Commercial banks typically offer a range of credit and savings products to consumers and businesses. Historically banks targeted higher-income clients; however, many in the developing world are beginning to target poorer segments of the market. Commercial banks may offer the same loan products offered by microfinance institutions (MFIs), but they have an additional advantage of being able to capture and mobilize funds from the public. Commercial banks also may possess greater infrastructure than MFIs and can offer customers a broad network of bank branches and enhanced technological capacity including mobile banking and ATMs.
Commercial banks targeting young people offer primarily savings products. In some cases microfinance banks, or those with experience lending to low-income markets, offer youth loans. The primary differences between adult and youth savings products include lower minimum balances, low-fee or no-fee accounts, youth-friendly branding and marketing, alternative delivery channels (schools, clubs, and churches), and youth-friendly training and mentoring services. Credit products share most of the same characteristics as those offered by MFIs, including smaller initial loan sizes, flexible loan terms, youth-friendly marketing and branding, alternative delivery mechanisms (including universities, trade schools, and youth clubs), and youth-friendly training in financial education, entrepreneurship, and other relevant topics.
Banks generally have a strong understanding of the financial behavior of their clients and are best-suited to conceptualize and design the financial services component of the youth program. Partnering with the bank in the early stages of the program will enable the bank to research the youth market segment and learn together with the other program partners. Partnering early will also allow the bank to contribute its financial service expertise to the design of a strong, demand-driven product and contribute to the youth-serving organization (YSO) training package.
If the YSO program is already under way, there may still be opportunities to form a mutually beneficial partnership. In fact, there may even be benefits to delaying involvement of a bank, particularly in a market that is less open to working with younger clients. For example, a bank that considers youth as too risky or not profitable may be more easily convinced to serve them if young clients have already been mobilized into groups and trained in financial education and/or entrepreneurship. Banks and financial institutions feel that the risks of lending to youth are offset by the responsibility and security afforded by a group of individuals. In this scenario a bank would join forces with the YSO and conduct market research with the youth program participants to design/adapt the right product and determine any necessary adjustments to the training curriculum.
Banks, unlike YSOs, operate under a profit-maximizing business model. This difference in operating structures can make it difficult for banks to work with NGOs, and vice versa. Prior to entering into an agreement with a bank, a YSO must critically analyze the bank’s motivation for serving low-income youth as well as its capacity and willingness to invest sufficient resources into the program. A bank must do the same, ensuring that the YSO shares mutual values and possesses the adequate knowledge and infrastructure to address the training needs of youth clients. The bank may also require a substantial training program to address its staff’s limitations in understanding and communicating effectively with young, low-income market segments.
Banks may also need to understand the business case for serving younger clients. Although the supporting data are not yet available, many of the banks currently serving young people are doing so based on the assumption that they are cultivating a new generation of clients as well as the possibility of cross-selling more profitable products, such as loans, to family members of young clients. Some banks also cite corporate social responsibility and the desire to contribute to social and economic peace as motivating factors.
By partnering together, banks and YSOs can combine their knowledge and skill sets to provide a comprehensive package of training and financial services that promise greater social and economic outcomes for young people and the communities where they live. These types of engagements also encourage partners to focus on what each does best rather than attempt activities that may not fall within a partner’s core strength.
Commercial banks can offer significant advantages to young people in terms of providing them safe places to grow their savings. As they mature and require other types of financial services, young clients can use their existing relationship with the bank to access new products, including education, business, or housing loans and insurance. Banks can also benefit in the long term from serving young people, as they will create a loyal new customer base whose financial needs will grow over time to promise greater long-term profitability.
Please see the Resources section to find useful tools and publications based on the guidance shared in this section.
Banks may be hesitant to work with youth due to perceived high risk and low profitability. Top-level management must understand these implications and commit the adequate staff time and resources to the program. This involves designating a youth product champion within the bank who works closely with the youth-serving organization (YSO) throughout the project.
Because banks and YSOs operate differently, it is important to hold several meetings to ensure partners share a common vision and values and to analyze strengths and weaknesses of each organization. Partners should then create a formal MoU outlining project objectives, roles and responsibilities, budget commitments, and timeline.
Partnership negotiations should involve defining the specific youth market segment as well as the corresponding products and services to be tested. Using specifics will help a bank to determine whether or not it has the capacity to either adapt an existing product or design a new product for the specified market segment.
Banks should be well-versed in the different phases of microfinance product development and commit sufficient time and resources (6-18 months) to properly researching the market and conducting a pilot test prior to rolling out the product. This, however, can be costly and may require fundraising or cost-sharing with the YSO.
Hiring and training the right staff to serve younger clients can be challenging. Banks often must address a strong staff bias against younger clients by providing training in youth-friendly marketing and customer service. A YSO partner is well-positioned to support this type of activity either through direct staff training or through capacity building of a bank’s human resources staff.
Please see the Resources section to find useful tools and publications that provide practical guidance on implementing the best practices mentioned in this section.
Making Cents International’s guidelines provide six key principles for developing quality, demand-driven financial services for youth.
Making Cents International designed seven courses to support the development of YFS. These courses include useful tools and resources that can help an MFI or youth-serving organization as it researches the youth market and adapts or designs a financial product for youth. The courses also address key challenges, including staffing for effective delivery of YFS.
This case study on Al Amal Microfinance Bank describes the bank’s strategic commitment to serving youth in Yemen as well as lessons learned from serving different youth market segments with credit, savings, and training.YFS Case Study No. 3: Safe and Smart Savings Products for Vulnerable Adolescent Girls in Kenya & Uganda
The Population Councilhas been working with commercial banks to offer formal savings products to girls clubs in the slums of Kenya and Uganda. This case study shares lessons learned and challenges from the project.YFS Case Study No. 1: The Role of Hatton National Bank in Creating Access to Financial Services for Youth in Sri Lanka
Hatton National Bank has been serving youth with savings products through a partnership with the public schools for over 20 years. This case study describes the unique country context and how it contributed to a pioneering youth savings product.YFS Case Study No. 14: Product Development for Girls: Girls’ Savings and Financial Education
Women’s World Banking partnered with Xac Bank to develop a savings product for adolescent girls in Mongolia. This case study shares lessons learned from the market research portion of the project.YFS Case Study No. 6: Youth-Inclusive Financial Services: Marketing and Delivery is What Matters
Panabo Multipurpose Cooperativein the Philippines designed two different savings products for different youth market segments. This case study describes lessons learned from the market research and product design process.
This paper written by Making Cents International for the Microcredit Summit 2011 presents an overview of the business and social cases for youth-friendly products and services and presents practical guidelines to help institutions begin thinking about developing or adapting financial services for youth.
Karen Austrian of the Population Council discusses its experiences partnering with banks and researching the financial habits of vulnerable adolescent girls in Kenya.
Kate Waiganjo of K-Rep Bank (one of the Pop Council’s partners) in Kenya, describes the “Go-Girl” product (savings + training) designed to address the needs of these girls.
David Mukaru of Equity Bank describes the bank’s motivation behind serving young clients as well as the financial products and training the bank offers youth together with its foundation partner, Equity Group Foundation.
Mohamed Al Lai of Al Amal Microfinance Bank in Yemen discusses the bank’s strategic priority to serve the country’s surging youth population as well as the products and services currently being offered to them.
Chandula Abewikrema of Hatton National Bank in Sri Lanka describes the history of its youth saving product as well as the bank’s motivation behind serving younger clients.
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