State of the Sector
The following list of frequently asked questions and responses summarize the “State of the Youth-Inclusive Financial Services Sector” for stakeholders who are interested in or actively engaged in this important endeavor.
The current global youth population is the largest in history. Of the world’s 3 billion people estimated to be under the age of 25, approximately 1.3 billion young people are between the ages of 15 and 24. Just under half of these youth live on less than two dollars a day, as estimated by the UN. Access to appropriate financial services can play a significant role in enabling youth to navigate the challenges and opportunities they face, regardless of their employment or educational status.
Youth-inclusive financial services (YFS) include credit, savings, insurance, remittances and transfer payments, and credit cards that are specifically designed to meet the needs of youth market segments. (back to top)
Definitions of youth and young people vary – even within the same organizations. While the United Nations defines “youth” as people between the ages of 15 and 24 and “young people” as ages 12 to 24, individual countries have their own definitions, some extending beyond 35 years of age. Implementing organizations and programs also have their own definitions for programming purposes. Policy, political, and programmatic differences make it difficult to reach consensus on a shared and clearly defined definition of youth.
However, youth are not homogeneous. It remains important to match financial services with their life cycle (e.g. marital status, school status, workforce participation, etc.), and not necessarily with their age. Additionally, varying contexts have age-specific regulations that must be taken into consideration. (back to top)
YFS are typically offered by a range of financial services providers (FSPs) including formal financial institutions like commercial banks; microfinance institutions; and community-managed or member-owned institutions. Many youth-serving organizations (YSO) also are partnering or linking with financial service providers to deliver YFS, and often supplement those financial services with additional non-financial or social services. (back to top)
Financial services – whether a safe place to save or an appropriately structured loan for investment in an enterprise or education – can be an integral part of youth livelihood strategies. Providing youth with financial services at the right times in their lives and with the right support network can help them improve their livelihoods in the short term, and position themselves for more sustainably productive lives in the long term. Moreover, the provision of financial services to young people can help ensure that the vulnerability faced by so many youth today does not turn into a crisis. A few specific reasons why youth need financial services include:
- Youth are economically active: Many believe that youth who are not formally employed are inactive or engaged in unproductive activities. However, research indicates that most young people ages 14-25 in developing countries, no matter the location, are economically active. Most youth contribute to household income “through work in the informal sector, in house¬hold-based enterprises, or in family-based farm¬ing, fishing and petty trading activities.” Thus, by increasing access to appropriate financial services, youth may be able to reach their full economic potential.
- Youth borrow money: Youth may need access to credit to start a business, build a home, or pay for school fees as they enter various transition phases. In Uganda, for example, Equity Bank and Banyan Global provide youth with access to credit to help students pay term fees, which are one of the key barriers to enrollment for potential nursing students ages 17-24. Camfed, a Zambian NGO, promotes development of young women through mentoring, loans and grants so that they are able to build houses, engage in farming, or run small businesses. Twenty percent of their youth clients use profits made from their businesses to further their own education. Thus, not only is it important for youth to have access to credit, it is also critical to design credit products tailored to their critical life transitions (i.e. entering the workforce, moving into higher education, getting married, etc.).
- Youth need savings: Savings can help youth manage their consumption, emergency, educational, and basic family needs, and can also help them cover the costs of such important life events as marriages and funerals. Experience to date shows that youth save, and research suggests that saving can be even more important than credit, as it promotes positive habits related to planning and goal-setting. In a recent USAID MicroReport, it was reported that youth demand for savings services is similar to what low-income adults want – convenient access, relative security, liquidity in case of emergencies, and a secure place to accumulate larger sums.
- Youth want to build other forms of capital: Beyond financial capital, youth may use their work in the formal and informal sectors as a means to build social capital. Solidarity groups are often thought to be effective forms of serving youth with financial services, as it may represent a significant opportunity for them to interact and form solid social networks. (back to top)
- Credit: Credit is the most widespread financial service offered to youth, and the primary product offered to youth by financial service providers. Microfinance in general has typically been credit-led, as it is the least complex to administer and the most profitable product. Among surveyed financial service providers, 85% offered credit products compared to the 63% that provided savings products.
- Savings: Although credit is the primary financial service offered to youth, initial results from the Global Youth-inclusive Financial Services survey indicate that the trend is moving towards savings. When asked about trends in demand for certain products, service providers report that demand is expanding in all product lines, but most dramatically in savings. Savings services can be tailored to youth at a very early age to help promote positive habits and engage youth early in financial services. In the Philippines, for example, Panabo Multi-Purpose Cooperative (PMPC) provides tailored incentives to certain target groups such as the younger children (ages 0-12), or the ―Youth Savers Clubs, who receive a coin bank, while the older ―Power Teens (ages 13-18) receive power saver mugs, belt bags and key chains.
- Insurance, Remittances and Transfer Payments: Although many financial service providers are not yet providing insurance, remittances and transfer payments to youth , these services are also needed to address their life and business cycle needs. Health insurance is arguably the most important product, but is costly and complex to provide. Among surveyed service providers, health insurance is presently unavailable to youth. With respect to remittances, youth in many countries are a part of migrant work force and, in general, are a more mobile segment, making these services even more critical to them. (back to top)
- Large market opportunity: The global youth population is the largest in history. Of the world’s 3 billion people estimated to be under the age of 25, approximately 40% are between the ages of 15 and 24. Moreover, trends indicate that the youth population will grow by 1 billion over the next decade. Thus, youth represent the largest “untapped market” that financial service providers do not serve well or comprehensively.
- Cross-selling: As youth are linked to the household, financial service providers can look to family members and relatives as potential clients of traditional products. This, in turn increases outreach, making smaller transactions more profitable. Also, as youth grow older and enter new life stages such as having a family, they may graduate into more profitable financial products such as a housing loan.
- Client Retention and Loyalty: Engaging youth at a young age can ensure long-term clients and limit attrition, which can be otherwise costly for institutions. Long-term youth savings can add to funds to be mobilized by FSPs as loans.
- Youth are already being served, just not intentionally: Financial service providers already serve youth, however, many do not disaggregate their portfolios to differentiate outreach or performance based on age. For example, on average, 22% of Indonesian MFIs clients are youth (defined as less than 30 years of age). In Bolivia, youth are estimated to already represent 5 to 25% of MFI clients. Another survey found that nearly 25% of MFI clients around the world are between the ages of 15 and 24. A major conclusion is that by conducting youth-inclusive market research among existing young clients and intentionally adapting products to meet their needs, it could lead to better portfolio performance and increased profits. (back to top)
According to the Global Youth-inclusive Financial Services Survey in September 2009, the following challenges to youth-inclusive financial services were determined as can be observed in the table below.
Preliminary results from Making Cents International’s Global Youth-Inclusive Financial Services Survey, September 2009
Key specific challenges were as follows:
- Staffing: FSPs responded that the most common challenge to providing youth-inclusive financial services is the negative staff perception of youth. Forty-five percent indicated that their staff considered youth to be irresponsible, unable to manage money, and risky due to a lack of collateral. Many FSPs also reported that they lack the human resources trained to offer additional products to youth.
- High-risk Market: Making Cents' preliminary survey results found that 42% of FSPs perceive youth as a high risk market. In Indonesia, however, youth borrowers on average tend to have higher repayment rates than adult borrowers. This remained true for the majority of MFIs, even when the youth borrowers were recipients of loans of the same or larger size than that of the average borrower. In another supply-side study, most organizations not serving youth with microfinance believe that youth are either riskier or more costly to serve, whereas those serving youth did not believe youth had lower repayment rates or higher administrative costs. This suggests that financial service providers carry their own prejudices about youth (45% of service providers surveyed mentioned that staff attitudes was the main challenge in YFS) and it is important to begin by changing these perceptions.
- Cost: Many financial service providers are concerned about the cost and sustainability of offering financial services to youth as they tend to have smaller transactions at a higher operating cost. Nevertheless, one study found that only 8% of organizations serving youth with microfinance believe that administrative costs for youth are higher. In addition, most of the financial service providers interviewed (54%) believe that the costs of serving youth do not vary by other factors, such as age cohort or gender. ProMujer of Bolivia found that more up-front investment in market research, product development, and staff and infrastructure could prove to lower costs in the long run. Youth can also be considered long-term clients, which may equate to a large market for long-term investment and profitability. From this perspective, if youth are developed as clients and remain in a financial service provider’s portfolio, they will over time graduate into more profitable products as they get older. If regulated, small savings from youth accounts can develop into larger reserves for financial service providers. For example, Hatton National Bank in Sri Lanka currently reaches 600,000 youth savers and has $20 million that can be lent by the bank. Financial service providers may also reduce the costs of serving youth by leveraging technologies such as mobile banking.
- Youth may need additional services: Youth may also need additional non-financial services that can be costly and difficult to administer without the right expertise. Partnerships with youth-serving organizations and community-based organizations can help to deliver non-financial services and reduce the cost to the financial service providers. For example, Women’s World Banking, which has partnered with XacBank in Mongolia to provide savings accounts to girls, uses local schools to deliver financial education.
- Legal and Regulatory Barriers: Nearly half (41%) of those serving youth also mentioned legal and regulatory barriers as a top challenge. Legal and regulatory barriers are complex and often not within a financial service provider's control. Many countries require individuals to be at least 18 years of age to be eligible for a loan, limiting access to credit for youth. Also, many socially-minded financial service providers who are eager to serve youth with savings accounts are NGOs or unregulated institutions and are therefore restricted from taking and/or mobilizing deposits, making the product more costly and less attractive to offer. However, through creative solutions, such as using group methodologies for under-served youth or involving parents or mentors as co-signers when minors are unable to sign legal contracts, some institutions have been able to overcome these restrictions. Population Council and MicroSave have incorporated mentors as co-signers into their lending model to overcome such barriers in serving adolescent girls in Kenyan slums. (back to top)
Institutions should focus on core competencies and collaborate with other institutions to complement strengths and weaknesses. Youth-serving organizations and financial service providers can partner to provide the best possible service package for a particular youth segment.
In addition to having expertise in providing non-financial and social services to youth, YSOs frequently have expertise in understanding the needs, wants, and behaviors of youth populations in their contexts and markets. As FSPs expand their products to the youth market, they can look to YSOs, schools, churches, and other community-based organizations that already work with youth for deeper insight into their clientele. YSOs can effectively provide the additional non-financial services that may be needed by a particular youth segment, such as life skills training, business development services, and vocational training to take full advantage of the financial services offered.
YSOs may also realize that access to credit or savings accounts are needed by youth with whom they are working, but they likely do not have the systems or expertise to begin providing financial services. By partnering with a FSP, YSOs can focus on their core competencies, while linking young people to appropriate financial services.
Six emerging guidelines in youth-inclusive financial services have been identified as a result of collaborative input, case studies, and discussions among practitioners from financial services providers and youth-serving organizations. As Making Cents learns more from practitioners at conferences and our YFS courses, we hope to begin to identify best practices in the sector. The guidelines are as follows:
- Involve youth in market research and product development. Attention to the characteristics of the youth market and involvement of youth in the product development process may result in simple, yet important changes to existing—and in critical elements for new—products and delivery channels.
- Develop products and services that reflect the diversity of youth. The youth market contains sub-segments related to age (legal age), life cycle stage (marital and parental status), gender, education, employment status, and vulnerability. These differences should be taken into consideration in financial product design and delivery.
- Ensure that youth have safe and supportive spaces. Safe space can be a physical space, such as a meeting place, or an emotional space, such as the opportunity to engage in financial services without parents. These can help build youth’s confidence and enable them to take advantage of opportunities. This may involve infrastructure considerations, delivery mechanisms, and social networks. It also includes appropriate protections through codes of conduct that are age appropriate.
- Provide or link youth to complementary non-financial services. These may include non-financial services such as mentoring, financial literacy, cultivation of a savings culture, and life-skills training.
- Focus on core competencies through partnerships. Financial service providers should assess institutional capacities and complement strengths and weaknesses by collaborating with YSOs, schools, training institutes, and other entities, particularly for safe spaces and non-financial services.
- Involve community. Starting with the family, the community should be involved, including schools, teachers, and other local groups—to mutually reinforce and enhance the effectiveness of financial and non-financial services. (back to top)
Youth-Inclusive Financial Services as a sector is relatively nascent. We are all learning, sharing, and continuing to understand better the opportunities in providing youth with financial services. You can access resources, hear from practitioners, ask your questions, and share your resources on this platform.
You can also attend a course in Youth-Inclusive Financial Services that can help your organization take the first steps in delivering appropriate financial services to youth populations. Either way, we look forward to hearing from you at [email protected]! (back to top)
 Adapted from Making Cents International's State of the Field in Youth Enterprise, Employment and Livelihoods Development: Programming and Policymaking in Youth Enterprise, Employment, and Livelihoods Development; and Youth-Inclusive Financial Services, September 2009.
 Making Cents International's State of the Field in Youth Enterprise, Employment and Livelihoods Development: Programming and Policymaking in Youth Enterprise, Employment, and Livelihoods Development; and Youth-Inclusive Financial Services, September 2008, p. 79.
 Making Cents International's State of the Field in Youth Enterprise, Employment and Livelihoods Development: Programming and Policymaking in Youth Enterprise, Employment, and Livelihoods Development; and Youth-Inclusive Financial Services, September 2009.