Don’t Abandon Youth Financial Services - Innovate

Providing savings services for small savings amounts and low balances has always been a challenge for financial institutions. Serving poorer segments of the population, especially the very remote and the most excluded, such as women and youth, makes things even more challenging.

While there is no doubt that savings is essential to deepening financial inclusion, the business case for small savers in financial institutions remains fuzzy and the return on investment is difficult to project. As a result, many financial institutions choose not to serve these segments.

Freedom from Hunger’s Advancing Integrated Microfinance for Youth (AIM Youth) initiative, launched in 2011 in partnership with The MasterCard Foundation, provided an opportunity to experiment and get a better understanding of the business case for offering financial services to youth.

Cooprogreso and San José, two credit unions operating in Ecuador, and Nyèsigiso, a credit union federation in Mali, agreed to work with Freedom from Hunger to develop and offer savings services to youth between the ages of 13 and 24 and to test the sustainability of the product. In both countries, regulations restrict the provision of credit to people age 18 or older. However, the credit unions have been providing savings services to both “productive youth” (those older than 18 years of age and eligible to take loans) and those younger than 18.

In Mali, Nyèsigiso developed an innovative model: They created youth savings groups that are eventually linked to the formal financial system through a group savings account. Freedom from Hunger partner NGOs in Mali also tested youth savings groups, working in areas where adult savings groups are active. The credit unions in Ecuador offered individual savings accounts to young people. In addition, all three credit unions – convinced that financial education is important to support young people in their first steps as customers of formal financial institutions – provided financial education as part of their service packages.

This type of “social-oriented service package” is driven by a strong social mission that may be more specific to credit unions. All three of these institutions share a deep commitment to generating social impact along with their core services and to following strict client-protection principles. In each of these socially-focused organizations, it became clear that the credit unions set a higher bar for themselves to develop innovative models to serve “harder to serve” populations and to prioritize that over short-term profit. Their missions also challenge them to work harder to ensure that services break even in the long term and to demonstrate a strong business case.

Containing costs

Freedom from Hunger’s partners have been exploring and testing various strategies to contain costs and increase revenues within the context of their respective models as a means to retain young savers as future customers. From June 2013 to June 2014, Freedom from Hunger worked with all three to examine their market position, institutional competitiveness and capacity. They also helped quantify specific revenue and cost drivers for serving the youth segment.

Nyèsigiso sought to improve the productivity of the field staff and leverage existing delivery channels (their network of adult savings collectors, for example) to control salary costs and marketing expenses. They did this by targeting new clients (friends and family) with other products while marketing services to youth. Nyèsigiso is also trying to further cut costs by reducing the amount of time it takes to deliver education sessions. Typically their field agents spend up to 14 percent of their time delivering these sessions.

By using mobile technologies, Freedom from Hunger’s Ecuadorian partners are able to control costs, not only in the area of savings collection – they also have the opportunity to streamline the delivery of educational content via short message service (SMS) and/or interactive voice response (IVR).

Future business

On the revenue side, based on Freedom from Hunger’s experience in integrated services delivery, promoting bundled services that include a business loan (when the client reaches the age of 18) appears to be a viable strategy. This follow-on product would be paired with business education, creating an additional revenue opportunity for the organization. In the analysis of credit unions, the time horizon for breaking-even based on cost optimization and revenue maximization strategies and cross-selling was projected between 2015 and 2018.

The experience of strong social-oriented organizations like Cooprogreso, San José and Nyèsigiso shows us that focusing narrowly on short-term profitability may “kill” innovative ideas that can make a real difference in the lives of excluded segments such as youth. Social outcomes remain a driving force for reaching hard-to-reach segments of the population and should push us to continue to innovate and test sustainable models to address their needs.

This experience confirmed that balancing the social and business case (a double bottom line) is not only important, but also viable. Thanks to their strong (social) commitment to serving the youth segment Ecuadorian credit unions were able to offer youth integrated savings and education service in such a competitive environment and for Nyèsigiso to tolerate a delayed break-even timeline. When designing financial inclusion solutions, it is important to keep in mind that, while it’s certainly not easy or cheap to serve these segments of the population, it is possible if we remain committed to our social mission.