Policy Innovations in Youth Financial Services Peer Learning and Exchange Roundtable


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On March 26 and 27, 2013, CGAP convened a roundtable with policymakers from eight countries working on youth financial services. The objectives of the roundtable were to: (i) share cross-country experiences and strategies via peer learning and exchange; and (ii) explore the role of financial services as one component of strategies for youth development.

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Policy Innovations in Youth Financial Services Peer Learning and Exchange Roundtable

  1. 1. 1Policy Innovations in Youth Financial ServicesPeer Learning and Exchange RoundtableMarch 26-27, 2013, Paris, FranceEvent HighlightsOn March 26 and 27, 2013, CGAP convened a roundtable with policymakers from eight countries working onyouth financial services. The objectives of the roundtable were to: (i) share cross-country experiences andstrategies via peer learning and exchange; and (ii) explore the role of financial services as one component ofstrategies for youth development.Opening RemarksAlexia Latortue (CGAP) opened by laying out the context for the roundtable. The roundtable brought togetherthree unique strands: policy, youth and financial services. Policy is a powerful tool that, when used well and inpartnership with the private sector and civil society, can have profound effects on citizens’ lives by assuringequity, redressing market failures, and promoting public goods. Youth is a time fraught with risks and laden withopportunities. The decisions made, opportunities seized, and opportunities lost can propel youth towardtrajectories that can be transformative, or to the contrary, disappointing. Financial services have a role in youthdevelopment by helping manage cash flows, build assets, and mitigate risks. The premise is that bringingtogether the three stands of policy, youth and financial services will help youth be better prepared for thefuture.Youth are a policy priority for many countries, and governments are increasingly experimenting with usingfinancial services as one tool within a broader youth development toolkit. There is still a lot of room for learningand discovery as more evidence and practice on the ground is needed to fully understand the role and impact ofyouth financial services. The chart that follows shows the different parts of government involved in youthfinancial services as well as their core priorities for the countries represented at the roundtable.Brazil Colombia Egypt Ghana India Philippines UK Zambia% of youth (age 15-24)in country*17.2 18.3 19.7 19.9 19.2 19.9 13.1 19.9% of adults (age 25+)with access to financialservices**62.1 36.5 10.5 31.5 38.6 30.3 98 25.1% of youth with accessto financial services**36.3 12.8 7.8 26.5 27.3 18.3 90 12.8Youth financialservices promoted bygovernment?FinancialeducationSavings,Rural credit,financialeducationFinancialeducation,SavingsFinancialeducationSavingsSavings, FinancialeducationSavings,CreditFinancialeducation,CreditNational youthstrategy?Anchor governmentagency for youthfinancial services***Colombia JovenEgyptianBankingInstituteMinistry ofFinanceMinistryofFinanceBangko Sentral ngPilipinasHerMajesty’sTreasuryBank ofZambiaSupportinggovernment agenciesfor youth financialservices ***Associaçãode EducaçãoFinanceira doBrasilBanco de laRepublica deColombia, Ministryof AgricultureCapitalMarketsAuthorityMinistry ofYouth &SportsCooperativeDevelopmentAuthority, Departmentof EducationMinistry ofYouth & Sport,Ministry ofEducation
  2. 2. Interview with Andrew Devenport, CEO, Prince’s Youth Business InternationalTo get into the heart of the subject matter, Alexia Latortue asked Andrew Devenport to articulate the case forfocusing on youth development. Drawing from his work leading a global network focused on supporting youthentrepreneurship through financial support, mentoring and technical training, Andrew Devenport stressed theburgeoning youth population, the fact that it is easier to cultivate financial habits early in life and the inter-generational effect of youth being at the cusp of two generations. Andrew also emphasized the positive impactof helping young people start their own businesses on economic growth and poverty reduction.Financing Youth TransitionsTo help make the youth and finance strands of the roundtable explicit, Tanaya Kilara (CGAP) presentedimportant demographic trends on youth, offered a “key transitions” framework for thinking through the keydecision points in youth’s lives, and suggested ways in which finance can help manage the transitions.Tanaya Kilara underscored that the world is in a unique period of demographic transition where the traditionalpopulation pyramid —a broad base of young people supporting a smaller older population—is changingdramatically and differently, across the world. As countries develop, their age structure changes. Countries facea unique window of opportunity in the years when, with increasing life expectancy and dropping fertility rates,the working-age population grows faster than the dependent population. This window then closes again as theaging population increases and yet again creates high dependency levels. Low income countries can benefitfrom this window, if they prepare youth to be active, well-educated and productive citizens. Africa in particular,with over 60 percent of the population under age 30, stands to gain.Managing these macro demographic trends well requires attention at the level of the lives of individual youth.The World Development Report 2007 (Development and the Next Generation) emphasizes the five pivotalphases of life that can help unleash the development of young people’s potential with the right policies. Theyare: continuing to learn, starting to work, beginning a family, adopting a healthful lifestyle, and exercisingIn Andrew’ Devenport’s WordsOn supporting youth entrepreneurship:“Only a madman would invest in a young person. Only if you take a holistic view, incombination with benefits to society, then it makes sense.”On partnerships between government and the private sector:“We partner like crazy...If we look at our members, as they scale, it is not possible tofunction purely in one sector. We must partner between government and private sector.When it works, the upside is huge.”On exit strategies:“Our exit strategy can vary a lot. It’s usually two to three years but depends on thecontext. In some parts of the world our model breaks down in cultures where youthare used to receiving grants.”
  3. 3. 3citizenship. Decisions during the five key transitions have the biggest long-term impacts on how human capital iskept safe, developed and deployed.These transitions take place at different times in different societies, and as such do not adhere to a strict agerange. They can also overlap, with some young people having uncomplicated lives and undergoing only one ortwo transitions at a time. Others have more complex lives: they are in school, working part-time, married,engage in risky behavior and participate in their local council – all at the same time. The transitions also havedifferent trajectories across gender. Successfully navigating these transitions requires that youth andgovernments minimize the risks and maximize the opportunities they each bring. Clearly, finance is not all thatis needed—access to jobs, quality healthcare, good schools, and practical training are all very important. Butfinance also has role in each of these transitions.Continuing toLearnStarting to WorkBeginning aFamilyAdopting aHealthfulLifestyleExercisingCitizenshipSavings,short-termLearn to saveSeasonal needs;Consumptionsmoothing; SendingremittancesSeasonal needs; Consumption smoothingSavings,long-termSaving forschoolingSave for businessinvestment; Save forhousingSave for lifecycleevents; Save forhousingSave formedicalemergenciesCredit Education loansBusiness loans; Homeloans; Consumercredit; EmergencyloansHome loans;Consumer credit;Emergency loans;Education loans forchildrenEmergencyloansPaymentsReceivesupportpaymentsReceive salaries; Paybills; BusinesstransactionsReceive salaries; Pay bills; Receive support paymentsInsuranceHealth; Life; Property;Crop; DisabilityHealth; Life; DisabilityFinancialEducationFinancialidentity; Beginusing savingsEstablish credithistory; Set financialgoals; Financebusiness growthSet financial goals; Use of more complex servicesYouth Financial Services: A Policy Imperative?The first day of the roundtable ended with an interactive session facilitated by Alexia Latortue (CGAP),to betterunderstand the opportunities and challenges that youth represent to the participating policymakers’ countries.Participants highlighted the ways in which youth in their countries represent an opportunity. The sheer number of youth are a plus, if the demographic window is harnessed well Youth are increasingly better educated so they can participate in decision-making and contributeeconomically Youth are productive, they can save, support aging populations, contribute capital, and enhance nationaldevelopment
  4. 4.  Youth are full of energy and flexible, and are able to offer creative, new ways of thinking to createintergenerational change Youth are a source of innovation Youth are technologically savvy, with easy access to information and the ability to adopt new technologiesthat can improve lives The youth voice is powerful, they demand change and participate in shaping the changeParticipants also shared the ways in with youth in their countries represent a challenge. Youth are not well prepared for the demands of the labor market, there is a mismatch between what isbeing taught in schools and the skills employers need Youth are not perceived to be a viable client segment by financial service providers, they are seen as high-risk with little capital and track record Youth constitute a significant portion of the unemployed, which in itself is a risk for societies Youth have major aspirations which, if left unfulfilled, can lead to them thinking they have nothing to loseand can lead to social unrest Making the investments needed to meet the needs of the large number of youth will be difficult, andrequire resources that not all economies haveUsing a consensor device, the session then turned to policymakers’ perspectives specifically on youth financialservices as a response to leverage the opportunities and address the challenges that youth represent in theircountries. The following messages emerged. Participants unanimously stated that learning and working are the two most important youth transitions, ofthe five mentioned earlier. Sixty-one percent voted for working as the most important transition and 39percent voted for learning. Financial services can play a role in harnessing the opportunity or mitigating the challenge that youthrepresent. Seventy-nine percent of participants at the roundtable were of the opinion that financial servicesare important or very important in addressing youth transitions. Different financial services, however, arerelevant at different stages. For example, in the learning transition, developing good financial habits throughfinancial education is critical. Participants resoundingly endorsed the importance of financial education with
  5. 5. 5Three countries, three contexts, and three challengesEgypt: With 92 million people in Egypt, and only about half a million bank accounts, financial inclusion isa key challenge. Changing the mindset of banks that are currently making profits comfortably to reachout to underserved customers, including youth, is another challenge.UK: The collapse in the financial sector exacerbated an existing problem with unemployment and under-employment. Youth’s aspirations are also changing. Previously, after obtaining an education, youthexpected a job in a big company. The new reality is that people now often have a portfolio of activitiesand sometimes need to create their own jobs as there are fewer jobs after the recession. So, they needmore flexibility and capital to respond to their aspirations.Ghana: In spite of the reforms, the number of people who have access to financial services remains verylow. Only 35 percent of the population has bank accounts , and insurance barely has a 4 percentpenetration.60 percent voting it as the most important aspect of youth financial inclusion. In the transition to work,credit for entrepreneurship is the key financial service. Savings was identified as particularly important (35percent of the vote) because having some savings built up can help delay transitions, such as staying inschool rather than starting a family at a very young age. Participants reflected on the importance of assetbuilding to promote a positive, future orientation. Discussing the role of finance without recognizing the significance of non-financial services like mentoring,training, linkages to market, etc., is missing the larger picture of youth development. As this was a meeting primarily for policymakers, it is perhaps not surprising that they 75 percent felt thatthe government has the primary responsibility for expanding financial access to youth (the private sector got20 percent of votes). Participants stressed that government should be an enabler, but not a deliverer offinancial services, and that ultimately partnerships with the private sector and civil society were needed.Some participants also cautioned that governments can play both a positive and negative role. Though government has an important role in youth financial services, 50 percent of participants report thatthey strongly felt that their country did not have a coherent approach/strategy for youth financial services.While some participants questioned whether a national approach was needed—perhaps regionalapproaches within countries would be better—the challenge of achieving coherence among many differentgovernment ministries was cited.Designing for Impact – Part IDuring this session, policymakers from different countries discussed specific programs they have implemented,including the problem that the program is meant to address and the design processes that led to the policyintervention. Scott O’Brien (Her Majesty’s Treasury, United Kingdom), Nicholas Gyabaah (Ministry of Financeand Economic Planning, Ghana) and Ashraf Gamal El Din (Egyptian Banking Institute, Egypt) shared theirperspectives on a panel moderated by Ruth Dueck-Mbeba (The MasterCard Foundation).
  6. 6. Several themes were discussed. The highlights are as follows. There are numerous paths to identifying the core problem that requires a policy intervention. The UKidentified a practical problem—youth unemployment—and choose to respond quickly without much study.They opted for an operational and iterative approach that got to the pilot stage quickly. For Egypt, theCentral Bank’s quantitative research showed that their problem was a high unbanked population, andengaging youth came at a later stage. In Ghana, a survey tool was used to determine levels of financialliteracy among the population at large, jump-starting the country’s financial education program for youthsince that segment demonstrated the least knowledge of financial services. As Nicholas Gyabaah said, “Youcannot teach an old dog new tricks, so we need to get them young.” Numbers are important, but can be misleading. It is a well-known fact that the majority of new businesses indeveloped and emerging markets fail. Scott O’Brien shared that his program’s targets needed to bepredicated on a 40 percent default rate, which was necessary if they wanted to fund risky businesses. It maybe counterintuitive, but if the default rate is much lower, then the program may be funding the wrongpeople who were not that constrained. Ashraf Gamal El Din mentioned that quantitative targets aroundnew number of accounts are key, but so are the less tangible ones of increasing trust vis-à-vis banks. Engaging the private sector is crucial, but banks cannot be forced to act. There was a lot of discussion on theneed for banks to provide services to youth, but also on the many challenges that exist. Banks may not beinterested in investing to develop products that meet the demands of this new client segment, they may notprovide the right customer care, and they may need to make banking cheaper for low income youth,perhaps through branchless banking. Ultimately, Ashraf Gamal El Din reminded everyone that banks areindependent and cannot be forced to do anything. Incentives sometimes work, but not always. Hesuggested that creating win-win solutions is important, thus keeping the perspective of the financial serviceprovider in mind when designing interventions.Designing for Impact – Part IIThe second part of Designing for Impact focused on evaluating the impact of policy interventions, both in termsof achieving social impact and sustainability. Silvia Morais (Associação de Educação Financeira do Brasil, Brazil),Kakuwa Musheke (Ministry of Youth and Sport, Zambia) and Shameran Abed (BRAC) shared their perspectiveson a panel moderated by Tanaya Kilara (CGAP). Impact evidence is needed, thin to date, and resource-intensive to obtain. Silvia Morais presented somestrong results from Brazil’s experience piloting the insertion of financial education into the school system.Impact evaluation through a Randomized Controlled Trial (RCT) was embedded in the roll-out of theprogram with the support of the World Bank’s Development Impact Evaluation Department. The results arevery promising: there is a 7 percent increase in knowledge after 6 months of treatment and 7 percent ofstudents saving more after 18 months. Participants reflected on the importance of thinking about theimpact evaluation approach from day one, as was the case with Brazil, rather than as an after-thought. Allagreed that rigorous impact evaluations are necessary to prove assumptions and also convince governmentsabout the value of these interventions. The discussion also revealed questions about the appropriate levelof resources (money, time, people) for evaluations, and also how much evaluation is enough.
  7. 7. 7 Need to think differently about sustainability. There was consensus among participants that youth financialservices on their own would likely not be attractive to banks. Scott O’Brien, for example, cited theexperience of trying to incentivize banks to lend to SMEs. The UK Government provided banks with cheapfunds to lend to SMEs but they still preferred to lend to larger customers. They also tried guarantees but theadditional lending it drove was marginal. This led the UK Government to look for a non-bank solution whentrying to do youth lending. Shameran Abed supported this point of view, saying that “if you start with thepremise that you have to be sustainable, then some things would never start.” He argued that the providersthat target the youth segment invariably also have social goals in addition to recognizing the lifetime valueof young customers. For example, BRAC cross-subsidizes the unprofitable parts of its portfolio like the youthproducts with its more profitable products. If having a social goal is a pre-condition for institutions to targetthis segment, perhaps the discussion on youth financial inclusion needs to move past banks and toward arange of more socially oriented providers. Technology came up on several occasions as one promisingopportunity to help the economics from the perspective of financial service providers. There is a role for subsidy, but getting it right is not for the faint of heart. Policymakers recognized thatsubsidy was required to reduce the risk of entry for the private sector (refer to previous point) and becausesome benefits accrue to society rather than to individual players. The discussion then turned to how thatsubsidy could be structured in smart ways to avoid or minimize market distortions. There were manycautionary tales, including from Kakuwa Musheke about the threat of political capture when theGovernment gets into the business of delivering financial services. Finally, Scott O’Brien presented one wayto think about subsidy holistically. He spoke of “whole government accounting”, which refers to the ideathat subsidy in the short-term by one part of the government is offset in the longer-term by job creation,reduction in welfare benefits, GDP growth, etc.The Role of RegulationThis participatory session, led by Tim Lyman (CGAP), focused on key issues in creating an enabling and protectivepolicy environment for youth financial services. Fe de la Cruz (Bangko Sentral ng Pilipinas, Philippines) andMukhmeet Bhatia (Ministry of Finance, India) shared their country’s experiences with recent regulatory changes.There was also discussion on the significance of political economy in rule making within the various branches ofgovernment.Policymakers discussed country-level examples of enabling policies around youth savings and youth credit. Thisincluded the removal of regulatory barriers (e.g., legal age to open savings accounts dropped to age 7 in thePhilippines), mandates (priority lending requirements in India) and public subsidies (government credit schemesfor youth start-ups in the UK and Zambia). See chart below.Youth Savings Youth Credite.g., legal age to open accounts e.g., legal age to enter contractse.g., matching grants for accountse.g., government credit schemesfor youth business start-upsRemoving regulatory barriersPublic subsidy / incentivesOther “enabling”?Mandates e.g., account at birth requirements e.g., priority lendingrequirementse.g., public awareness campaigns e.g., unique IDs
  8. 8. Sometimes, broader policies, which are not targeted at youth or even at financial services, can have a profoundimpact on youth financial services. When the Aadhar unique ID/biometrics program in India was designed,neither youth development nor financial inclusion was a major policy driver, but the program has importantimplications for both. For the Government of India, Aadhar meets know-your-customer requirements foropening bank accounts and can serve as a gateway to a range of products and services. For example, theGovernment of India is using this technology to transfer 16 million scholarships to students, essentially requiringthe youth to have bank accounts.On the protective side of the equation, policymakers discussed government’s role in reducing the risks youthface (e.g., high fees eating into youth savings). Systemic financial consumer protection issues can undermine thebroader repayment culture. There was also some discussion around promoting standards for child-friendlyyouth savings products and how we are not yet at the point where there could be a regulatory standard, sincethere is no body of evidence for overall consumer protection.Forging Innovative Partnerships for Collective ImpactThe final session began with a brief presentation by Alexia Latortue (CGAP) on a collective impact frameworkand its conditions for success: a common agenda, shared measurement systems, mutually reinforcing activities,continuous communication, and backbone support. Patrick Karangwa (PAJER, Rwanda) provided his perspectivefrom civil society partnering with the government, followed by Shameran Abed (BRAC) whose perspective stemsfrom being a financial service provider.Patrick Karangwa shared success factors in PAJER’s strategy of partnering with the government, such as:alignment with the Government’s Poverty Reduction Strategy 2020; remain apolitical and work with everyminister who comes to office regardless of political party; ensure buy-in from the government throughout thewhole process; and serve as an incubator for programs that the government can later scale up. Shameran Abedprovided three examples of exemplary public, private and government partnerships: in Bangladesh, the CentralBank worked with NGO MFIs to give them cheap credit so that they would then re-lend to small farmers for aninterest rate of 5 percent instead of 11 percent; in Rajasthan, India, the State Government provided matchingfunds for the national pension scheme, which was managed by private companies at the back end anddistributed by NGO MFIs at the front end; and affordable health insurance in India where NGOs are doing frontend distribution, large private sector insurance companies own the insurance, and the government is re-insuringthat insurance (essentially providing a subsidy).After a brief discussion, the session broke out into a group exercise in which participants designed a policyresponse that addressed one of the youth transitions discussed on Day 1. Participants were given 1 million“Youthistani” dollars for the intervention, and a 5-year timeframe for implementation. In the spirit of thesession around partnership, participants assumed roles (Ministry of Finance, Ministry of Youth, financial serviceprovider, civil society) in their respective groups.The session ended with brief presentations of the various policy interventions that the groups designed, whichcovered a range of financial services, including a micro-insurance policy for the “staying healthy” transition, adelayed matching savings product for the “starting a family” transition, a job placement and information hub forthe “working” transition, and integrating entrepreneurship as part of the school curriculum for the “learning”transition. Each program required the collaboration of various government agencies, the private sector, civilsociety, and in some cases, the youth themselves. All the interventions had some level of subsidy, though a few
  9. 9. 9groups considered the issue of sustainability, for example through user fees. The issue of how to access youthwho are not in the formal schooling system also emerged. All groups expressed some difficulty in defining keyperformance indicators to measure success, reflecting the challenge that monitoring and evaluation represents.What’s Next?: Continuing the Dialogue on Policy Innovations in Youth Financial ServicesDissemination of discussions of the roundtable to get messages to a broader audience. We want toensure that our discussions can be shared more broadly, and will be using several channels to do so. Share roundtable highlights with interested parties who could not attend the event, including:Alliance for Financial Inclusion, policymakers from countries that could not attend (e.g., Canada,Jordan, Rwanda, US), members of the YouthSave Consortium and other MasterCard Foundationyouth grantees. Distribute the short video from the Roundtable broadly and actively integrate it into otherevents focusing on youth financial services, including the upcoming Making Cents Conference inSeptember 2013 in Washington, DC, and the CYFI Summit in May 2013 in Istanbul. Further delve into topics raised during the roundtable through several blogs planned for boththe CGAP and Youthsave Consortiums websites. A sample of topics include: credit for youthentrepreneurship (case of the UK) and evidence-based financial capability programming (case ofBrazil, in conjunction with the World Bank).Assisting participants with continued peer exchange. CGAP has created a listserv/email list so that theparticipants can continue exchanging ideas and experiences or ask each other for advice:CGAPYouthFinancePolicy@worldbank.org.Exploring the business case. CGAP will continue to work on exploring the business case for youthfinancial services.