currently 24.7% using a savings or deposit account in a commercial bank insurance or commercial bank that deals with micro-credit, but do not save via informal and semi-informal savings, for example, Kixiquila (merry-go-round) self-help groups or 0% 10% 20% 30% 40% 50% 60% money kept at home. “Only informal” includes adults Source: WBG Financial Capability Survey, Angola 2019 who report saving via informal and semi-informal savings, for example, Kixiquila (merry-go-round) self-help groups or money kept at home, but do not use a use a savings or deposit account in a commercial bank or commercial bank that deals with micro-credit. 26 Enhancing Financial Capability and Inclusion in Angola

are more likely to use general insurance (31.2 percent vs. Use of formal and informal savings varies widely across 15.8 percent) and private life and health insurance (28.7 income groups. Rates of saving among adults across percent vs. 16.2 percent) compared with rural residents. incomes center around 60 percent. However, 37.2 per- Adults with stable incomes utilize risk management prod- cent of above median income respondents stores savings ucts marginally more than those with unstable incomes in formal accounts compared with 24.8 percent of those even though the latter would need them more to man- with below median incomes. Meanwhile, adults in this lat- age the risks associated with irregular and erratic income ter group save exclusively in informal avenues at a rate streams. General insurance covers 26.4 percent of stable of 35.1 percent when only 26.7 percent of their counter- income and 24.7 percent of unstable income individuals, parts exhibits this behavior. Little discernable difference is while private life and health insurance covers 26.2 percent evident between access to savings for adults with stable and 20.6 percent of these groups. incomes versus those without.

Gender and urban/rural gaps in overall ﬁnancial access Adults with incomes above the median save more persist in the use of formal and informal savings instru- overall and direct a larger portion of their savings to ments. Overall, men save at a greater rate than women formal accounts than do those with incomes below the (63.7 percent vs. 59.7 percent; Figure 17. Women rely median. Sixty-four percent of respondents with incomes more on informal savings products than men do with above the median reported any type of savings, exceed- 33.6 percent reporting only informal savings compared ing their counterparts by 4 percent (Figure 17). Formal with 28.8 percent of men. Further, a greater percentage savings account use was reported by 37 percent of those of men than women store their savings via formal means in the higher income category, while only 25 percent of (35.0 percent vs. 26.1 percent). lower-income individuals used a formal savings account. There was little difference between the two groups in Access to savings is highest in urban areas where two use of informal accounts (37 percent for above median thirds of residents manage to save. In rural areas, this income vs. 39 percent for below median income). rate of saving falls to just under half of the population. Sav- ing solely in informal methods is equivalent between the Savings is highest among those with formal employ- two settings but urban residents save in formal accounts ment, where nearly three quarters save in either a for- twice as much as rural residents do (37.2 percent vs. 17.4 mal or informal product. These individuals also do not percent). need to rely on informal savings products to the extent

FIGURE 17. Formal and informal saving by sociodemographic background

Female

Male

Rural

Urban

Below median income

Above median income

Unstable income

Stable income

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

None Only informal Only formal Formal and informal

Source: WBG Financial Capability Survey, Angola 2019 Enhancing Financial Capability and Inclusion in Angola 27

that other employment categories do (see Figure 18). sparse population areas favoring informal methods. With 17.8 percent reporting owning only a formal savings In Malanje and Bié, the two provinces with the lowest account, this figure is nearly three times that of the next levels of population density and financial inclusion, groups of the informally employed and the unemployed. more residents access informal savings methods than in For Angolans who are out of the labor force or who are other provinces (Map 2). In the densely populated prov- self-employed, access to only formal products was the inces of Uige, Luanda, Benguela, and Huambo, formal lowest (4.0 percent and 3.7 percent, respectively). accounts are relatively popular. Certain provinces have low levels of savings, whether formal or informal. These The prevalence of formal and informal savings in include Namibe, Cunene, and Cuanza Norte. This rela- Angola is spatially heterogeneously distributed, with tionship between areas of population density and pref- dense population areas favoring formal accounts and erence for formal financial services may be influenced

FIGURE 18. Formal and informal saving by employment category

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Formal employment Out of labor force Informal employment Unemployed Self-employed

None Only informal Only formal Formal and informal

Source: WBG Financial Capability Survey, Angola 2019

MAP 2. Spatial distribution of formal saving and informal saving

Source: WBG Financial Capability Survey, Angola 2019 28 Enhancing Financial Capability and Inclusion in Angola

by a higher density of access points within denser pop- adults blend informal and formal sources of borrowing, ulations. Analyzing this relationship requires data on the which as a corollary means 30 percent of the population access points that is beyond the scope of this survey, therefore borrows formally and 22 percent borrows infor- but the likelihood of the correlation is such that high- mally. This relative popularity of informal credit should be lighting it is of value. of interest to Angolan policy makers, though understanding this preference is beyond the scope of this report. Informal borrowers may lack a sufficient credit history 3.4 CREDIT or be considered too high risk by financial providers, or Thirty-eight percent of adults in Angola report some products that cater to their needs may not be available. type of borrowing, across a range of formal and infor- Evidence in support of these circumstances would need mal sources (Figure 19). Within both urban and rural to be obtained by further research, potentially through a settings, Angolans rely on informal sources of credit and supply-side survey of financial institutions. less on credit from microfinance institutions than do their peers in Mozambique. Twenty-four percent of urban res- Women and rural Angolans signiﬁcantly lag their male idents report informal credit use and 12 percent report and urban counterparts in access to credit. Signifi- borrowing from a microfinance institution (MFI) as com- cantly more men than women report any type of bor- pared with 21 percent and 14 percent respectively in rowing (41.5 percent vs. 33.6 percent; Figure 20). When Mozambique. Eighteen percent of rural residents in considering the combination of “only formal” and “for- Angola access informal credit and only 5 percent borrow mal and informal” borrowing, men have greater access from MFIs. In Mozambique, rural populations report 14 to formal borrowing by 4.2 percent. Urban areas outpace percent use of informal credit and 8 percent use of MFIs their rural counterparts in overall credit use, driven pri- for credit (World Bank 2014a). Sixteen percent of respon- marily by their adoption of borrowing from formal lend- dents use exclusively formal credit products (bank loan, ers, where total borrowing is reported by 36.3 percent microfinance loan, credit card, mortgage, etc.) to borrow of the urban population versus 16.3 percent for rural while 8 percent of adults meet their borrowing needs by populations. Informal borrowing also is undertaken more relying only on informal sources, such as a money lender, frequently by urban residents (23.8 percent) than by rural family member, or friend. Approximately 14 percent of residents (17.8 percent). More rural respondents reportedly access only informal credit than do urban respondents (9.8 percent vs. 7.1 percent), but when overall FIGURE 19. Formal and informal credit informal credit access is compared, urban residents still outpace these rural residents in access (26.8 percent vs. 18.0 percent). Overall access favors stable income adults at a rate of 39.2 percent to 34.4 percent for unstable 13.9% income adults, with this 5-percentage point gap driven mainly by 3.6 percent more of the former group accessing only informal credit products and having better 16.0% access to formal products, as expected. 62.2% 8.0% Angolans with incomes below the median income have a lower rate of credit access. Figure 20 shows that only 34 percent of the below median income group report use of any credit product compared with more than 42 percent of the above median income group.

None Only formal The above median income group accesses both formal (32 percent vs. 28 percent) and informal credit (26 per- Only informal Formal and informal cent vs. 23 percent) at rates higher than their counter- Source: WBG Financial Capability Survey, Angola 2019 parts as well. Note: “Only formal” includes adults who report currently using a mortgage and credit housing product, formal loan from a duly authorized commercial entity, credit card, or credit from an MFI Formally employed populations and those out of the or other formal or credit cooperative but do not borrow from labor force have more access to credit products than informal money lenders, family/friends, or self-help groups. “Only informal” includes adults who report borrowing from Angolans in other employment categories. Among informal money lenders, family/friends, or self-help groups, adults who are out of the labor force, 31.6 percent use but do not use a mortgage and credit housing product, formal formal credit products, which greatly outpaces all other loan from a duly authorized commercial entity, credit card, or credit from an MFI or other formal or credit cooperative. employment status groups other than those with formal Enhancing Financial Capability and Inclusion in Angola 29

FIGURE 20. Formal and informal credit by sociodemographic background

Stable income

Unstable income

Above median income

Below median income

Urban

Rural

Male

Female

0% 10% 20% 30% 40% 50%60% 70% 80% 90% 100%

None Only informal Only formal Formal and informal

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 21. Formal and informal credit by employment status

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Formal employment Out of labor force Informal employment Unemployed Self-employed

None Only informal Only formal Formal and informal

Source: WBG Financial Capability Survey, Angola 2019 employment (Figure 21). This may seem counterintui- Loans from banks, microcredit institutions, and other tive, but this category consists largely of those who are regulated ﬁnancial institutions are the most reported studying, which suggests that lenders frequently consider source of formal lending among adults in Angola. labor force inactivity to be temporary and still provide Twenty-three percent of respondents report having a access to credit to a group with low risk of default. Simi- loan from a duly authorized commercial entity, equivalent larly, formally employed adults access a mix of formal and to 4.0 million adults (Figure 22).29 Other forms of credit informal credit at a rate more than twice that of any other group with 33.8 percent reporting use of these products. 29. According to 2020 World Bank population estimates, there are Self-employed adults and the unemployed have the low- 32.8 million people in Angola, of which 53.6 percent are above the age of 14. Available at https://databank.worldbank.org/ est rates of credit access. source/population-estimates-and-projections 30 Enhancing Financial Capability and Inclusion in Angola

are roughly similar in prevalence: 19 percent uses credit obtained from the sample of adults with formal credit. cards, 17 percent undertakes mortgage and credit hous- Informal borrowing map obtained from the sample of ing borrowing, and 10 percent of Angolan adults borrows adults with informal credit. from MFIs. Examining formal and informal credit access spatially shows that denser population areas have higher TABLE 6. Credit access by urban setting rates of formal credit use (Map 3). Informal credit use is URBAN RURAL also popular in denser areas, but is distinctive from for- None 56.6% 74.0% mal credit in that rates are also high in Malanje and Bié, Only informal 7.1% 9.8% where overall financial access is poor. Overall, urban locations have better access to both formal and informal Formal and informal 20.0% 8.3% credit, while those living in rural areas struggle to tap into Only formal 16.6% 8.0% these sources of credit (Note: Formal borrowing map Source: WBG Financial Capability Survey, Angola 2019

FIGURE 22. Types and sources of borrowing

Formal credit from authorized commercial entity 23%

Informal credit (informal money lenders, family/ 22% friends loan, self-help groups)

Credit card 19%

Mortgage and credit housing 17%

Credit from MFI or cooperatives 10%

0% 5% 10% 15% 20% 25%

Source: WBG Financial Capability Survey, Angola 2019 Note: Formal credit includes such entities as Banco De Poupança E Crédito, Banco De Fomento Angola, Banco Bic, Banco Sol, etc. MFI, microfinance institutions.

MAP 3. Spatial distribution of formal borrowing and informal borrowing

Source: WBG Financial Capability Survey, Angola 2019 Note: Formal borrowing map obtained from the sample of adults with formal credit. Informal borrowing map obtained from the sample of adults with informal credit. Enhancing Financial Capability and Inclusion in Angola 31

3.5 THE UNBANKED AND BARRIERS TO Angolan women’s dearth of money prevents them from OWNING A FORMAL ACCOUNT accessing bank accounts more than their male counterparts. Thirty-two percent of women report insufficient Approximately 9.0 million Angolan adults lack access cash as their main account ownership barrier, while only to a transactional account, and as described previously, 25 percent of men do (Figure 25). More women than men these people are disproportionately poorer, have less also indicate that they lack the documentation required educational attainment, and have higher rates of illiter- to open an account (18 percent vs. 15 percent). Men are acy. Sixty-three percent of below median income respon- more likely to report that they do not need an account (10 dents report not currently having an account at a financial percent vs. 3 percent for women). institution. Ninety-three percent of illiterate respondents do not currently have an account. Yet lack of usage of Older Angolans overwhelmingly cite a lack of money financial products does not necessarily mean lack of and a lack of need as their main barriers to owning a access (World Bank 2013). While some people may have savings account. Concern about covering expenses when access to financial services at affordable prices and may no longer working due to age was nearly universal among decide not to use them, others may lack access because Angolans aged 55 and older. Around half reported that of constraints such as excessively high costs, or unavail- ability of the services due to regulatory barriers or other factors. The Financial Capability Survey asked respon- FIGURE 24. Insufficient cash as a primary barrier of account ownership by income dents who do not have a formal account to report why. 35% Angolans without a bank account identiﬁed an insufﬁ- cient amount of money as the main obstacle to account 30% 29.3% 28.5% access (Figure 23). The identification of insufficient cash is sustained across incomes. Figure 24 shows that 29 percent 25% of below median income respondents identified this bar- 20% rier as their main obstacle, as did 28.5 percent of above median income respondents. This may seem incongruous, 15% but a possible explanation is that the high cost of living in high-income areas of Angola30 leaves little excess cash to 10% devote toward saving. The cost to borrow in these areas 5% may also be elevated relative to low cost of living areas. 0% Below median Above median 30. A 2019 study by Mercer ranks Luanda as the 26th most expensive income income city out of 209 ranked cities. Accessible at https://www.mercer. com/our-thinking/career/cost-of-living.html Source: WBG Financial Capability Survey, Angola 2019

FIGURE 23. Formal account barriers (% of unbanked Angolan adults without an account)

They are too expensive 3% I do not trust them 3% I do not need them 6% Other 7% They are too far away 10% I prefer cash 11% I do not know how to open 12% Insufficient documentation 18% Insufficient money 29%

0% 5% 10% 15% 20% 25% 30% 35%

Source: WBG Financial Capability Survey, Angola 2019 32 Enhancing Financial Capability and Inclusion in Angola

FIGURE 25. Top six formal account barriers by gender

35% 32% 30% 25% 25%

20% 18% 15% 15% 13% 12% 11% 10% 10% 10% 10% 9%

5% 3% 0% Insufficient Insufficient I do not know I prefer cash They are too I do not need money documentation how to open far away them

Female Male

Source: WBG Financial Capability Survey, Angola 2019

they were very worried about these expenses. Forty-three Angolans in rural areas face different barriers to percent identify a lack of money as their main barrier, sig- access than those in urban areas. More rural than urban nificantly more than any other barrier in any other age residents report insufficient documentation (20 percent group. Twenty-six percent identified a lack of need as vs. 14 percent) and that distance is too great (14 percent their main barrier, which differed starkly from other age vs. 5 percent) as their main barriers to account access cohorts who rarely reported lack of need (2 percent of (Figure 27). under 35 years of age and 7 percent of 35 to 54 years of age reporting). This lack of sufficient strategies to cover Public policy can directly address other commonly retirement expenses among the eldest cohort of Ango- cited barriers, such as distance and lack of knowledge. lans should raise concerns among policy makers. Greater Adults under 35 years of age identified insufficient doc- proportions of all younger Angolans, those under 35 years umentation (20 percent), lack of understanding about of age, identify insufficient documentation (20 percent), how to open an account (13 percent), and a preference lack of understanding about how to open an account (13 for cash (13 percent) as three of their top four obstacles percent), and a preference for cash (13 percent) as the to account ownership (fFigure 26). Rural areas face sim- main reasons for their lack of account ownership (Figure ilar barriers, with a lack of access replacing a preference 26). BNA allows simplified customer due diligence only for for cash (Figure 27). Overall, 12 percent of unbanked governmental customers. Individual customers may use adults are deterred from opening an account due to a their national ID cards, which have been available at low lack of understanding about how to open one. Ten per- cost (Kz 15) since 1999 and are mandatory from the age cent report a lack of access as their main barrier, with of 10. However, a recent report claims 12 million Angolans rural areas identifying this constraint nearly three times lack this card or birth certificate (E-Global News in Portu- as often as urban areas (14 percent vs. 5 percent). Finan- guese 2020). These factors may help explain the relatively cial literacy training and policies to incentivize banks and high barrier of insufficient documentation. Seventeen per- nonbanking financial institutions to service areas where cent were not worried about covering expenses when too access is currently limited can be effective in reducing old to work. these barriers further. Enhancing Financial Capability and Inclusion in Angola 33

FIGURE 26. Top six formal account barriers by age

50%

45% 43% 40%

35%

30% 30% 26% 25% 24% 20% 20% 15% 15% 13% 14% 13% 10% 10% 10% 9% 9% 7% 7% 5% 5% 3% 2% 0% Insufficient Insufficient I do not need I do not know I prefer cash They are too money documentation them how to open far away

Age <35 Age <55 Age> = 55

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 27. Top six formal account barriers by urban/rural setting

35% 30% 30% 28%

25% 20% 20%

14% 15% 13% 12% 13% 10% 10% 9% 7% 4% 5% 3%

0% Insufficient Insufficient I prefer cash I do not know OtherI do not need money documentation how to open then

Urban Rural

Source: WBG Financial Capability Survey, Angola 2019 34 Enhancing Financial Capability and Inclusion in Angola

4. FINANCIAL CAPABILITY the 2019 Angola Financial Capability Survey, covering basic mathematical and financial concepts such as inflation, compound interest, risk diversification, and the main purpose of insurance products. These questions capture Financial capability is the internal capacity to act financial concepts and skills that are widely considered in one’s best financial interest, given socioeco- to be crucial for informed savings and borrowing deci- nomic and environmental conditions. It therefore sions and to be able to mitigate risks more effectively and encompasses the knowledge, attitudes, skills, take advantage of investment opportunities. A financial and behaviors of consumers in terms of manag- literacy index was constructed based on the number of ing their resources and understanding, selecting, correct responses provided by each survey participant to and using financial services that fit their needs. the seven financial literacy questions. This index ranges from 0 to 6, whereby 0 indicates respondents who struggle the most with correctly answering any of these questions. A score of 6 indicates survey participants with good 4.1 KNOWLEDGE OF FINANCIAL CONCEPTS understanding of fundamental financial concepts and the Substantial evidence indicates that lack of financial ability to perform simple mathematical calculations. Box 3 knowledge and skills contributed to the 2008 global provides the English version of each question prior to its financial crisis. That limitations in consumers’ ability to translation into Portuguese. fully understand the financial products and risks they had taken on contributed significantly to the worst finan- The survey results suggest that on average, Angolan cial crisis since the Great Depression is a well-accepted adults were able to answer 2.6 out of six financial lit- hypothesis (Gerardi et al. 2010; Klapper et al. 2012). eracy–related questions correctly. More than half of the population answered at least three questions correctly, but Financial knowledge and skills are even more import- few scored five correct answers (9.9 percent) and merely ant in an environment where financial products are 2.1 percent managed to provide correct responses to all increasingly complex and being delivered through six questions (Figure 28). More Angolans answered two new distributions channels. Thanks to the launch questions correctly (23.8 percent) than any other number of mobile banking services such as M-Pitesan, Wave of correct responses. Money, myKyat, and True Money, mobile financial products and services are becoming increasingly available Delving into the performance on each of these financial to formerly disconnected segments. While these devel- concepts reveals that while Angolan adults are comfort- opments provide benefits, they also bear risks that may able performing simple division, a limited understand- be unfamiliar to existing and new customers. To be able ing of more complex concepts leaves them vulnerable to benefit from these new opportunities without being to poor financial decisions. Figure 29 shows that 71 exposed to undue risks requires a certain level of finan- percent of respondents were able to correctly calculate cial knowledge and skills. the division of a gift. Performance on the other responses averaged 38 percent. All respondents answered the ques- A 2014 study by Standard & Poor’s Ratings Services tion on risk diversification, and 41 percent did so correctly. on financial literacy in 142 countries found that only Just over one third of respondents correctly identified the 15 percent of Angolan adults were financially literate purpose of insurance, with one quarter responding that (Klapper et al. 2015). The study measured the following they did not know. Questions on inflation and compound four fundamental concepts of financial decision making: interest both yielded a correct response rate of 31 per- basic numeracy, interest compounding, inflation, and risk cent, though more responded incorrectly to the inflation diversification. With financial literacy defined as correctly question rather than saying they did not know (37 percent answering three of four questions related to these con- vs. 30 percent). Addressing the weak performance on this cepts, Angolans ranked 145th out of the surveyed 148 skills assessment will be a significant challenge for stake- countries. See Box 4 for additional information. holders, and improving financial numeracy will be essential to ensuring the Angolan population can make prudent To evaluate respondents’ financial knowledge and consumption, savings, and investment decisions. basic numeracy skills, six questions31 were added to Akin to the measures of financial inclusion shown previously, some segments of the Angolan population strug- 31. A seventh question regarding the calculation of simple interest gle more on basic financial concepts than their peers. was also included in the quiz, but the administration of it was deemed faulty and so it was dropped from the results. Women underperformed men by 0.4 points (Figure 30). Enhancing Financial Capability and Inclusion in Angola 35

BOX 3 Financial literacy quiz

QUESTION 1. Imagine that ﬁve brothers are given a gift of 10,000 Kwanza. If the brothers have to divide the money equally, how much does each one get?

QUESTION 2. Now, imagine that the ﬁve brothers have to wait for one year to get their part of the 10,000 Kwanza and inﬂation stays at 10%. In one year’s time will they be able to buy: • More with their share of money than they could today • The same amount • Less than they could buy today • It depends on the types of things that they want to buy (do not read out this option)

QUESTION 3. How much would be in the account at the end of ﬁve years? Would it be • More than 11,000 Kwanza • Exactly 11,000 Kwanza • Less than 11,000 Kwanza • It is impossible to tell from the information given

QUESTION 4. Let’s assume that you saw a TV-set of the same model on sales in two different shops. The initial retail price of it was 10,000 Kwanza. One shop offered a discount of 1,500 Kwanza, while the other one offered a 10% discount. Which one is a better bargain, a discount of 1,500 Kwanza or 10%? • A discount of 1,500 Kwanza • They are the same • A 10% discount

QUESTION 5. Which of the following statements best describes the primary purpose of insurance products? • To accumulate savings • To protect against risks • To make payments or send money • Other

QUESTION 6. Suppose you have money to invest. Is it safer to buy stocks of just one company or to buy stocks of many companies? • Buy stocks of one company • Buy stocks of many companies

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 28. Financial literacy overview

25.0% 23.8% 21.8% 20.0% 17.6%

15.0% 13.9% 10.9% 9.9% 10.0%

5.0% 2.1%

0.0% 01243 56 Financial literacy score

Source: WBG Financial Capability Survey, Angola 2019 36 Enhancing Financial Capability and Inclusion in Angola

BOX 4 The S&P Global Financial Literacy Survey

The Standard & Poor’s Ratings Service Global Financial Literacy Survey (S&P Global FinLit Survey) sought to provide information on financial skills across the globe and was completed in 2014. This survey targeted individuals aged 15 and above in 142 economies around the globe. Financial literacy was measured by assessing knowledge of four fundamental concepts in financial decision making: knowledge of interest rates, compound interest, inflation, and risk diversification. Respondents were considered financially literate if they correctly answered questions related to at least three of these concepts.

Financial literacy globally rated at 33 percent and ranged as high as 71 percent in Denmark, Norway, and Sweden to as low as 13 percent in Yemen.

Fifteen percent of the Angolan population was determined to be financially literate. Twenty-six percent understood the concept of interest, 17 percent understood inflation, and 38 percent understood risk diversification. Sixty-eight percent of the population claimed comprehension of the measure of compound interest, though this reconciles poorly with the relatively much lower comprehension of simple interest. When conditioning upon an understanding of simple interest, understanding of compound interest falls to 21 percent and overall financial literacy would fall to 12 percent—the lowest of all countries surveyed.

FIGURE 29. Financial literacy quiz question overview

1. Simple division 14% 71% 14%

2. Inflation 37% 31% 32%

3. Compound interest 30% 31% 39%

4. Compare bargain 28% 49% 24%

5. Purpose of insurance 41% 36% 23%

6. Risk diversification 59% 41% 0%

0% 10% 20% 30%40% 50%60% 70%80% 90% 100%

Incorrect Correct Don’t know

Source: WBG Financial Capability Survey, Angola 2019

Rural residents underperformed urban residents by 1.0 saved as a child also performed marginally better than point. Little difference was evident between Angola’s those who did not, scoring an average of 2.8 versus 2.5 on young adults (under 35 years) and middle-aged adults (35 the quiz though this difference is not significant (p=0.313). to 54 years old) as both averaged a score of 2.7 on the Figure 30. Financial literacy score by sociodemographic assessment of financial literacy. However, older Angolans background (number of correct answers) (55 years and older) performed 0.8 points worse. Also performing relatively poorly were Angolans who engage with Educated Angolans are more ﬁnancially literate, but fewer than the average number of media sources. Their improvement in capability diminishes beyond second- financial literacy score of 1.7 was just more than half of ary education. A significant gap in financial literacy exists their high media consumption counterparts. Those who between literate and illiterate Angolans. The former aver- Enhancing Financial Capability and Inclusion in Angola 37

FIGURE 30. Financial literacy score by sociodemographic background (number of correct answers)

6.0

5.0

4.0

2.9 3.1 3.0 2.8 2.7 2.7 2.8 2.4 2.5 1.9 1.9 2.0 1.7

1.0

0.0

Male Rural Urban Female < 35 years > 55 years Low media 35–54 years High media Did notas savea child consumptionconsumption Saved as a child Source: WBG Financial Capability Survey, Angola 2019 aged a score of 2.8 on the skills assessment, while the FIGURE 31. Financial literacy score by educational latter only achieved an average score of 1.0 (Figure 31). attainment (number of correct answers) Angolans with no education fared even worse, averag- 6.0 ing only 0.8 correct responses in the assessment. Primary school educated adults saw a 1.2-point improvement in 5.0 their average score and an additional 0.9-point improve- 4.0 ment came from secondary school education. School- 3.2 2.8 2.9 ing beyond this level resulted in higher scores, but only 3.0 2.0 0.3 points better after a university or higher education. 2.0 While schools may not directly teach financial literacy, stu- 1.0 1.0 0.8 dents are learning numeracy skills that can be applied to financial decisions. Improvements in access to education 0.0 even without any curriculum changes may lead to over- Illiterate Literate No school Primary Secondary University and higher all improvement in financial literacy and at the very least Source: should help close the gap between those least capable WBG Financial Capability Survey, Angola 2019 and their more financially literate counterparts.

Angolans in socioeconomic situations associated with them Table 11 in appendix B). Every level of education financial security and wealth are more financially liter- significantly impacts on financial literacy. A university or ate than those in worse situations. Across the income higher education leads to a 1.3-point increase in financial distribution, above median income respondents scored literacy score. Increases in income and media consump- more than 1.2 points higher than the poorer half of the tion are also predictive of higher financial literacy scores. population (Figure 32). Little difference in financial liter- Within employment, only being out of the labor force acy exists between households with stable income and significantly predicts financial literacy score in the model unstable income. Employment setting is also important in specified with all sociodemographic variables. identifying financial literacy. Formally employed Angolans scored highest, averaging 3.5 on the quiz. Self-employed An international comparison with respondents in 21 Angolans meanwhile averaged a 2.0 score, a full 1.5 countries on key financial literacy measures confirms points lower than that top score. Performance for other that Angola faces significant challenges in financial employment settings fell between these two poles. Many knowledge and that awareness levels are a significant correlations exist among these categories, for example, challenge that require immediate policy responses. formally employed adults have higher levels of education, Table 7 shows for 21 countries the proportion of adults consume media from more sources, live in urban areas, with good grasps of basic concepts such as inflation and and fall in higher income categories. A multivariate regres- simple and compound interest and those who are com- sion with these sociodemographic variables on financial fortable with performing simple divisions. Angolan adults literacy shows that there are significant predictors among rank near the bottom in two of the three comparison 38 Enhancing Financial Capability and Inclusion in Angola

FIGURE 32. Financial literacy score by socioeconomic background (number of correct answers)

6.0

5.0

4.0 3.5 3.2 2.8 2.8 3.0 2.7 2.6 2.5 2.0 2.0 2.0

1.0

0.0 Below Above Unstable Stable Self Informal Unemployed Out of labor Formal median median income income employed employment force employment income income

Source: WBG Financial Capability Survey, Angola 2019

TABLE 7. Cross-country comparison of ﬁnancial literacy scores

COUNTRY YEAR INFLATION SIMPLE INTEREST COMPOUND INTEREST SIMPLE DIVISION Albania 2011 61 40 10 89 Angola 2019 31a N/Ab 31c 71 Armenia 2010 83 53 18 86 Colombia 2012 69 19 26 86 Czech Rep. 2010 80 60 32 93 Estonia 2010 86 64 31 93 Germany 2010 61 64 47 84 Hungary 2010 78 61 46 96 Ireland 2010 58 76 29 93 Lebanon 2012 69 66 23 88 Malaysia 2010 62 54 30 93 Mexico 2012 55 30 31 80 Mongolia 2012 39 69 58 97 Mozambique 2013 28 78 28 93 Myanmar 2017 48 16 11 98 Philippines 2014 49 51 29 77 Peru 2010 63 40 14 90 Poland 2010 77 60 27 91 South Africa 2010 49 44 21 79 Turkey 2012 46 28 18 84 Uruguay 2012 82 50 40 86

Source: WBG Financial Capability Survey, Angola 2019

a The 2014 S&P Global FinLit Survey found that 17 percent of Angolans had an understanding of inflation, which is much lower than the 31 percent found in this Financial Capability Survey (Klapper et al. 2015). In mid-2014, a sharp and prolonged decline in the oil prices that drove a significant portion of the Angolan economy led to significant negative impacts across that economy. The government’s response to undercapitalized and systemically important banks, the loss of a direct U.S. dollar correspondent banking relationship, and nonperforming loans led to a significant escalation in inflation in 2016. By December of that year, inflation peaked at 41 percent before settling back to 19 percent by August 2018 (World Bank 2020). This episode undoubtedly raised awareness of inflation and explains the large increase in its understanding from 2014 to 2019. b The 2014 S&P Global FinLit Survey found that 26 percent of Angolans understood simple interest (Klapper et al. 2015). This figure ranks 19 out of 21. c The 2014 S&P Global FinLit Survey found that 50 percent of Angolans understood compound interest as measured by the one out of two questions that closely aligned with the syntax used in this Financial Capability Survey (Klapper et al. 2015). As described in Box 4, conditioning compound interest on an understanding of simple interest reduces this figure to 21 percent. Enhancing Financial Capability and Inclusion in Angola 39

categories, but are near peer countries in understand- to borrow more were more knowledgeable than those ing inflation. Their comprehension of compound interest who borrowed to their limit (34 percent vs. 26 percent). ranks sixth among all other countries in the developed Those who borrowed more than they could afford were and developing world for which comparable indicators the least knowledgeable in these areas: only 15 percent are available. responded correctly to the compound interest prompt. Of these three subgroups, the latter is the most vulnerable A self-assessment reveals that for all basic finance-re- to falling into debt traps. Their lack of understanding of lated terms four out of five Angolans report having the impact of compound interest, and of financial literacy heard of them, and more than half report understand- generally, is leading to poor financial, and policy makers ing them. Angolans have the most exposure to the con- should focus on financial education as a means of pre- cept of “debt:” 88 percent of respondents indicated venting downward spirals further into poverty. having heard of the term (Figure 33) Debt is also the term with which Angolans are most familiar: 72 percent self- The survey does not find a strong relationship between assess as understanding it. The terms “sources of income” understanding compound interest and repayment of and “family budget” have the lowest rates of exposure. debts when leftover money is available. Figure 35 shows Both are acknowledged by 78 percent of respondents as that Angolan adults who do not use leftover money to pay having heard of it, and in both cases just less than half debts performed marginally better than those who do on report knowing the meaning. The order of understand- this skill. However, this difference is not significant as a chi- ing of these terms suggests that Angolans have a stron- square test showed insignificant differences between the ger understanding of how and where to save money and two groups’ results (p=0.459). that borrowing is a feasible financial option while having a weaker understanding of the formal discussion around Angolan households with some debt are more likely income and budgeting. than those with little to no debt or significant amounts of debt to understand compound interest. Those Adults who borrowed more than they can afford were households with debt levels between two and 12 months significantly less likely than those who borrowed at of income performed best on the question about com- most to their limit to understand the concept of compound interest, with 47 percent of respondents within this pound interest. Figure 34 shows that those with capacity group correctly calculating a one-year interest balance

FIGURE 33. Awareness of financial terminology

Debt 72% 16% 13%

Bank account 63% 20% 17%

Savings 58% 27% 15%

Investment 55% 27% 18%

Income 53% 26% 21%

Family budget 48% 30% 22%

Sources of income 47% 30% 22%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Know the meaning Heard about it but do not know the meaning Never heard about it

Source: WBG Financial Capability Survey, Angola 2019 40 Enhancing Financial Capability and Inclusion in Angola

FIGURE 34. Understanding compound interest as evidenced FIGURE 35. Understanding compound interest as evidenced by ability to repay debts by use of leftover money in repaying debts

100% 100% 90% 90% 28% 37% 34% 80% 38% 80% 54% 70% 70% 60% 60% 29% 50% 26% 50% 34% 34% 40% 15% 40% 30% 30% 43% 20% 37% 20% 31% 28% 32% 10% 10% 0% 0% Borrowed more than Borrowed to limit Could borrow more/ Uses leftover money Doesn’t use leftover money affordable hasn’t borrowed to repay debts to repay debts

Incorrect Correct Don’t know Incorrect Correct Don’t know

Source: WBG Financial Capability Survey, Angola 2019 Source: WBG Financial Capability Survey, Angola 2019

FIGURE 36. Understanding compound interest by total indebtedness

100% 90% 31% 31% 80% 42% 70% 57% 60% 32% 50% 29% 47% 40%

30% 28% 20% 37% 29% 22% 10% 15% 0% No debt at all Less than or equal to Between 2 and More than 12 months one month of income 12 months of income of income

Incorrect Correct Don’t know

Source: WBG Financial Capability Survey, Angola 2019

(Figure 36). Households with no debt were able to do so The fundamental misunderstanding of compound inter- 29 percent of the time, those with debt less than or equal est can have far-reaching consequences, in particular to one month of income 32 percent of the time, and those for long-term savings and the accumulation of wealth with an amount of debt greater than a year of income 28 as evidence from a recent ﬁeld experiment in China percent of the time. Households with a moderate level of shows. The experiment studied the relationship between debt may comprehend that sustainable debt levels can understanding the nature of compound interest and lead to better long-term outcomes and that the optimal retirement savings in China based on a sample of a thou- debt level in Angola is somewhere between two and 12 sand households. It concluded that households that were months of income. randomly assigned to a financial education treatment that emphasized the concept of compound interest increased their pension contribution by roughly 40 percent as compared with a control group that did not receive this training (Song 2020). Enhancing Financial Capability and Inclusion in Angola 41

FIGURE 37. Self-reported awareness of financial concepts and products

Interest 68% 18% 15%

Insurance 61% 20% 20%

Exchange rate 55% 19% 26%

Inflation 39% 15% 45%

Shares 39% 17% 45%

0% 10% 20%30% 40% 50% 60%70% 80% 90% 100%

Know the meaning Heard about it but do not know the meaning Never heard about it

Source: WBG Financial Capability Survey, Angola 2019

Self-reported awareness of ﬁnancial concepts and prod- FIGURE 38. Self-reported financial concept awareness ucts is high, but objective assessment results do not vs. quiz performancea fully support a deeper understanding of these ideas. 100% To compare objective findings of the financial knowledge 18% 19% quiz with subjective education needs, respondents were 90% also asked to self-assess their understanding of basic 80% 38% terms and concepts such as interest rates, insurance prod- 15% 70% 17% ucts, exchange rates, inflation, and shares. Self-reported awareness of the concept of interest rated the highest, 60% with 86 percent noting familiarity with the term and 68 50% 21% 36% 34% percent identifying that they knew the meaning (Figure 40% 37). However, when compared with performance on the financial literacy quiz, 41 percent of all respondents iden- 30% 20% tified themselves as knowledgeable on interest but only 20% half of these correctly responded to the question on com- 31% 30% 10% 21% pound interest (Figure 38). Self-reported awareness of inflation was low relative to others where just more than 0% half of respondents claimed to have heard the term. Of Inflation Insurance (Compound) Interest all respondents, 39 percent indicated that they knew the Reported lack of understanding & answered incorrectly meaning. When matched with their ability to identify the Reported lack of understanding & answered correctly outcome of one year of inflation on buying power, half of Reported understanding & answered correctly those who indicated they knew the meaning could cor- Reported understanding & answered incorrectly rectly identify the impact. Interestingly, a similar number of those who reported they had never heard the term could Source: WBG Financial Capability Survey, Angola 2019 also correctly identify the impact. Angolans responded a Difference in percentages from Figure 37 is due to the exclusion of to the concept of insurance with familiarity. Eighty-one respondents who said they had not heard of the given word. percent had heard of the term and 61 percent reported that they know the meaning. When choosing between the options on the purpose of insurance, more than half of that 61 percent were correct (54 percent). 42 Enhancing Financial Capability and Inclusion in Angola

4.2 KNOWLEDGE OF FINANCIAL PRODUCTS Figure 39 shows that 14 percent reported familiarity with products from more than half of the available provid- To assess survey participants’ awareness of financial ers, that is, scored 5 or higher. Concerning, however, is products, the Financial Capability Survey captured that more half of respondents were familiar with prod- information on peoples’ familiarity with products ucts from at most one provider and 35 percent were not offered by different financial service providers. In aware of a financial product provided by any financial particular, survey participants were asked if they were institution. familiar with products offered by commercial banks, insurance companies, brokerage houses, microcredit Looking deeper into the type of financial products organizations, nonbanking financial institutions, bureaus known reveals that survey participants are more famil- de change, money transfer agents, insurance agents, iar with commercial banks than any other type of and the Angola Capital Market exchange. A financial provider by a wide margin. Fifty-eight percent of respon- products awareness index was then constructed based dents were familiar with products from commercial banks on the number of financial products known, as indicated and the next most common familiarity was with bureaus by each survey participant. This index ranges from 0 to de change, with 29 percent reporting to know products 9, whereby 0 indicates that respondents were not famil- or services offered (Figure 41). Money transfer agents and iar with any products offered by any type of provider. brokerage houses rated the lowest (7 percent and 8 per- Respondents with a score of 9 stated familiarity with cent, respectively), though this is not surprising given the products offered by all nine providers asked about by high cost of remittances (Barne and Pirlea 2019) and low the survey. Respondents were also asked about their use ownership of shares within the country.32 of media, the results of which are discussed in Box 5.

Respondents were familiar with products and services 32. This Financial Capability Survey found 2.3 percent of Angolan from an average of 1.9 different types of providers. adults had ever purchased shares on the Angola capital market.

FIGURE 39. Distribution of financial products awareness scores

40% 35% 35%

30% 28%

25%

20%

15%

10% 9% 7% 6% 5% 5% 4% 2% 1% 2% 0% 012345 6 789 Financial Products Knowledge Score

Source: WBG Financial Capability Survey, Angola 2019 Enhancing Financial Capability and Inclusion in Angola 43

BOX 5 Media consumption overview

While televisions and radio are widely used in Angola, gaps exist among groups watching television, where 91 per- the penetration of print media and the Internet is biased cent of urban residents and 53 percent of rural residents toward more afﬂuent, urban, male, and highly educated report watching regularly. With print media, the gaps are segments of the population. Figure 40 reveals that radio stark. Half of all secondary school educated Angolans read and television are enjoyed even among vulnerable popu- a national or local newspaper, while only 5 percent of the lations. Sixty-two percent of Angolans with no education noneducated do so. Rural residents and women similarly regularly listen to the radio compared with 80 percent of lack access to print media. the population with a university degree or higher. Similar

FIGURE 40. Media consumption by sociodemographic groups

100% 100%

80% 80%

60% 60%

40% 40%

20% 20%

0% 0% RuralUrban Below median income Above median income

100% 100%

80% 80%

60% 60%

40% 40%

20% 20%

0% 0% WomenMen No school PrimarySecondary University and . . .

Local Internet National Mobile Phone RadioTelevision newspaper newspaper

Source: WBG Financial Capability Survey, Angola 2019 Note: University and higher truncated 44 Enhancing Financial Capability and Inclusion in Angola

FIGURE 41. Financial product awareness by service provider

Commercial Banks 58%

Bureaus de Change 29%

Insurance Companies 24%

Insurance Agents 21%

Microcredit Organizations 18%

Nonbanking Financial Institutions 16%

Angola Capital Market Exchange 12%

Brokerage Houses 8%

Money Transfer Agents 7%

0% 10% 20% 30% 40% 50% 60% 70%

Source: WBG Financial Capability Survey, Angola 2019

4.3 FINANCIAL BEHAVIOR AND ATTITUDES More specifically, controlled budgeting measures the extent to which people plan how to use their money, Even if people know about basic financial concepts, whether they adhere to the plan, and how well they incor- they may struggle to translate such knowledge into porate lessons into their budgeting behaviors; not over- adequate actions. To identify the role that attitudes play spending assesses whether people have money left over in shaping individuals’ financial decisions and to see if and after buying essentials and if they refrain from spending it how attitudes translate into financial behavior, the survey on nonessentials; living within means measures whether contained questions on different aspects (components) adults run short of money after buying essentials and why, of financial capability that include attitudes/motivations their level of borrowing, and whether people borrow to and behaviors. This section gives an overview of strengths buy food or to repay other debt; prudence assesses the and areas for improvement that surveyed adults showed ability to be disciplined when managing money and learn regarding relevant financial behaviors and attitudes. from mistakes others make; covering unexpected costs indicates whether people could cover an unexpected The Angola data set includes 10 main components of expense equivalent to a month’s income and whether financial capability, some of which refer to behaviors they worry about it; and planning for old age indicates and others to attitudes or motivations. Each financial whether people have strategies in place that allow them capability component is measured through a combina- to cover for expenses in old age, their level of prepared- tion of relevant questions. These are identified by using ness for old-age expenses, and the extent to which they a statistical technique called principal component anal- worry about covering their expenses in old age. ysis (PCA). PCA is a data reduction method that finds a small number of linear combinations of those vari- Four financial capability components refer to underly- ables that explain most of the variance in the data. The ing attitudes and motivations that influence the way method is used to aggregate the variables that measure people behave, such as those related to people’s far- different nuances of the same component to obtain a sightedness, their achievement orientation, self-re- single indicator (or score) for that component. Each com- straint, and their attitude toward savings. In particular, ponent score ranges between 0 (lowest score) and 100 farsightedness measures belief in the self-determination (highest score). of future outcomes, a preference for long-term thinking, and control of impulsive decision making. The achieve- The following six components measure behaviors ment orientation component identifies the degrees related to financial capability: controlled budgeting, to which people agree that they are always looking for not overspending, living within means, prudence, opportunities to improve their situation, have many covering unexpected costs, and planning for old age. Enhancing Financial Capability and Inclusion in Angola 45

aspirations, and work hard to be among the best. The savings amounts may be low. As would be expected, this measure of self-restraint ranks adults’ abilities to avoid population with a lower inclination to save is less likely to purchasing unnecessary items and the frequency at which hold formal savings. they do. The attitude toward savings score, however, is based on respondents’ agreement or disagreement with In contrast, financial behaviors related to long-term statements such as “I try to save for the future,” “I try to financial planning appear to be a major challenge in save for emergencies,” and “I try to save regularly, even if Angola. These findings should be a cause for alarm for a small amount,” describe them personally. Angolan policy makers. Changing these attitudes toward saving for old age is a key component for economic As compared with other aspects of financial capabil- growth, stability, and citizen welfare. Without sufficient ity, Angolan adults show relative strengths in terms of planning and support, the aging population will face food their prudence, achievement orientation, and control and health insecurity in the face of overwhelming living of their budgets. According to the PCA analysis, Angolan expenses. Figure 42 shows that survey respondents strug- adults are most capable in the area of prudence, where gle with their long-term financial planning, including their they achieve the highest score (79) of all aspects of finan- farsightedness (58) and planning for old age (58). More cial capability being measured. This high score is further specifically, regarding people’s ability to plan for old age, reflected in the fact that nearly 80 percent of surveyed the survey results show that nearly half of the surveyed adults agreed that they are disciplined with their money, respondents have no provision for covering old age– two thirds of whom did so strongly. An even greater pro- related expenses and that 25 percent are no more than portion of respondents agreed that they learn from oth- a bit worried that they have no such provision. In terms ers’ mistakes when concerning financial matters. Listing of farsightedness, the survey results suggest that while all scores for different aspects of financial capability in Angolans are not very impulsive, their attitudes toward increasing order, Figure 42 indicates that respondents’ time indicate a lack of foresight. More than half of respon- achievement orientation (74) and budget control (71) rep- dents agreed that they live in the present and that the resent the second and third highest scores. Although a future will take care of itself. In a multivariate regression, significant proportion of adults reported some form of those with low media consumption, those who had not saving (see section 3.3 Saving and Risk Management), saved as children, and middle-aged adults had significant, these respondents score substantially lower regarding highly negative relationships with farsightedness (Table 12 their inclination to save (46), suggesting that average in appendix B).

FIGURE 42. Average financial capability scores

Prudence 79

Achievement orientation 74

Controlled budgeting 71

Self restraint 67

Living within means 66

Cover unexpected costs 64

Saving 61

Not overspending 60

Planning for old age 58

Farsightedness 58

0102030405060708090 100

Index Score Source: WBG Financial Capability Survey, Angola 2019 46 Enhancing Financial Capability and Inclusion in Angola

Understanding Angolan’s limited attitudes toward comparison also shows that while respondents in Angola and perceptions of long-term retirement savings, display weaker performance in farsightedness and in as exemplified in their relatively poor ability to plan planning for old-age expenses when stacked against for old-age expenses, requires consideration of the the other measures of financial capability, they perform broader context of Angola’s history and its intersec- favorably when compared on these measures with peer tion with the formal financial sector. An extended civil countries. war that began in 1975 and concluded in 2002, with intermittent periods of peace, has left many older Ango- Two essential personal characteristics that appear to be lans having spent much of their adulthood living under correlated with better scores in several financial capa- conflict and having seen their economy and institutions bility areas are people’s educational attainments and severely damaged. These experiences, combined with their financial knowledge/literacy levels. Adults with more recent macroeconomic instability and exchange higher educational attainment outperform their coun- rate devaluations, may have created the lack of trust in terparts with lower education in the areas of controlled the kwanza and the formal financial sector, particularly as budgeting, not overspending, and saving. The most sig- means of storage that will remain when no longer able nificant gap between highly educated adults and those to work due to age. without any educational attainment is evident in their ability to avoid overspending (Figure 43). While those who A comparison with survey participants in 12 countries completed at least a secondary education achieved a not confirms that Angolans generally exhibit good finan- overspending score of 65, those with primary schooling or cial behaviors, but would do well to improve planning less scored 16 points less (49). A regression analysis (Table for old-age expenses. Table 8 compares the average 12 in appendix B) shows that educational attainment financial capability scores of survey respondents in five remains significant even after controlling for income and areas with those of respondents in countries where a ver- other characteristics. Likewise, higher financial literacy is sion of this survey has also been conducted. The table strongly associated with higher scores in several areas, shows that survey participants in Angola perform equiv- in particular in controlled budgeting, not overspending, alently to respondents of similar countries on measures farsightedness, and achievement orientation (Figure 44; of saving and living within their means. The cross-country Table 13 in appendix B).

TABLE 8. Cross-country comparison of ﬁnancial capability scores PLANNING CHOOSING FOR OLD-AGE FINANCIAL LIVING WITHIN COUNTRY SAVING FAR-SIGHTEDNESS EXPENSES PRODUCTS MEANS Angola 61 58 58 N/A 66

Armenia 46 28 100 59 67

Colombia 45 37 67 57 74

Lebanon 40 55 71 63 81

Mexico 57 35 65 59 78

Mongolia 62 60 N/A 49 84

Mozambique 42 40 40 34 64

Myanmar 61 58 58 N/A 66

Morocco 42 78 6 89 57

Nigeria 55 N/A N/A N/A N/A

Philippines 46 64 29 51 43

Tajikistan 66 84 N/A N/A 82

Turkey 30 50 72 52 67

Uruguay 44 35 60 53 81

Source: WBG Financial Capability Survey, Angola 2020 Enhancing Financial Capability and Inclusion in Angola 47

FIGURE 43. Average financial capability scores by education

Controlled budgeting 90 Achievement 80 Not overspending orientation 70 60 50 40 Farsightedness 30 Living within means Primary or less 20 10 Secondary or more 0

Planning for old age Self restraint

Saving Prudence

Cover unexpected costs

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 44. Average financial capability scores by financial literacy level

Controlled budgeting 90 Achievement 80 Not overspending orientation 70 60 50 40 Farsightedness 30 Living within means 20 Low: 0–2 10 0 Medium: 3–4 High: 5–6 Planning for old age Self restraint

Saving Prudence

Cover unexpected costs

Source: WBG Financial Capability Survey, Angola 2019

The survey results further suggest that different age The oldest group of Angolans exceeds its peers in terms groups exhibit different saving capabilities. Figure 45 of self-restraint and living within means—measures that shows that Angolans between ages 35 and 55 are stron- logically align with a group with fixed incomes, savings, or gest in exhibiting behaviors associated with better financial other financial support that cannot get into debt. capability. They most outperform their counterparts in planning for old age and not overspending, scoring 67 in the Starting early pays off as having saved as a child cor- former and 64 in the latter. Younger adults under 35 years relates with higher scores in several ﬁnancial capabil- of age are only more proficient in achievement orientation, ity areas. Respondents who saved in childhood tend to where they are looking for opportunities to succeed, have outperform their counterparts who did not form savings many aspirations, and work hard to be among the best. habits as children in the areas of planning for old age, 48 Enhancing Financial Capability and Inclusion in Angola

FIGURE 45. Average financial capability scores by age

Controlled budgeting 80 Achievement 70 Not overspending orientation 60 50 40 30 Farsightedness Living within means 20 10 0 <35

35–54 Planning for old age Self restraint > = 55

Saving Prudence

Cover unexpected costs

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 46. Average financial capability scores by childhood saving behavior

Controlled budgeting 90 Achievement 80 orientation 70 Not overspending 60 50 40 Farsightedness 30 Living within means 20 10 0 Did not save as a child Saved as a child

Planning for old age Self restraint

Saving Prudence

Cover unexpected costs

Source: WBG Financial Capability Survey, Angola 2019

saving, covering unexpected costs, achievement orien- Media consumption is an important factor in explaining tation, and not overspending. Figure 46 shows that those the ﬁnancial behaviors of Angolan adults. Respondents who began savings habits as children have better atti- were asked if they regularly read either a national or local tudes toward good financial behaviors than those who newspaper, listen to the radio, watch TV, use the Inter- did not save in childhood. Regression analysis confirms net, and use a mobile phone. Figure 47 shows that those that differences in the areas of controlled budgeting and who indicated a broad use of these media were notably farsightedness remain significantly negative and prepa- better than their counterparts across most of the financial ration for old age significantly positive after controlling behavior components. The regression model presented in for other socioeconomic and demographic factors (Table Table 12 in appendix B confirms that high media use sig- 12 in appendix B). nificantly predicts higher scores for high media consum- Enhancing Financial Capability and Inclusion in Angola 49

FIGURE 47. Average financial capability scores by media usage

Controlled budgeting 90 Achievement 80 orientation 70 Not overspending 60 50 40 Farsightedness 30 Living within means 20 10 0 Low media consumption High media consumption

Planning for old age Self restraint

Saving Prudence

Cover unexpected costs

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 48. Average financial capability scores by income

Controlled budgeting 90 Achievement 80 Not overspending orientation 70 60 50 40 Farsightedness 30 Living within means 20 10 Below median income 0 Above median income

Planning for old age Self restraint

Saving Prudence

Cover unexpected costs Source: WBG Financial Capability Survey, Angola 2019

ers in controlled budgeting, not overspending, prudence, Respondents with above median incomes exhibit covering unexpected expenses, saving, preparing for old- stronger ﬁnancial behaviors than those with below age expenses, and achievement orientation. Low media median incomes. When comparing high- and low-income consumers interestingly outperform this other group in Angolans, the high-income population was notably more living within means, self-restraint, and farsightedness. capable than their counterparts across all attitudes and These results suggest that broad media campaigns can behaviors (Figure 48). The regression analysis in Table 12 be effective in enhancing financial capability, but that the in appendix B finds that self-restraint is only significant at messaging of any campaign should focus on enhancing the 95 percent confidence level. Policy makers seeking to those behaviors shown to be positively associated with enhance financial behaviors should not expect improve- high media use. ment through programs aimed at increasing incomes, 50 Enhancing Financial Capability and Inclusion in Angola

FIGURE 49. Average financial capability scores by employment category

Controlled budgeting 90 Achievement 80 Not overspending orientation 70 60 50 40 Farsightedness 30 Living within means Formal 20 10 Informal 0 Self-employed Out of labor force Planning for old age Self restraint Unemployed

Saving Prudence

Cover unexpected costs

Source: WBG Financial Capability Survey, Angola 2019

though this should not preclude them from implementing 5. RELATIONSHIP BETWEEN such programs as their goals are to improve the lives of those who are more vulnerable. FINANCIAL INCLUSION AND FINANCIAL CAPABILITY Formally employed Angolans exhibit better ﬁnancial behaviors than those who fall into other categories of Financial inclusion and financial capability undoubtedly employment. Figure 49 shows that the formally employed influence one another. While lack of knowledge about finan- population appears to have the greatest advantage over cial products may hinder their use, it may also be the case all others in avoiding overspending, though the regres- that as people begin using financial services, they become sion model results in Table 12 in appendix B indicates that more familiar with and knowledgeable about them, in a the gap is only significant at the 99 percent confidence “learning by doing” fashion. While disentangling a causal level when comparing with the unemployed. The model link between financial inclusion and financial capability is finds that formally employed Angolans are most signifi- beyond the scope of this report, this chapter presents an cantly better than others at controlling their budget (13.6 overview of the financially excluded in Angola and how their points better than those who are out of the labor force) financial knowledge, attitudes, and behaviors compare with and exhibiting self-restraint (14.6 points better than those financially included segments of the population. who are unemployed). No single category of employment is unambiguously worse than all others in terms of finan- 5.1 FINANCIAL LITERACY AND FINANCIAL cial behaviors. The average score across all measures of INCLUSION financial capability was 65 for the informally employed, 63 for the self-employed, and 64 for those out of labor force Financial illiteracy is usually cited as an explanation of and for the unemployed. When considering the impact the limited demand for ﬁnancial services in developing on financial behaviors and inclusion through employment countries. If people do not understand financial concepts programs, policy makers should thus incentivize formal and lack basic numeracy skills, they may not feel com- employment. fortable in choosing financial products and hence will not demand them, or perhaps even more alarming, they will choose products that do not fit their needs or use them in the wrong way. For instance, in a study in India and Indo- nesia, Cole and others (2009) found financial literacy to be an important factor in determining the demand for financial products, especially among uneducated and financially illiterate segments of the population. Enhancing Financial Capability and Inclusion in Angola 51

Usage of formal accounts correlates with better under- and participation in formal financial markets (Table 14 in standing of basic financial concepts. For Angolan appendix B). This analysis does not establish the causal adults who use any type of formal financial account, the link between financial literacy and participation in for- average number of successfully answered questions in mal financial markets. Those who are better educated in the financial literacy quiz in section 4.1 was 3.2, while financial concepts may therefore be more likely to open those without formal financial accounts scored 2.0 on formal accounts. However, operating a formal account average (Figure 50). Formal credit users were slightly may lead to greater understanding of financial concepts. more financially literate than the rest of the population, scoring an average of 2.8 questions answered correctly. Angolan adults with savings accounts appear to have Formal savings users performed slightly better, answer- a better understanding of fundamental financial con- ing an average of 3.1 questions correctly. Exposure to cepts—a finding marked further by those who utilize financial services may have contributed to this increased formal accounts. Figure 52 shows that the fraction of performance, though the possibility that those who respondents within the highest financial literacy index understood these financial concepts were more likely to score category is smallest for those who do not engage access formal financial products is also a consideration. in savings behavior in any formal or informal product or service (8 percent). Angolans who only save in formal Financially included Angolans are more financially lit- accounts were the most financially literate with the high- erate than those without formal accounts. By catego- est proportion within the top index performance group rizing performance on the financial literacy quiz into three (27 percent). groups, Figure 51 clearly shows the contrast in financial literacy between those who are financially included and Angolans who access credit products are more finan- those who are not. Those with formal accounts per- cially literate than those lacking access, with informal formed in the highest echelon 20 percent of the time borrowers relatively more financially savvy than those compared with only 4 percent for those without formal who only use formal credit. Twenty-three percent of accounts. Most financially included Angolans fell into only informal credit users were in the top tranche of finan- the middle performance category (46 percent), while cial literacy, and 60 percent achieved an index score of the significant majority of those not financially included at least 3 out of 6 (Figure 53). In contrast, only 5 percent lacked financial numeracy skills, placing them into the of only formal credit product and service users achieved lowest performance category (62 percent). This finding the top tranche, and 53 percent scored at least a 3 on the is validated by regression analysis, which suggests that index. This latter group also performed worse than those significant correlation exists between financial literacy who use no products, where 11 percent achieved a score

FIGURE 50. Financial literacy score by financial inclusion FIGURE 51. Financial literacy score by formal financial characteristics (number of correct responses) products and services ownership

6.0 70% 62% 60% 5.0

50% 46% 4.0 3.2 40% 3.1 34% 3.0 2.8 34% 2.5 2.4 30% 2.0 2.0 20% 20%

1.0 10% 4% 0.0 0% Financially Not Formal No formal Formal No formal Adults with no formal Adults with formal included financially credit credit savings savings included accounts accounts Source: WBG Financial Capability Survey, Angola 2019 Low: 0–2 Medium: 3–4 High: 5–6 Source: WBG Financial Capability Survey, Angola 2019 52 Enhancing Financial Capability and Inclusion in Angola

of five or six. Not everyone with access to formal prod- The lack of high performance in understanding of ucts may understand their risks, making them vulnerable basic ﬁnancial concepts may be of concern, partic- to market conduct risks such as mis-selling or misleading ularly among active users of ﬁnancial products. For advertising. Realizing these risks could lead to these less financial products to provide maximum benefits, their financially savvy borrowers becoming overindebted. users need to know how to use them. Experience shows Possibly driving this disparity is the targeting of finan- that using financial products without fully understanding cial literacy programs toward informal savings groups, or them can do more harm than good (Box 6). As with the low financial literacy engagement by commercial banks. case of financial awareness, evidence suggests that there Exploring these and other possibilities as explanations is room for policies aimed at enhancing financial liter- for this finding is beyond the scope of this report, but acy and numeracy skills among Angolan adults, both for would be a valuable avenue of research. users of formal financial products and for those who are currently excluded from the formal financial system but might eventually become more integrated.

BOX 6 Financial literacy and attitudes toward debt

Most evidence on the effects of financial literacy on debt comes from studies in developed countries. In the United States, Lusardi and others (2009) find that debt literacy (measured with questions evaluating debt-related concepts) is on average low and is positively associated with higher debt loads, fees, and borrowing costs. Perry (2008) finds that in the United States a substantial fraction of people (32 percent) tend to overestimate their credit ratings, being also less financially literate NS less likely to plan their expenses and to save or invest.

FIGURE 52. Financial literacy score by use of formal and FIGURE 53. Financial literacy score by use of formal and informal savings products informal credit products

100% 100% 8% 5% 10% 15% 11% 90% 90% 17% 27% 23% 80% 80% 34% 48% 70% 40% 70% 37% 41% 41% 60% 60% 37% 50% 50% 53% 40% 40%

30% 30% 55% 51% 52% 48% 20% 44% 20% 40% 41%

10% 20% 10%

0% 0% No savings Only informal Only formal Both formal No credit Only informal Only formal Both formal and informal and informal Low: 0–2 Medium: 3–4 High: 5–6 Low: 0–2 Medium: 3–4 High: 5–6

Source: WBG Financial Capability Survey, Angola 2019 Source: WBG Financial Capability Survey, Angola 2019 Enhancing Financial Capability and Inclusion in Angola 53

5.2 KNOWLEDGE ABOUT FINANCIAL accounts because they lack the money to maintain them or PRODUCTS AND FINANCIAL INCLUSION because they do not have the necessary documentation to open them. Only a small fraction of the population reports Establishing a causal relationship between financial not needing them (6 percent) or not trusting them (3 per- inclusion and financial product awareness with this cent), suggesting at first glance that barriers related to lack survey is difficult; however, studies in various settings of knowledge about financial products are not substantial have found that enhanced financial awareness may in in Angola. However, when analyzing how informed adults turn lead to higher product uptake. In the United States, without formal accounts are about services of various for instance, information about a retirement plan was financial providers, their awareness appears to be low. Fig- randomly provided to a group of university employees. ure 54 shows a breakdown of the product awareness index Workers who received the information were substantially (described in section 4.2 Knowledge of Financial Products) more likely to enroll in the retirement plan than those who by barrier to access. Not needing an account or not trust- did not obtain the information, suggesting that individ- ing financial institutions are among the barriers that have uals are more likely to use a financial product once they the greatest proportion of adults who knew no financial learn about it and its benefits (Duflo and Saez, 2003). In products. Conversely, among those who state a prohibi- a similar vein, Giné et al. (2007) found that in rural India tive cost of ownership and a cash preference as barriers, lack of understanding of insurance products is the second more than 50 percent are aware of more than one financial most stated reason for households not to use purchase product type. Regression analysis suggests that even after rainfall insurance. Overall, these studies suggest that controlling for socioeconomic and demographic charac- lack of usage of products may reflect a lack of awareness teristics of Angolan adults, awareness of financial products about them. and the likelihood of owning a formal product or service are strongly linked (Table 15 in appendix B). While not everyone should (or needs to) use financial products, lack of awareness can prevent people from As people’s awareness of financial products increases, using financial products that could potentially bene- they become more likely to rely on products from fit them. As discussed in section 3.5 The Unbanked and formal providers. Angolan adults who borrow (Figure Barriers to Owning a Formal Account, most financially 55) and save (Figure 56) from formal sources are more excluded Angolan adults state they do not have formal

FIGURE 54. Financial product awareness score by reasons for not having a formal account

100% 1% 2% 35% 8% 7% 5% 5% 9% 2% 6% 90% 8% 22% 15% 18% 30% 38% 80% 29% 26% 35% 23% 70% 25% 21% 60% 20% 20% 50% 17% 15% 40% 75% 77% 12% 61% 60% 30% 55% 11% 57% 10% 9% 20% 42% 7% 6% 5% 10%

0% 0%

Other them money far away Insufficiecnt Insufficiecnt I prefer cash I do not know They are too how to open I do not need documentation None: 0 Low: 1 Medium: 2 High: 3+ Fraction of adults by reported barrier

Source: WBG Financial Capability Survey, Angola 2019 54 Enhancing Financial Capability and Inclusion in Angola

FIGURE 55. Financial product awareness score by formal/ FIGURE 56. Financial product awareness score by formal/ informal credit products informal savings products

100% 100% 9% 16% 8% 90% 90% 7% 23% 35% 80% 7% 80% 47% 8% 70% 70% 60% 62% 33% 22% 60% 32% 60% 11% 29% 50% 50% 10% 40% 29% 40% 15% 8% 10% 30% 30% 20% 50% 44% 44% 23% 20% 19% 20% 29% 25% 10% 10% 7% 10% 9% 0% 0% No credit Only informal Only formal Both formal No credit Only informal Only formal Both formal and informal and informal

None: 0 Low: 1 Medium: 2 High: 3+ None: 0 Low: 1 Medium: 2 High: 3

Source: WBG Financial Capability Survey, Angola 2019 Source: WBG Financial Capability Survey, Angola 2019

aware of various financial institutions and their products between credit and savings products has several possible than those who tap into informal sources, or those who explanations. The informal credit landscape may be more do not save or borrow at all. If formal financial providers robust than the formal credit landscape, resulting in more offer services of higher quality, this pattern may suggest provider types for Angolans who prefer informal credit that those with more information of the financial sector to become knowledgeable about. The reverse may then select better products and institutions than those with be true for the savings landscape. Also possible is that less information. those with credit-seeking behavior do not wish to engage with formal lenders and so seek to borrow from informal Financial product awareness is highest among Ango- sources, while those who desire to save prefer to store lans who borrow and save through formal and infor- their cash in formal accounts. mal providers. The majority of those with no awareness of financial products report knowing either no or one Financially included Angolans are aware of signiﬁ- product from the providers prompted (Figure 55 for credit cantly more products and services than those without products and Figure 56 for savings products). Awareness access to bank accounts. Eighty-six percent of those among those with both formal and informal accounts is considered financially included were reportedly aware of almost by definition higher, as at least one product of products and services from commercial banks, while only each type is required to fall within this category. Even 31 percent of their counterparts had similar awareness. so, product awareness is notably higher in this category Figure 57 shows that awareness of all other products than it is for those with only formal or only informal credit and services was greater for the former group as well, or savings products. When focusing on credit products, with an average knowledge score of 3.11, exceeding the those with only informal credit are aware of more prod- 0.08 score of the latter group. These large gaps suggest ucts than those with only formal credit (an average of 2.6 that one avenue for improving financial inclusion is to products for only informal credit and 2.1 for only formal increase exposure of the existence and purpose of banks credit). This is inverted when focusing on savings prod- and other financial institutions. Public education, such ucts. Only formal savers are aware of more products than as financial education in school curricula, jointly imple- those who only save via informal methods (an average of mented with private advertising campaigns could be an 3.0 products for only formal saving and 1.3 products for effective combination for reaching wide swaths of the only informal saving). This disparity in product awareness Angolan population. Enhancing Financial Capability and Inclusion in Angola 55

FIGURE 57. Financial awareness by financial inclusion 90% 86% 80% 70% 60% 50% 44% 39% 40% 34% 31% 30% 29% 30% 21% 20% 15% 14% 14% 9% 7% 8% 10% 1% 3% 1% 3% 0% Commercial Insurance Brokerage Microcredit Nonbanking Bureaus Money Insurance Angola banks companies houses organizations financial de change transfer agents capital market institutions agents exchange

Adults with no formal accounts Adults with formal accounts

FIGURE 58. Financial attitudes and behaviors and financial inclusion

90 83 78 80 80 74 69 69 69 70 68 67 69 65 66 64 63 61 60 59

e 54 51 53 52 50 40 Index Scor 30 20 10 0 Not over- Saving Controlled Achieve- Cover Planning Prudence Self- Living Farsighted- spending budgeting ment unexpected for old restraint within ness Orientation costs age means

Adults with no formal accounts Adults with formal accounts

Source: WBG Financial Capability Survey, Angola 2019

5.3 FINANCIAL ATTITUDES/BEHAVIOR significant gaps exist in the areas of saving, controlled AND FINANCIAL INCLUSION budgeting, achievement orientation, covering unexpected costs, planning for old age, and prudence. Those Attitudes and behaviors are another relevant dimen- without access to a bank account, however, exhibit better sion when analyzing ﬁnancial inclusion. In developed and behaviors in self-restraint, living within means, and far- developing countries, households and firms are frequently sightedness. For these last three, the causal relationship excluded from accessing financial products because of may be in the other direction where a lack of access to inadequate credit history, irresponsible financial behavior, accounts has necessitated better behaviors in planning poor business and accounting records, and so on.33 for long-term finances and in not overextending household finances through access to credit. Analysis of a mul- Financially included Angolans are more adept at most tivariate regression (Table 16 in appendix B) shows that ﬁnancial behaviors and attitudes, with some small some of these gaps are aligned with behaviors that are exceptions. Figure 58 shows that Angolans with access significant predictors of financial inclusion, though others to a bank account are most adept versus those without are not. Controlled budgeting has the largest significant access in not overspending, scoring 69 along this index impact on financial, followed closely by not overspending compared with their counterpart’s 51. Smaller but still and saving. Achievement orientation and planning for old age are only marginally significant (p<0.1). 33. For instance, a survey of firms in Zambia found that about 73 percent of micro entrepreneurs struggled to obtain loans for these reasons (World Bank 2013). 56 Enhancing Financial Capability and Inclusion in Angola

BOX 7 Entrepreneurship in Angola

To explore beyond the standard Financial Capability Survey modules, the National Bank of Angola (Banco Nacional de Angola) requested the addition of a module covering entrepreneurship within the country. Survey respondents were questioned regarding their understanding of entrepreneurship and business operations, and those who have ever started a business were asked additional questions concerning their business.

A majority of Angolans have exhibited entrepre- Entrepreneurs primarily use their own savings neurial behavior, and about half of businesses when sourcing capital to start their businesses. started are currently active. Figure 59 shows that Roughly half of all businesses used money saved for 57 percent of respondents affirmed having at some many years to begin operating. One quarter used time started a business. A slight majority of these money from friends and family as their initial funding, businesses remain in operation, with 31 percent of and 22 percent used a salary for this purpose. Estab- all respondents indicating they have an active busi- lishments were at least three times more likely to have ness as compared with 26 percent who have started a sourced startup capital from their owner’s salary than business in the past that is not currently active. other business types. Loans or lines of credit were rarely used for this purpose, and WBG Enterprise Sur- Women and respondents from middle-income vey data from 2010 that found only 5 percent of busi- households are more likely to have active businesses were financed by banks supports this result. nesses. As would be expected, those who are self-employed are more likely to have an active business, as Nearly all businesses engage few or no other are those who are informally employed. Angolans in employees. Ninety-eight percent of entrepreneurs smaller households are more likely to have an active claim that the number of others they employ is business. Those who report unstable incomes are also between zero and ten, where 74 percent of entrepre- more likely to have an active business, perhaps due to neurs do not employ anyone else. the lack of a regular salary that typically accompanies business ownership. More than half of Angolan businesses are young, having been established within the past one to ﬁve years. New businesses less than one year old FIGURE 59. Ever started a business comprise 22 percent of those reporting. Businesses older than five years make up the remaining quarter of enterprises. Within this last group, the split is even between those between six and 10 years and those that were established more than 10 years prior. This 26% mix of businesses exhibits the capacity within the 43% Angolan economy to sustain a long-term business

and that many businesses have been able to establish and operate successfully in the medium term.

31% Entrepreneurs chose their trade primarily based on ease of doing business or apprenticing. More respondents (43 percent) identified a product’s easy resale as their primary reason for choosing to trade that product than any other reason. Learning the craft Yes, but it’s not active Yes, but it’s still active from a family member or friend drove 34 percent of No respondents to engage in their trade. Fewer identified a need in the market, though a significant 17 per- Source: WBG Financial Capability Survey, Angola 2019 cent of Angolans did undertake such a review. Only

continued Enhancing Financial Capability and Inclusion in Angola 57

BOX 7, continued

FIGURE 60. Source of capital by business type

100%

90%

80%

70%

60%

50% Money saved for many years 40% Friends / family (not credit) 30% Salary Other 20% Loan / credit 10% Selling goods/services 0% Establishment Street Vendor Farming

Source: WBG Financial Capability Survey, Angola 2019

3 percent of respondents identified their trade as bution among the overall population of those who being chosen due to it being their passion or hobby. have started businesses, that all who aspire to start a business within six months will do so is unlikely. This Cash is the primary avenue of payment across survey does not investigate if the reasons for this are businesses, with a preference to keep this cash external barriers, such as access to capital, or internal in hand rather than within a bank account. Just barriers, for example, insufficient motivation. less than half of businesses reported receiving cash that is kept on hand, with 22 percent reporting that Measures of ﬁnancial literacy, knowledge, and they deposit their cash payments into a bank. There behaviors suggest that entrepreneurs who have is little overlap between these two as only 3.3 per- closed their businesses have greater ﬁnancial cent of businesses reported doing both. Individuals capability than those who maintain active busi- selling their farmed products overwhelmingly prefer nesses. The average financial literacy score for cash on hand over cash deposited (Figure 61). One entrepreneurs with active businesses was 2.4, 0.5 third of businesses utilize mobile money to accept points less than the 2.9 score recorded by entre- payments with more establishments reporting such preneurs whose businesses are no longer active. use than other business types. Bank transfers and Awareness of financial products has a similar spread: payments by automatic payments terminals are min- active business owners report an average aware- imal, reported by only 2 percent and 1 percent of ness of 3.1 products but those whose businesses businesses, and are only reported as payment types are closed report knowledge of an average of 4.1 received by establishments. products. When examining financial behaviors, active entrepreneurs are noticeably better than their Ambitions of starting a business are high, with counterparts in not overspending (65 percent vs. women exhibiting additional preference. Sixty-two 60 percent), living within means (65 percent vs. 60 percent of respondents who had not previously percent), saving (64 percent vs. 60 percent), and far- started a business responded affirmatively when sightedness (60 percent vs. 53 percent). However, asked if they would like to start a business within the they underperform in covering unexpected costs (66 next six months. Women outweighed men in this percent vs. 68 percent) and achievement orientation regard 66 to 60 percent, though this difference is (73 percent vs. 78 percent). not of high significance (p=0.088). Given the distri-

continued 58 Enhancing Financial Capability and Inclusion in Angola

BOX 7, continued

FIGURE 61. Accepted payments by business type

80% 70% 70%

60% 52% 50% 45%

40% 36% 30% 30% 27% 24% 23% 20%

10% 5% 4% 3% 0% 0% 0% 0% 0% 0% 2% 0% Street vendor Establishment Farming

Cash, deposited at the bank Bank transfer / deposit by order Mobile Money Cash, kept at home Payment by automatic payment terminal Other

Source: WBG Financial Capability Survey, Angola 2019

The sociodemographic characteristics of entrepre- either formally employed (20.3 percent vs. 9.2%), out neurs who closed their businesses suggest that of the labor force (16.3 percent vs. 8.4 percent), or they may have shut down their businesses in part retired (24.4 percent vs. 10.1 percent) than entrepre- to seek better economic opportunities elsewhere. neurs with active businesses. Active business entre- Entrepreneurs who had closed businesses were preneurs recorded higher household incomes than younger (average age of 33.8 vs. 36.3); had a higher those who had closed their businesses (Kz 48,500 vs. rate of secondary or higher education (71.0 percent Kz 40,200). vs. 62.5 percent); and were much more likely to be Enhancing Financial Capability and Inclusion in Angola 59

6. FINANCIAL CONSUMER PRO- 6.1 AWARENESS OF CONSUMER RIGHTS TECTION AND CONCEPTS The concept of consumer protection has limited pen- In addition to policies aimed at increasing peoples’ etration throughout Angola. Survey respondents were ability to make sound financial decisions, financial con- asked to identify the goal of consumer protection, and sumer protection has become an increasing priority for more than half stated that they were not aware of the policy makers around the world. Recent financial crises concept (Figure 62). One third agreed with notion that such as the global financial crisis of 2008 have revealed consumer protection aims to protect consumers from the need for strong consumer protection regimes that unsuitable practices from financial service providers. Prob- ensure expanded access to financial services benefits ing respondents’ understanding of abusive commercial consumers, allows them to make well-informed decisions, practices and consumer rights yielded similar results. For- builds trust in the formal financial sector, and contributes ty-two percent do not know when an abusive commercial to healthy and competitive financial markets (World Bank practice occurs (Figure 63), and 57 percent do not know 2017). Access to financial markets has significant eco- what a consumer’s rights are when dealing with financial nomic and societal benefits, but without adequate pro- services (Figure 64). tection, consumers can be harmed if they cannot exercise their rights as consumers; cannot select products that suit The client appointment portal of the National Bank of them best; and are not protected from mis-selling, fraud, Angola (Banco Nacional de Angola) is a simple and effec- and other market abuses (World Bank 2015). tive method for consumers to file complaints against financial service providers, but only 6 percent of Ango- Effective financial consumer protection frameworks lans are aware of its existence. The client appointment are also critical for instilling trust in the formal finan- portal provides information to consumers on consumer cial system and for ensuring that expanded financial rights, good practices on security and fraud protection, sector outreach benefits consumers and the overall credit and risk, the varieties of financial institutions within economy. A high incidence of conflicts with financial ser- the country, and financial education. Complaints against vice providers or low levels of satisfaction with financial service providers can also be filed through the portal. Of products used could undermine trust in the formal finan- 6 percent of the population that is aware of the portal, 78 cial system. In addition to making existing consumers percent report using it. With conflict as low as is reported, worse off, it can also discourage potential new consum- knowledge of the portal may be tied to need, where those ers to enter the market. who have no need for it have not sought it out.

This chapter assesses the effectiveness of the current FIGURE 62. Purpose of consumer protection ﬁnancial consumer protection regime from a demand- side perspective, focusing on consumers’ satisfaction with ﬁnancial products and service and consumer redress and dispute resolution. To measure whether products that financially included adults in Angola use meet their needs effectively, the Financial Capability Sur- 35% vey sought to capture the overall satisfaction of consumers with the seven most common types of providers and 54% their products and services. To examine the effectiveness of existing consumer redress mechanisms, this survey asked financial services users to share their experiences 16% with current internal and external redress mechanisms and identified segments of the population that are more likely to have encountered a conflict with a financial service pro- 1% vider in the past three years. To protect the consumer against unsuitable practices To protect the bank against impolite clients Other Not aware of consumer protection

Source: WBG Financial Capability Survey, Angola 2019 60 Enhancing Financial Capability and Inclusion in Angola

FIGURE 63. Perception of abusive commercial practices

45% 42% 40% 39%

35% 31% 30% 25% 20% 15% 10% 7% 5% 3% 0% Don't know about it When they withdraw When they deposit The bank asks for The bank money in my money in my commissions manager offers account without account without out of priority to people my permission my permission the contract living with physical disabilities Source: WBG Financial Capability Survey, Angola 2019

FIGURE 64. Perceptions of consumer rights when dealing with financial services

60% 57%

50%

40% 31% 30%

20% 10% 10% 5% 1% 0% Don't know what Right to complete Right to pay in The consumer Other this is information about the provisions, has no rights product/service that if desired they will choose

Source: WBG Financial Capability Survey, Angola 2019

Mechanisms for providing consumer protection to 6.2 DISPUTE RESOLUTION MECHANISMS ﬁnancial customers exist, and policy makers need to As a result of low awareness of consumer rights, the prioritize increasing awareness of these across the complaints culture in Angola is low. Conflicts with finan- country. As discussed in the dispute resolution section cial service providers are uncommon in Angola, but not (6.2 Dispute Resolution Mechanisms), reported cases of nonexistent. When reported conflict occurred, almost conflict with financial service providers are few, and when all aggrieved persons attempted some form of action to they do occur, they are resolved to a high degree of sat- resolve the issue. Of all Angolans, only 4.9 percent report isfaction. But most who reported a conflict also reported experiencing a conflict with a financial service provider that they would take no action if one occurred. A pos- within the previous three years. Prevalence of this type of sible explanation for this is that they do not know how conflict is wide ranging when surveying other develop- to identify conflicts or that when they do occur, they do ing countries where similar survey data are available. For not know what possible actions they can take to attempt example, a comparable survey in Mozambique revealed to resolve them. Broadening awareness of these mech- that 15 percent of the surveyed population encountered a anisms would allow these people to experience the full dispute with a financial service provider in the past three benefits of access to financial markets. years. In Myanmar and Tajikistan, only 0.4 percent and 1 Enhancing Financial Capability and Inclusion in Angola 61

percent, respectively, of the populations reportedly expe- to their conflict by submitting a claim to the appropri- rienced similar disputes. A comparable 5 percent of Mon- ate government authority (Figure 65). Respondents pre- golians had reported a financial service provider conflict. ferred to use social mechanisms more when dealing with Though this report attributes the low rate of complaints banks than with other financial institutions: 8 percent to a low complaints culture based on similar behavior in more approached the service provider through friends other countries, no internal evidence asserts that a low and family and 3 percent more approached the service complaints culture is the key driver versus a lack of con- provider through community elders. Respondents also sumer rights awareness, high satisfaction among finan- sought direct action with banks more than with other cial services, or some other reason. Understanding this financial institutions: 7 percent more stopped using the dynamic is an area for further research. services before the contract expired and 5 percent more submitted a grievance to the company that provided the Almost all Angolans who reported a conflict indicated product. When dealing with other financial institutions, having an issue with a bank, but many also experienced respondents preferred external authorities: 23 percent a separate conflict with some other financial institution. more approached the National Institute for Defense of Table 9 shows that 98 percent of those who had a conflict Consumers (INADEC, Instituto Nacional de Defesa do reported that the source of that conflict was a bank. Of all Consumidor) and 2 percent more submitted a claim to the complainants, 78.3 percent reported also having a con- appropriate government authority. flict with some other financial institution. All respondents who reported conflicts with other financial institutions also Respondents filed grievances, made claims to the reported having conflicts with a bank. appropriate government authority, and appealed to INADEC more through personal methods when dealing When facing a conflict with a financial institution, with complaints against banks, while a greater propor- almost all Angolans took steps to resolve it regardless tion preferred more remote methods in the cases of of institution type and were satisfied with the result. other financial institutions. Almost all formal complaints Ninety-five percent of adults took an action to resolve a against banks were submitted either personally by talking conflict with a bank, and 94.3 percent did so when facing to bank workers or via complaint books (Figure 66). Only a conflict with some other financial institution. Many faced one quarter of complaints against banks were submitted a conflict with both a bank and another financial institu- remotely, either by telephone or an online method. In tion, and 94.3 percent acted to resolve in both cases, 2.3 contrast, two fifths of complaints against other financial percent took no action in either case, and no one sought institutions were submitted remotely and just more than a resolution in one case but not the other. Complaints three quarters were completed personally. against banks were satisfactorily resolved in 92 percent of cases, and all conflicts with other financial institutions Respondents who had experienced no conflicts in the were successfully resolved. previous three years were much more likely to do nothing if a conflict did arise. More than half of those sur- Angolan adults submitted claims to appropriate gov- veyed identified “doing nothing” as their preferred action ernment authorities more than any other resolution in the event of a conflict with a financial service provider path. In addition, they preferred to resolve conflicts (Figure 67). Of these, 16 percent believed that their issue with banks using social mechanisms and direct action would resolve itself. One third identified a formal method with the bank, while their preference for conflicts with of redress as their preferred resolution with 80 percent other financial institutions is to utilize external author- expecting a resolution. Informal resolution processes such ities. Nearly half of all respondents sought a resolution as direct discussion with the provider were the least pre-

TABLE 9. Financial service provider conﬂicts and resolutions

BANK NONBANK FINANCIAL INSTITUTION Experienced a conflict in the last 3 years 99% 78% Took steps to resolve conflict 95% 94% Resolution steps taken in person 98% 79% Resolution steps taken remotely 24% 41% Complaint resolved satisfactorily 92% 100%

Source: WBG Financial Capability Survey, Angola 2019 62 Enhancing Financial Capability and Inclusion in Angola

FIGURE 65. Complaint resolution by institution type

60% 50% 47% 49% 40% 40% 33% 35% 30% 32% 30% 30% 20% 13% 9% 10% 0% Submitted a Stopped using Submitted a Approached Other (includes claim to the the services grievance to INADEC/Angolan approached the appropriate before the the company Associations service provider government contract expired which sold me for Consumers through friends, authority the product Rights family, or community elders) Bank Other financial institution

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 66. Approach to deal with financial FIGURE 67. Expectations for resolution of conflict with financial service provider conflicts service providers 98% 100% 100% 91%

79% 80% 80% 80%

60% 60% 51% 41% 40% 40% 33% 24% 16% 16% 20% 20%

0% 0% Personally Remotely Formally (through a system Informally, by By doing nothing for redress, intermediate directly discussing Bank Other financial institution institutions, or through a complaint to the regulatory institution)

% would undertake action% would expect resolution

Source: WBG Financial Capability Survey, Angola 2019

ferred, with only 16 percent, but had the highest expecta- would take no action compared with only 43 percent of tion of resolution. The profile of action and expectations those with at least a secondary level of education. The between those who did and did not experience a con- financially excluded population also exhibits a strong flict with a financial service provider differ starkly, which aversion to taking action. Sixty-seven percent would not perhaps suggests that there are those who experienced address a conflict with a financial service provider, while minor conflicts without addressing them. only 33 percent of financially included adults would do the same. Figure 68 shows that women and those with More vulnerable populations are less inclined to seek incomes below the country median are also at risk of conﬂict resolution. Nearly all who experienced a conflict inaction to resolve disputes. These populations are par- with a financial service provider took steps to find a res- ticularly vulnerable to the negative impacts associated olution, but understanding the characteristics of those with financial service provider disputes, and thus finan- who would not do so could be valuable. The strongest cial education programs penetrating into these groups predictor of inaction is a lack of educational attainment: should consider including conflict resolution training into 69 percent of those with a primary education or less their curricula. Enhancing Financial Capability and Inclusion in Angola 63

FIGURE 68. Sociodemographic characteristics of inaction in potential financial service provider conflict

80% 69% 70% 67% 59% 60% 55%

50% 48% 43% 45% 40% 33% 30%

20%

10%

0% Primary Secondary No access Financially Female Male Below Above schoool or schoool or to formal included median median less more account income income

Would take no action to resolve

Source: WBG Financial Capability Survey, Angola 2019

6.3 SATISFACTION RATES AMONG FINANCIAL Client satisfaction is independent of exposure to mul- CONSUMERS tiple institutions. When comparing satisfaction rates between overall satisfaction and the rates of adults The survey results suggest that although commercial who use more than one financial institution, bureaus banks have the highest financial sector outreach, sat- de change are marginally less well regarded (6 percent isfaction with their services lags that of other financial decrease) with this difference being the greatest differ- institutions in Angola.34 Figure 69 indicates that banks ence among all institutions (Figure 70). Familiarity with meet the needs of 87 percent of their client base—the the services of one financial institution in Angola does median satisfaction rate among all financial institutions. not appear to significantly influence the perception of The Angola Capital Market exchange and brokerage other financial institutions. houses achieved the highest satisfaction rates among their clients (96 percent and 95 percent, respectively), A closer look into bank satisfaction rates among dif- followed by money transfer agents with 94 percent, and ferent user profiles reveals that banks are less likely other nonbanking financial institutions with 92 percent. to cater to women, rural households, those without Other financial institutions fare worse in terms of customer high levels of educational attainment, and those who satisfaction relative to commercial banks. Insurance com- are informally employed or unemployed. Figure 71 illus- panies have the least satisfied customers, with 82 percent, trates that gender plays an important role in explaining a rate that is only slightly less than that of bureaus de differences in bank satisfaction rates, with women having change also at 82 percent. near the lowest level of satisfaction. The largest difference in bank satisfaction rates can be observed between those

34. Note that satisfaction rates are by nature subjective, and the who are out of the labor force and those who are infor- client pool differs among types of providers. However, this mally employed. finding holds even if we look at the same pool of customers. For instance, even if we compare holders of bank products who currently use products from other types of providers, bank products still seem to serve their needs less relative to products from other financial institutions. 64 Enhancing Financial Capability and Inclusion in Angola

FIGURE 69. Client satisfaction with services provided by different financial institutions

Angola Capital Market exchange (n=63) 96%

Brokerage houses (n=52) 95%

Money transfer agents (n=44) 94%

Other non-banking financial institutions (n=83) 92%

Commercial banks (n=430) 87%

Insurance agents (n=86) 86%

Microcredit organizations (n=74) 85%

Bureaus de change (n=137) 82%

Insurance companies (n=98) 82%

75%80% 85% 90% 95% 100%

Satisfaction Source: WBG Financial Capability Survey, Angola 2019

FIGURE 70. Multiple-service client satisfaction with services by different financial institutions

100%

95%

90%

85%

80%

75% Commercial Insurance Brokerage Microcredit Other Bureaus Money Insurance Angola banks companies houses organizations non-banking de change transfer agents Capital financial agents Market institutions exchange

Satisfaction if using multiple services Individual satisfaction

Source: WBG Financial Capability Survey, Angola 2019 Enhancing Financial Capability and Inclusion in Angola 65

FIGURE 71. Bank satisfaction rates across sociodemographic characteristics

100% 98% 92% 91% 89% 90% 88% 87% 88% 87% 84% 84% 84% 82% 82% 80% 78%

70%

60%

50%

40%

30%

20%

10%

Male Urban Rural Female Primary No school Secondary Unemployed Self-employed

Formally employed University and higher Informally employed Out of the labor forceBelow medianAbove income median income Source: WBG Financial Capability Survey, Angola 2019 Note: Bank satisfaction rate for those with no schooling is not displayed as there were no respondents. REFERENCES

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Berg, G., and Zia, B. 2013. “Financial literacy through mainstream media: Evaluating the impact of financial messages in a South African soap opera.” World Bank Working Paper, Washington, DC.

Bruhn, M., de Souza Leão, L., Legovini, A., Marchetti, A., and Zia, B. 2013b. “The impact of high school financial education: Experimental evidence from Brazil.” World Bank Policy Research Working Paper No. 6723, Washington, DC.

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Di Maro, V., Coville, A., Zottel, S., and Dunsch, F.A. 2013. “The impact of financial literacy through feature films: Evidence from a randomized experiment in Nigeria.” Financial Literacy & Educa- tion, Russia Trust Fund, Washington, DC.

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World Bank. 2020. “Angola Poverty Assessment.” World Bank, Washington, DC. Unpublished. APPENDIX

A. SURVEY RESPONDENT CHARACTERISTICS

FIGURE 72. Estimated population breakdown FIGURE 73. Estimated population breakdown by urban/rural by income

32%

48% 52%

68%

Below median income Above median income Urban Rural Source: WBG Financial Capability Survey, Angola 2019 Source: WBG Financial Capability Survey, Angola 2019

68 Enhancing Financial Capability and Inclusion in Angola 69

FIGURE 74. Estimated population breakdown FIGURE 75. Estimated population breakdown by by gender age groups

47% 53% 41% 51%

Male Female < 35 years 35–54 years >= 55 years

Source: WBG Financial Capability Survey, Angola 2019 Source: WBG Financial Capability Survey, Angola 2019

FIGURE 76. Estimated population breakdown FIGURE 77. Estimated division of stable/ by education groups unstable income groups

9% 24% 31% 22%

69% 46%

No school Primary Unstable income Stable income Secondary University and higher Source: WBG Financial Capability Survey, Angola 2019 Source: WBG Financial Capability Survey, Angola 2019 70 Enhancing Financial Capability and Inclusion in Angola

FIGURE 78. Estimated population breakdown FIGURE 79. Estimated population breakdown by by household size head of household size vs. not head of household

24% 21% 45% 55%

47%

1–3 members 4–6 members No head of household Head of household

7–9 members 10–16 members Source: WBG Financial Capability Survey, Angola 2019

Source: WBG Financial Capability Survey, Angola 2019

FIGURE 80. Estimated division of literacy FIGURE 81. Estimated division of employment category

13% 16% 15%

13% 21%

87% 35%

Illiterate Literate Self employed Out of labor force Source: WBG Financial Capability Survey, Angola 2019 Informal employment Unemployed Formal employment

Source: WBG Financial Capability Survey, Angola 2019 Enhancing Financial Capability and Inclusion in Angola 71

B. REGRESSION TABLES

CHAPTER 3. FINANCIAL SECTOR REACH AND INCLUSIVENESS

TABLE 10. Financial inclusion by social and demographic factors

(1) FINANCIALLY (2) FINANCIALLY (3) FINANCIALLY INCLUDED INCLUDED INCLUDED Age < 35 35 <= Age < 55 0.304** 0.237* 0.279** (0.127) (0.126) (0.134) Age >=55 –0.347 –0.504* –0.530* (0.266) (0.289) (0.275) Male 0.156 –0.007 –0.031 (0.102) (0.113) (0.118) No education Primary education –0.360 –0.391 –0.344 (0.304) (0.288) (0.302) Secondary education 0.435 0.067 0.126 (0.305) (0.294) (0.316) University or higher 0.289 –0.381 –0.267 (0.429) (0.408) (0.442) Illiterate –1.077*** –0.686** –0.578* (0.297) (0.309) (0.322)

Household head 0.050 0.015 –0.045 (0.118) (0.127) (0.137) Below median income Above median income 0.323** 0.154 0.171 (0.133) (0.135) (0.139) Formal employment Informal employment –0.906*** –0.887*** –0.946*** (0.216) (0.214) (0.216) Self-employed –1.297*** –1.037*** –1.151*** (0.240) (0.242) (0.260) Unemployed –0.675** –0.654** –0.710** (0.279) (0.282) (0.287) Out of labor force –0.938*** –1.059*** –1.089*** (0.274) (0.287) (0.297) Urban –0.131 –0.143 (0.130) (0.137) Saved as a child –0.109 –0.151 (0.157) (0.165) Media consumption 0.410*** 0.415*** (0.041) (0.042) Household size –0.038 (0.030) Stable income –0.236* (0.139) Constant 1.328** 0.178 0.342 (0.608) (0.667) (0.721) Obs. 1,189 1,189 1,146 Pseudo R2 .z .z .z Standard errors are in parenthesis. *** p<0.01, ** p<0.05, * p<0.1 Note: The dependent variable is a binary indicator for having, either individually or together with someone else, an account (to save money, to make or receive payments, or to receive wages and remittances) at a bank. Omitted variables among categorical covariates are age between 18 and 35, no school, below median income, and formally employed. 72 Enhancing Financial Capability and Inclusion in Angola

CHAPTER 4. FINANCIAL CAPABILITY

TABLE 11. Financial literacy score by social and demographic factors

(1) FINANCIAL (2) FINANCIAL (3) FINANCIAL LITERACY SCORE LITERACY SCORE LITERACY SCORE Age < 35 Age < 55 0.128 0.085 0.007 (0.118) (0.115) (0.119) Age>=55 –0.207 –0.241 –0.268 (0.238) (0.242) (0.248) Male 0.117 0.068 0.035 (0.100) (0.100) (0.105) No education Primary education 0.547** 0.528** 0.408* (0.274) (0.265) (0.236) Secondary educatio 1.322*** 1.120*** 1.010*** (0.291) (0.285) (0.262) University or higher 1.265*** 0.951*** 0.837*** (0.332) (0.332) (0.317) Illiterate –0.333 –0.164 –0.239 (0.293) (0.281) (0.245) Household head 0.017 –0.011 0.081 (0.123) (0.118) (0.134) Below median income Above median incom 0.746*** 0.665*** 0.699*** (0.117) (0.117) (0.117) Formal employment Informal employment –0.425** –0.342* –0.299 (0.191) (0.194) (0.194) Self employed –0.488** –0.330 –0.284 (0.210) (0.213) (0.222) Unemployed –0.170 –0.122 –0.090 (0.236) (0.233) (0.232) Out of labor force –0.515*** –0.497** –0.487** (0.196) (0.200) (0.209) Urban –0.130 –0.120 (0.112) (0.115) Saved as a child 0.069 0.065 (0.133) (0.134) Media consumption 0.140*** 0.132*** (0.033) (0.034) Household size 0.050** (0.021) Stable income –0.058 (0.130) Constant 1.811*** 1.495*** 1.417*** (0.583) (0.557) (0.532) Obs. 1189 1189 1146 R-squared 0.300 0.323 0.322

Standard errors are in parenthesis. *** p<0.01, ** p<0.05, * p<0.1 Enhancing Financial Capability and Inclusion in Angola 73

continued

2.723 (4.221) (10) ACHIEVEMENT ORIENTATION –1.987 (2.512) 1.948 (6.620) –5.945 (5.069) 0.829 (2.520) 4.166 (6.152) 1.148 (7.040) –3.094 (9.104) –10.371* (5.926) 2.154 (2.380) 4.238 (2.934) –0.599 (6.001) 4.610 (6.338) -

–2.928 (4.074) (9) FARSIGHT EDNESS 8.778*** (2.204) –5.365 (4.761) 8.028 (4.905) –3.792* (1.951) –5.178 (6.763) –1.790 (7.395) –10.023 (8.394) –9.219 (5.634) 2.242 (2.454) 2.066 (2.727) –5.574 (3.928) –3.325 (4.344)

2.228 (6.290) (8) PREPARATION FOR OLD AGE 9.050** (3.568) –5.273 (6.840) 8.998 (5.972) –1.434 (3.424) –4.843 (9.627) –6.534 (10.203) 6.691 (12.407) –9.180 (7.515) 5.286 (3.972) 5.567 (3.396) 0.879 (5.136) –2.086 (5.423)

–2.832 (5.577) (7) SAVING 7.744** (3.028) –6.623 (4.663) 10.519* (6.035) (2.744) –8.351*** 14.016* (8.329) 21.247** (9.056) 18.762* (10.809) 8.552 (8.249) –2.875 (3.257) –3.743 (3.038) 2.325 (4.433) 6.139 (4.770)

(6) COVER UNEXPECTED EXPENSES 4.970 (6.066) 4.528 (3.545) 5.541 (4.464) 4.476 (5.307) –3.842 (3.244) 10.714* (5.896) 19.003*** (6.933) 21.968** (9.562) 1.220 (5.995) –1.528 (3.826) –3.863 (3.520) 0.084 (5.018) 3.695 (5.362)

0.597 (3.589) (5) PRUDENCE 2.871 (2.339) –4.818 (3.448) 6.959 (5.300) –3.434 (2.239) 12.538** (4.917) 18.297*** (5.330) 16.583*** (6.272) 12.141** (4.884) –3.064 (2.379) 1.528 (2.050) 0.268 (3.163) 0.261 (3.724)

–14.635*** (3.971) (4) SELF– RESTRAINT –0.621 (2.754) –11.297*** (4.112) 4.600 (5.422) –7.217*** (2.788) –13.304** (5.441) –13.928** (6.123) –20.437** (7.995) –11.717** (4.885) 2.945 (2.999) 6.211** (2.568) –6.244* (3.744) –7.000* (3.755)

(3.398) (3) LIVING WITHIN MEANS –0.761 (2.018) –3.650 (3.471) –0.679 (3.729) –1.755 (1.708) –0.140 (3.172) 0.952 (4.013) –6.907 (6.349) –0.126 (3.335) 7.894*** (2.246) 3.642* (2.204) –3.944 (2.979) –3.963 (3.460) –3.045

(2) NOT OVER SPENDING 1.906 (2.957) –6.312 (4.909) –1.556 (8.310) (2.796) –0.800 7.843 (5.574) 11.314* (6.183) 13.258* (7.770) –1.741 (5.841) –0.577 (2.983) 0.090 (2.911) –4.850 (4.889) –7.592 (5.344) –14.687*** (5.394)

(1) CONTROLLED BUDGETING 4.036** (1.867) –13.645*** (3.207) –2.127 (3.523) (2.032) –3.234 –10.079 (6.253) (6.468) –6.693 (7.548) –9.420 –12.292** (5.431) 2.722 (2.080) 1.856 (1.970) (2.744) –8.263*** (3.248) (3.423)

Financial capabilities by social and demographic factors

Age < 35 35 <= Age < 55 Out of labor force Age >=55 Male No education Primary education Secondary education University or higher Illiterate Household head Below median income Above median income Formal employment Informal employment Self–employed –12.716*** Unemployed –9.756*** TABLE 12. TABLE 74 Enhancing Financial Capability and Inclusion in Angola

(10) ACHIEVEMENT ORIENTATION 2.217 (2.948) 3.063 (3.140) 2.665*** (0.962) –0.034 (0.478) –5.733* (3.392) 68.395*** (15.845)

(9) FARSIGHT EDNESS 2.037 (2.711) –9.762*** (2.547) –3.259*** (0.702) 0.749 (0.501) 1.719 (2.584) 78.634*** (14.719)

(8) PREPARATION FOR OLD AGE 2.705 (3.100) 17.648*** (3.447) 3.621*** (1.110) –1.013* (0.614) –0.656 (3.903) 48.266** (18.892)

(7) SAVING –0.841 (3.598) 2.497 (3.127) 5.259*** (0.834) –0.087 (0.529) 1.796 (3.119) 19.357 (18.326)

(6) COVER UNEXPECTED EXPENSES 7.745** (3.338) 4.892 (3.370) 3.167*** (1.000) –0.211 (0.588) –2.377 (3.413) 25.891* (14.635)

(5) PRUDENCE –5.195** (2.463) 1.690 (2.381) 2.265*** (0.774) –0.205 (0.407) –1.910 (2.445) 52.308*** (10.730)

(4) SELF– RESTRAINT 1.129 (2.628) 1.991 (2.948) –1.407* (0.786) 0.611 (0.495) (2.753) 3.213 98.598*** (12.695)

(3) LIVING WITHIN MEANS –6.225*** (2.211) –2.287 (1.966) –1.363** (0.609) 0.541 (0.499) 3.404* (1.817) 76.235*** (8.844) -

(2) NOT OVER SPENDING –4.236 (2.779) –0.112 (3.281) 4.295*** (0.901) –1.280** (0.646) –5.137* (3.054) 58.121*** (14.135)

(1) CONTROLLED BUDGETING (2.250) –4.470** (1.935) (0.722) 1.937*** –0.843** (0.403) –5.514*** (2.061) (12.802)

continued -

The dependent variable in each specification was the indexed factor corresponding to financial capability identified in the principal component analysis. Omitted variables among categorical The dependent variable in each specification was the indexed factor corresponding Urban –5.022** Saved as a child Media con sumption Household size Stable income Constant 108.329*** Obs. 1,146 1,146 1,146 1,146 1,146 1,146 1,146 1,085 1,146 1,146 R–squared R–squared 0.151 0.142 0.073 0.065 0.081 0.076 0.132 0.143 0.122 0.094

*** p<0.01, ** p<0.05, * p<0.1 age between 18 and 35, no school, below median income, formally employed. covariates are Note: Standard errors are in parenthesis. in parenthesis. are errors Standard TABLE 12, TABLE Enhancing Financial Capability and Inclusion in Angola 75

TABLE 13. Financial literacy and ﬁnancial behavior scores

FINANCIAL LITERACY SCORE COEF. ST.ERR. T-VALUE P-VALUE [95% CONF. INTERVAL] SIG. Controlled budgeting 0.006 0.002 2.68 0.008 0.002 0.011 *** Not overspending 0.007 0.002 3.25 0.001 0.003 0.011 *** Living within means 0.005 0.003 1.41 0.159 –0.002 0.011 Self-restraint 0.001 0.002 0.67 0.506 –0.003 0.005 Prudence 0.005 0.002 2.11 0.035 0.000 0.009 ** Cover unexpected costs 0.000 0.002 –0.06 0.951 –0.004 0.004 Saving 0.001 0.002 0.86 0.389 –0.002 0.005 Planning for old age 0.002 0.001 1.65 0.100 0.000 0.005 Farsightedness 0.008 0.002 3.21 0.001 0.003 0.012 *** Achievement orientation 0.009 0.003 2.61 0.009 0.002 0.016 *** Constant -0.390 0.404 –0.96 0.335 –1.185 0.404

Mean dependent var. 2.381 SD dependent var. 1.545 R-squared 0.134 Number of obs. 1125.000 F-test 8.712 Prob. > F 0.000

*** p<0.01, ** p<0.05, * p<0.1 Note: The dependent variable is financial literacy score.

CHAPTER 5. RELATIONSHIP BETWEEN FINANCIAL INCLUSION AND FINANCIAL CAPABILITY

TABLE 14. Financial inclusion by ﬁnancial literacy (Fin. Lit.) score

FINANCIAL LITERACY SCORE COEF. ST.ERR. T-VALUE P-VALUE [95% CONF. INTERVAL] SIG. Fin. Lit. Score: 0–2 0.000 ..... Fin. Lit. Score: 3–4 0.179 0.147 1.22 0.223 –0.109 0.468 Fin. Lit. Score: 5–6 0.665 0.264 2.52 0.012 0.146 1.185 ** Age < 35 0.000 ..... 35 <= Age < 55 0.271 0.134 2.02 0.043 0.008 0.534 ** Age >=55 –0.572 0.282 –2.03 0.043 –1.126 -0.018 ** Male –0.066 0.120 –0.55 0.583 –0.301 0.170 No education 0.000 ..... Primary education –0.345 0.298 –1.16 0.248 –0.930 0.240 Secondary education 0.040 0.309 0.13 0.897 –0.567 0.647 Univ. or higher –0.334 0.439 –0.76 0.447 –1.197 0.529 Illiterate –0.564 0.314 –1.80 0.073 –1.182 0.053 Household head –0.042 0.135 –0.31 0.758 –0.308 0.224 Below median income 0.000 ..... Above median income 0.090 0.150 0.60 0.548 –0.204 0.384 Formal employment 0.000 ..... Informal employment –0.893 0.223 –4.00 0.000 –1.332 –0.455 *** Self-employed –1.099 0.262 –4.20 0.000 –1.613 –0.585 *** Unemployed –0.702 0.298 –2.36 0.019 –1.288 –0.117 ** Out of labor force –1.024 0.291 –3.52 0.000 –1.596 –0.452 *** Urban –0.144 0.137 –1.05 0.296 –0.413 0.126 Saved as a child –0.157 0.164 –0.96 0.338 –0.479 0.165

continued 76 Enhancing Financial Capability and Inclusion in Angola

TABLE 14, continued

FINANCIAL LITERACY SCORE COEF. ST.ERR. T-VALUE P-VALUE [95% CONF. INTERVAL] SIG. Media consumption 0.415 0.042 9.89 0.000 0.332 0.497 *** Household size –0.040 0.031 –1.31 0.190 –0.100 0.020 Stable income –0.242 0.134 –1.81 0.071 –0.506 0.021 * Constant 0.278 0.706 0.39 0.694 –1.109 1.665

Mean dependent var. 0.429 SD dependent var. 0.495 Number of obs. 1,146.000 F-test 13.240

*** p<0.01, ** p<0.05, * p<0.1 Note: The dependent variable is a binary indicator for having, either individually or together with someone else, an account (to save money, to make or receive payments, or to receive wages and remittances) at a bank. Omitted variables among categorical covariates are financial literacy score between 0 and 2, age between 18 and 35, no school, below median income, and formally employed.

TABLE 15. Financial inclusion by product awareness

FINANCIAL LITERACY SCORE COEF. ST.ERR. T-VALUE P-VALUE [95% CONF. INTERVAL] SIG. Financial Product Knowledge Index 0.281 0.044 6.36 0.000 0.194 0.367 *** Age < 35 0.000 ————— 35 <= Age < 55 0.319 0.142 2.25 0.025 0.040 0.598 ** Age >=55 –0.554 0.261 –2.12 0.035 –1.067 –0.040 ** Male –0.106 0.128 –0.82 0.410 –0.358 0.146 No education 0.000 ————— Primary education –0.145 0.279 –0.52 0.602 –0.693 0.402 Secondary education 0.201 0.304 0.66 0.508 –0.396 0.798 Univ. or higher –0.343 0.440 –0.78 0.435 –1.207 0.521 Illiterate –0.389 0.302 –1.29 0.198 –0.981 0.204 Household head –0.026 0.149 –0.17 0.862 –0.319 0.267 Below median income 0.000 ————— Above median income 0.088 0.148 0.59 0.553 –0.202 0.378 Formal employment –1.123 0.263 –4.27 0.000 –1.640 -0.606 *** Informal employment –0.634 0.298 –2.13 0.034 –1.219 -0.050 ** Self-employed –1.049 0.292 –3.60 0.000 –1.622 -0.476 *** Unemployed –0.122 0.142 –0.86 0.389 –0.400 0.156 Out of labor force –0.324 0.169 –1.92 0.055 –0.655 0.007 * Urban 0.358 0.044 8.08 0.000 0.271 0.446 *** Saved as a child –0.023 0.032 –0.73 0.465 –0.087 0.040 Media consumption –0.050 0.150 –0.33 0.740 –0.345 0.245 Household size –0.336 0.705 –0.48 0.634 –1.720 1.049 Stable income 0.281 0.044 6.36 0.000 0.194 0.367 *** Constant 0.000 —————

Mean dependent var. 0.429 SD dependent var. 0.495 Number of obs. 1,146.000 F-test 12.561

*** p<0.01, ** p<0.05, * p<0.1 Note: The dependent variable is a binary indicator for having, either individually or together with someone else, an account (to save money, to make or receive payments, or to receive wages and remittances) at a bank. Omitted variables among categorical covariates are age between 18 and 35, no school, below median income, and formally employed. Enhancing Financial Capability and Inclusion in Angola 77

TABLE 16. Financial inclusion by ﬁnancial behavior scores

FINANCIAL LITERACY SCORE COEF. ST.ERR. T-VALUE P-VALUE [95% CONF. INTERVAL] SIG. Controlled budgeting 0.008 0.003 2.79 0.005 0.002 0.013 *** Not overspending 0.007 0.002 4.30 0.000 0.004 0.011 *** Living within means 0.001 0.004 0.27 0.786 –0.006 0.008 Self-restraint 0.000 0.002 –0.14 0.892 –0.005 0.004 Prudence 0.002 0.002 0.90 0.367 –0.002 0.007 Cover unexpected costs 0.000 0.002 0.21 0.834 –0.003 0.004 Saving 0.006 0.002 2.94 0.003 0.002 0.010 *** Planning for old age 0.002 0.001 1.82 0.070 0.000 0.005 * Farsightedness –0.003 0.002 –1.25 0.213 –0.007 0.002 Achievement orientation 0.005 0.003 1.87 0.062 0.000 0.011 * Constant –2.006 0.385 –5.21 0.000 –2.761 –1.250 ***

Mean dependent var. 0.434 SD dependent var. 0.496 Number of obs. 1125.00 F-test 8.356 0