Exploring the Business Case for Youth Savings #1: Corporate Social Responsibility is Just Icing on the Cake
This article is the first installment in the blog series, Exploring the Business Case of Youth Savings. The series, presented by CGAP and Making Cents International, presents views on the business case for youth inclusive financial services. You will hear from financial service practitioners, policy-makers, and advocates from around the world.
Young people between the ages of 10 and 24 comprise nearly 30 percent of the population in less developed regions, but are far less likely than their adult counterparts to have an account at a formal financial institution. The case for youth savings from the demand side is clear. Savings can help build assets, offer protection from financial shocks, build discipline, and drive aspirations for young people.
But the supply side case is less clear-cut. For financial institutions, reaching out to youth can be costly, complex and typically brings few short-term benefits to the bottom line. CGAP has been working on the supply side case for youth savings for some time now, and has recently commissioned EA Consultants to speak with leading practitioners, donors, and stakeholders involved in developing savings for young people to develop a framework for the business case for youth savings. The conversations have been fascinating, and in this post we focus on just one of the hypothesis we had going into the interviews – corporate social responsibility (CSR) is a big driver.
We began our exploration of the business case rather skeptically, hypothesizing that it might be based on “soft” factors such as corporate social responsibility, government or donor efforts to include all sectors of society into the banking system, or the strengthening of an institutional “brand”. Over the course of our discussions, however, we have found that these “soft factors”, while important, are by far not the sole drivers of the business case.
William Clay Ford, CEO of Ford Motor Company, noted in his letter to shareholders in 2010 that “creating a strong business and building a better world are not conflicting goals – they are both essential ingredients for long-term success.” In the case of Ford Motor Company, that means attracting and retaining consumers by offering fuel efficiency, which is both better for the environment and meets consumer needs. In the case of youth financial services, it means offering products that attract and retain future customers through initiatives that have social externalities such as financial education and outreach to otherwise unbanked and often vulnerable segments of society.
As we speak to more financial institutions, we find that CSR is the icing on the cake rather that the recipe for the business case for youth savings. Institutions that have successfully targeted youth are essentially motivated by the opportunity to attract customers for the long term at costs that may be high initially, but may pale in comparison to the acquisition costs of an adult customer in a competitive environment. Having a long-term horizon is critical when faced with a business case that relies on a certain amount of patience.
Niclaus Bergmann, Managing Director of Germany’s 200-year-old Sparkassenstiftung fur Internationale Kooperation (Savings Banks Foundation for International Cooperation) notes: “We [Sparkassen] try to reach every child in the country. They are our customers of the future. This is how a 200 year old institution thinks.” More and more financial institutions appear to be thinking long-term and making the investments needed to include youth in their demographic. The fact that youth may be reaping social benefits above and beyond the benefits provided by accessing safe and secure savings services is a happy bonus.
Through this blog series, Exploring Business Case of Youth Savings, you will be hearing from practitioners in different regions about their view on the business case – is there one, for which youth, under what circumstances, and in what time frame? Do jump in and participate.
And to even more actively participate in the discussion, please sign up to join a webinar discussion organized by CGAP on ‘Exploring the Business Case for Youth Savings’ by clicking on this link. A core of group of experts is already confirmed, and we will be sharing our perspective on how to think about the business case. We want your feedback, your views, and your experience.
Tanaya Kilara - Financial Sector Analyst at CGAP; and
Barbara Magnoni -President of EA Consultants