MICROFINANCE PAPER WRAP-UP: “Assessing the State of Youth Financial Inclusion in Developing Contexts,” by Niclas Benni, Published by FAO

Youth in low- and middle-income countries often face significant challenges in accessing the financial services they need. Meanwhile, the lack of public data on youth financial inclusion makes it difficult for practitioners to assess and address the situation in a given context. Among the factors to consider when formulating a plan to increase youth financial inclusion are the supply of financial services in general, youth demand for financial services, and the environmental factors that can either constrain or support youth access to financial services.

The definition of youth generally includes those up to 25 to 35 years of age. However, the author argues that practitioners must break down this group into subgroups due to “widely different necessities” among younger and older youth. It is also important to factor in vulnerabilities, such as the impact of gender, location and culture on financial access. Before conducting research, practitioners are advised to set a clear definition of financial inclusion, using the dimensions of access, quality, usage and impact. Before gathering new data, they should seek existing information from the public sector, international development agencies, and local companies and NGOs active in the financial sector. In addition, assessing the state of digital financial inclusion in a country is key to gauging how demand for youth financial inclusion can be met.

To assess the supply side of the market, evaluators should consider the level of youth financial inclusion via formal financial service providers (FSPs), semi-formal FSPs and informal financial services. Practitioners also should attempt to assess the extent of bias among FSP staff and policies that may affect youth. One of the complicating factors is that FSPs may justify underserving youth because they often have lower levels of savings, financial education and access to collateral. Among the less subtle barriers to inclusion are those that are product-related, such as minimum balance requirements or high withdrawal and deposit fees, and physical barriers, such as lack of nearby FSP branches. Regarding digital financial services, those “tailored specifically for youth as a target client segment are bound to be few and far between in developing countries.” Therefore, practitioners should analyze digital financial services that are not targeted to a particular age group to seek relevancies for youth.

Another category of barriers to youth financial inclusion is those stemming from the legal environment or FSP policies, such as: (1) the requirement for “a parent or tutor to co-sign to open a savings account or avail credit when the youth is underage;” or (2) constraints such as the “lack of access to conventional forms of ID for youth or regulatory issues related to land titling and ownership,” which impact the ability to offer collateral. On the other hand, practitioners should assess enabling factors that can be leveraged to promote youth financial inclusion, such as levels of digital literacy and the activity of financial education providers and nonprofit FSPs that focus on fostering youth financial inclusion. Another key factor is the level of competition in the market for digital financial services.

This is a summary of a paper by Niclas Benni, published by the UN Food and Agriculture Organization (FAO), December 2022, 48 pages, available at https://www.fao.org/3/cc3272en/cc3272en.pdf.

By Arin Atluri, Research Associate

Additional Resources

FAO homepage
https://www.fao.org

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