Growing Potential: Microfinance-Plus Approaches for Cultivating the New Generation of Young Clients
Nearly half of the world‘s six billion people are below the age of 25. Eighty-five percent of these young people live in the developing world and face limited opportunities for education, asset building, and employment (UNFPA, 2010). Making Cents International (MCI), along with a growing cadre of organizations, believes that providing young people with tailored financial services at the right times in their lives and with the right support services can help them improve their education and livelihoods in the short term, and position themselves for more sustainably productive lives in the long term.
Some financial institutions argue they already serve youth with existing products. Others believe that such products are not optimally positioned to help youth increase their assets and build productive lives. Products, therefore, must be adapted to their unique needs. Doing so, however, implies a significant investment in a market that may not promise immediate returns. Yet, a few pioneering institutions have made that initial investment, encouraged by the promise of longer-term returns from a new generation of loyal customers who increasingly take out more profitable products.
To better understand the business case for tailoring financial services for youth, MCI partnered with Equity Bank (Equity) in Kenya, Hatton National Bank (HNB) in Sri Lanka, and Fundación Paraguaya (FP) to study their business models. Over the past 20 years, HNB has generated over 600,000 clients and US$40 million in savings through its school-based youth (12-18 year olds) savings accounts. Equity, in less than three years, has attracted 74,000 youth entrepreneurs (18-30 year olds) who benefit both from a package of start-up loans, mobile savings accounts, financial education and mentoring. FP‘s youth loan clients (18-25 year olds) average 90% growth in average loan size over two years versus 24% for clients over the age of 25.
These early examples provide promising models for future growth in the youth-inclusive financial services (YFS) sector. However, there is still much to be done to reach the world‘s three billion young people. This includes continued product innovation and research around cost-effective microfinance-plus models; policy and regulatory reforms for increasing children and young people‘s independent access to savings accounts; and greater funding to support ongoing product experimentation and documentation.