Pathways to Resilience: The impact of financial conversations on the financial capability of NILS applicants

1. Description of the programme
2. The study
3. What are the outcomes?
4. Key findings
5. Points to consider

Description of the programme

The programme is a ‘No Interest Loan Scheme’ (NILS), delivered across Australia by Good Shepherd Microfinance. Loan applicants are offered a financial conversation with a microfinance worker or volunteer, as part of the application process. The financial conversation provides support and advice around budgeting, avoiding bank fees, and the high cost of fringe lending (such as payday loans and rent-to-buy contracts).

The study

The research assessed the impact of the financial conversation on applicants’ financial capability, and explored how best to measure financial capability. The methodology applied objective measures of financial capability utilising a framework developed by Good Shepherd Youth and Family Services (GSYFS) in 2013. The framework incorporated definitions of financial literacy and financial capability from the ANZ Financial Literacy survey (2011), and the UK’s Financial Services Authority. The framework also includes measures of financial self-efficacy based on clients’ self-assessed confidence. A mixed-methods evaluation was conducted. Applicants completed an online survey prior to, and following, the financial conversation, and a follow-up survey three months after their loan application was approved or rejected. From the total 729 participants involved in the research, 294 applicants completed all three questionnaires and their responses were matched for analysis. Ten focus groups were held in four locations (Melbourne, Launceston, Devonport, Sydney), to explore findings. Six of the focus groups were held with 25 NILS applicants, and four focus groups were held with 16 NILS providers.

What are the outcomes?

• Financial Capability
• Financial Confidence
• Financial Knowledge
• Budgeting

Key findings

The study makes two important contributions to the evidence base, in addition to confirming the results of previous studies:

• Explaining the range of impacts the financial conversation can have for microfinance applicants. This insight enhances microfinance workers understanding about tailoring the conversation to applicants’ needs and circumstances.
• Providing quantitative evidence that the immediate impact of the conversation diminishes over time, demonstrating a need for on-going support to encourage longer-term behaviour change.

Further key findings identified by the study were:

• The research confirms earlier Good Shepherd studies indicating the positive immediate impact of the conversations on financial capability. Applicants leave the financial conversation with increased confidence and strategies for managing their finances. The largest increases in applicants’ confidence were linked to increased financial knowledge, particularly knowing where to seek financial information and advice.
• Without on-going support, the immediate positive impact on applicants’ capability tends to diminish over time. This finding is consistent with previous studies highlighting challenges in sustaining improvements in financial capability and financial behaviour.
• The impact of the financial conversation varies. The research identified four distinctive experiences of financial resilience, associated with applicants’ confidence levels, initial level of financial capability, their circumstances, and access to resources. These four experiences (informed and inspired, savvy and supported, confidence consolidated and reality checked), were identified through statistical analysis, and can enhance the tailoring of future financial conversations to meet applicants’ needs.
• The research recommends developing resources and tools to better support the financial conversation, based on the experiences identified above. For example, a diagnostic tool to assess initial financial capability could support the process.
• Applicants are more comfortable budgeting and keeping track of money on a daily basis, rather than planning future spending and saving. The financial conversation could be enhanced to help people explore opportunities to save money and budget, even on a low income.
• Some applicants could benefit from being able to apply for concurrent loans. Learning that they were ineligible for another NILS loan, while they were repaying their first, may lower applicants’ financial capability and confidence.

Points to consider

Methodological limitations: 

• Focus group participants mentioned several contextual factors that influenced the self-assessed financial capability of some applicants. The service provider network experienced funding uncertainty and delays during the research period, which may have affected experiences of delivery.
• The three month follow-up surveys were administered during a festive break, which can be a stressful time for people on lower incomes and may have influenced their responses.
• The pre- and post- intervention surveys were administered by microfinance workers at the same time as the financial conversation. Both microfinance workers and applicants commented that this approach may have influenced responses (despite informed consent and anonymity being assured). In particular, applicants may have overstated their financial capability levels before the financial conversation, to help secure the loan.

 Generalisability/ transferability:  

• Findings based on self-assessment responses should be viewed with caution as this subjective measure is vulnerable to under- or over-claiming results.  Caution should therefore be used in generalising from the study to other populations, or using the results as the basis for applying the model to other settings. 

Full report

Pathways to Resilience full report