MicroCapital: What is the motivation for the new study “More Inclusive Finance for Youth: Scalable and Sustainable Delivery Models for Financial and Non-Financial Services,” which was published recently by e-MFP’s Youth Financial Inclusion Action Group?
Severine Deboos: Almost 73 million youth worldwide are looking for work. The UN’s International Labour Office (ILO) considers financial inclusion an important ingredient to fostering youth employment. While young people may need access to services such as savings, credit, insurance and payments, potential employers may need loans to fund apprenticeships.
MC: What ingredients lead microfinance institutions (MFIs) to success in serving young people?
Jared Penner: We found that MFIs have an easier time achieving scale and sustainability when there is: 1) a favourable regulatory environment; 2) a wide enough range of services for older youth, including higher value savings and loans; and 3) a focus on youth in urban settings. Other factors, such as strong institutional commitment to integrated services from MFIs’ management, also proved to be integral to scale and sustainability.
SD: Public authorities can support lending by participating in risk-sharing mechanisms. Also, it is important to provide financial education targeting young people.
MC: Can you cite an MFI that has been successful in serving this market?
JP: Among several mentioned in the publication, Poverty Eradication and Community Empowerment (PEACE) in Ethiopia is a small institution that was able to achieve impressive scale largely based on favourable regulatory conditions along with a staunch commitment from the organization’s leadership. In Ethiopia people may open accounts from the age of 14 without parental approval if they can show a valid work contract. Another example is Rwanda’s Union des Coopecs Umutanguha, which has attained sustainability through wide-reaching youth products such as microleasing.
MC: What types of non-financial services are important?
JP: One example that we have seen be successful is a “unified” model in which young people receive educational instruction from loan officers in as few as three 30-minute increments. As we say in the study, “Emerging best practices are suggesting that youth receive the most benefit from financial services when they are offered in tandem with non-financial services such as mentoring, financial education, internship opportunities and social asset building.” We have also seen MFIs successfully build entrepreneurship, gender equality and health education into their programming.
Severine Deboos serves as a technical officer for the Social Finance Programme of the Switzerland-based ILO. Jared Penner is the manager of global engagement and evaluation for the Dutch NGO Child and Youth Finance International.
This interview is part of a sponsored series on European Microfinance Week, which is held each November by e-MFP, a 120-member network located in Luxembourg. MicroCapital will report live from the event.