YouthStart: Training Banks to Serve Young Customers
Did you know that in Senegal, the private sector can only provide jobs to 250,000 people in total, but an estimated 200,000 new youth enter the market each year? Or that in Ethiopia, the youth bulge is so extreme that 60 percent of the population is below age 25? Seventy-eight percent of the 200 million young people in Sub-Saharan Africa live on less than $2 a day and only 5 percent have access to financial services. With statistics like these, it’s no question that youth have become a core concern in many African economies, yet most financial institutions are not equipped to address them as real potential customers.
This is where YouthStart, a UNCDF initiative established in partnership with The MasterCard Foundation, comes in. We aim to increase access to financial services for low-income youth in sub-Saharan Africa through training financial services providers and emphasizing the importance of savings and financial education. YouthStart has documented the experience of its 10 partners, who include Finance Trust Bank in Uganda, FUCEC in Togo and Finca DRC in DRC, and transferred their knowledge and lessons learned to 30 other FSPs exploring the market.
After hearing from YouthStart partners like Amhara Credit and Saving Institution or Poverty Eradication and Community Empowerment (PEACE), participants at these trainings often learn that their own institutions encounter similar demographic challenges when trying to reach youth. Hearing the challenges faced by other FSPs often leads participants to realize the urgency of reaching young customers with financial services. For example, one participant learned that in Ethiopia, most women are married by 18 years of age. This means that reaching young women before marriage is essential to helping them accumulate assets – by the time they are married, it’s too late.
One area that generates interesting debate during the YouthStart trainings is around whether or not it makes good business sense to focus on young customers. Some participants argue that because youth transact frequently and in small amounts, they are too expensive to be a realistic client base. This camp usually suggests that FSPs operating in competitive environments limit their risk and instead focus on more profitable customers (older youth, less vulnerable clients or adults). This is a fair argument, but there is another way to think about the scenario. It’s true that serving youth may be expensive in the short-term. But, if an FSP is able to keep youth clients happy, they can compensate for those short-term costs by being loyal adult customers in the long run.
More data is needed to better illustrate the most financially efficient ways for FSPs to reach young people. However, we already know that cross-subsidies (subsidizing services provided to younger youth with revenue from services provided to older youth) in the short term and cross-sells (selling products and services to the families of youth and/or selling other meaningful services to the youth clients) in the long term are both necessary to make youth services financially sustainable.
Discussing regulatory frameworks is another eye-opener for participants as they realize that the success or failure of their youth programs may depend to a large extent on whether policies and regulation support youth uptake and usage of financial services. In Rwanda, for example, anyone 16 or older can open and independently manage a savings account at 16 or become a savings and credit co-operative member. By not requiring parental consent in order for youth to open or transact with a bank account, it is Rwanda has removed some of the hurdles and expenses involved with operating a youth savings program. In contrast, financial institutions in Uganda, require anyone under the age of 18 to provide parental consent before opening or transacting with an account.
Thus far, YouthStart has trained 30 different FSPs from Burundi, Cameroon, Democratic Republic of the Congo, Ethiopia, Ghana, Liberia, Malawi, Rwanda, Senegal, Uganda and United Republic of Tanzania. It is difficult to say how many these providers will ultimately deliver meaningful and sustainable services to young people. However, I do know that after the training, many FSPs realize that they just cannot afford to wait when it comes to serving young customers. Our job is to convince those that are hesitant to take on the challenge by sharing more evidence-based data on how to sustainably serve youth; supporting them to help accelerate the break-even horizon of youth programs and deliver meaningful services that lead youth to concrete economic opportunities; and continuing to work with governments and other key stakeholders to ensure regulatory frameworks and policies work for youth.
While financial institutions struggle to provide financial services for youth savings groups are providing a safe convenient place to save and easy access to small loans. Small groups of twenty or so save weekly, lend their growing fund to each other over the year and divvy up the savings and the profits after a year long cycle. Mothers are training youth groups on their own initiative copying what they have already learned. I just visited a program in the Dominican Republic where savings groups are run by children as young as 11. With 9 million savings group members in Africa alone organized into 450,000 groups it would only take a small effort to train youth groups in the same villages with savings groups for adults. Freedom from Hunger and Plan International are doing pioneering work in this field.