NB Financial Health
Building the Business Case for Youth Financial Services: UNCDF, MasterCard Foundation provide lessons for financial services providers
When UNCDF and The MasterCard Foundation launched YouthStart, our objective was to increase access to financial services for 200,000 youth in sub-Saharan Africa as a means to enable youth to build a less vulnerable and more secure future. At the time, our target seemed ambitious but small.
Ambitious, because we knew that financial services providers (FSPs) were not equipped to serve youth – in part because the business proposition for capturing the next generation of clients didn’t seem compelling enough. Small, because 200,000 youth was a drop in the ocean if we consider the scope of the need and the urgency of the situation: Of the 1.2 billion youth in the world, 130 million are out of school, 45 percent live on less than US$2 a day, and 50 percent do not participate in the labor force.
Our job at UNCDF was therefore to test approaches for serving youth in a sustainable manner. We needed to prove that serving youth can be a successful long-term strategy for building a loyal clientele, but also that the business case for serving youth is possible within a reasonable timeframe. Validating this rationale would attract other like-minded organizations to join us in meeting the challenge of increasing access of youth to financial and non-financial services.
Within this context, YouthStart decided to quantify the costs and revenues of serving youth, and examine under what circumstances FSPs could achieve profitability in their youth services. The results of this study have been recently published by UNCDF and are available on our website.
“Building the Business Case for Youth Services” analyzes the data from three of the 10 YouthStart partners. The paper provides the following answers to FSPs that are looking for a business model to serve youth in a sustainable manner:
- How similar or different are youth savers to adult small savers?
- What are the main cost drivers of serving youth with products that are designed to meet their needs?
- How can FSPs optimize the expenses of serving youth?
- What are some of the cost implications of integrating youth financial services with non-financial services? Can FSPs provide both in a sustainable manner?
- Do youth savings increase over time?
- What volume of savings can FSPs expect to generate from youth?
- What is the average savings we can expect a young person to maintain in an FSP?
- What should be the ideal composition of the youth portfolio of an FSP?
- What is the timeframe that FSPs need to achieve the break-even point of youth services?
- What should be the role of donors and under what circumstances should donors invest in FSPs willing to enter the youth market?
Given the early stages of the program, we are aware that the results of “Building the Business Case for Youth Services” are preliminary. However, we believe that the answers to these questions are a starting point towards demonstrating that there is indeed a compelling business case for FSPs to serve youth. As of June 2013, we are happy to report that YouthStart partners have reached 200,000 youth, and there is still a lot to do. Our hope is that the learning generated through YouthStart inspires others to expand the access of youth to the right combination of financial services and financial education that will enable them to build a more secure and fulfilling future.
Laura Muñoz Pérez is a technical advisor at YouthStart, a UNCDF programme aimed at supporting strong FSPs in developing, piloting and rolling out youth-focused financial products. She is the co-lead author of the study ‘Building the Business Case for Youth Services’.