2017 ─ Exploring the Economic and Social Motivations for Child and Youth Friendly Banking

Exploring the Economic and Social Motivations for Child and Youth Friendly Banking: Practices from Georgia, Lebanon, Tanzania and Yemen Linas Cepinskas and Jared Penner December 2017

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Exploring the Economic and Social Motivations for Child and Youth Friendly Banking: Practices from Georgia, Lebanon, Tanzania and Yemen Linas Cepinskas and Jared Penner December 2017

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Contents List of abbreviations List of figures and tables

5 5

1.

Executive summary

6

2.

Introduction

7

3.

Research evidence

8

3.1.

3.2.

CGAP Business Case Framework Existing case studies

9 11

4.

Objective of the comparative analysis

14

4.1.

Methodology

14

5.

Findings overview

15

5.1.

5.1.1.

5.2.

5.2.1.

5.3.

5.3.1.

5.4.

5.4.1.

5.4.2.

5.5.

5.5.1.

Market levers Concluding considerations Institutional levers Concluding considerations Segmentation levers Concluding considerations Cost and revenue drivers Cost drivers Concluding considerations Revenue drivers Concluding considerations

15 16 17 18 19 19 20 20 23 24 24

6.

Conclusion

27

7.

Case studies

28

8.

Acknowledgements

42

9.

References

43

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List of abbreviations AGFUND – Arab Gulf Programme for Development AMB – Al-Amal Microfinance Bank BOG – Bank of Georgia BoK – Bank of Kathmandu CGAP – The Consultative Group to Assist the Poor Coopragreso and San José – Cooperatives Cooprogreso and San José CSR – Corporate Social Responsibility FCPB – Faîtière des Caisses Populaires du Burkina FFH – Freedom from Hunger FSP – Financial Service Provider GIZ – Deutsche Gesellschaft für Internationale Zusammenarbeit IFC – International Finance Corporation LBP – Lebanese Pound NMB – National Microfinance Bank Nyèsigiso – Le réseau des Caisses d'Épargne et de Crédit du Mali OIBM – Opportunity International Bank of Malawi PAR – Portfolio at Risk TZN – Tanzanian Shilling UFC – Umutanguha Finance Company UNCD – UN Capital Development Fund WWB – Women’s World Banking YER – Yemeni Rial

List of figures and tables Figure 1. CGAP Business Case Framework Table 1. Overview of Business Case Findings for Child and Youth Savings Products from Secondary Research Table 2. Overview of Urban and Rural Youth Population (ages 15-24) Table 3. Overview of Market Findings Table 4. Overview of Institutional Findings Table 5. Overview of Young Customers’ Segmentation Table 6. Overview of Cost Drivers Table 7. Overview of Incentives across Child and Youth Banking Products Table 8. Overview of Delivery Channels of Financial Education Table 9. Overview of Delivery Channels for Financial Services Table 10. Overview of Revenue Drivers Table 11. Overview of Key Research Findings Table 12. Overview of AMB’s Children and Youth Savings Products Table 13. Overview of BOG’s sCool Card Table 14. Overview of Fransabank’s Lead Account Table 15. Overview of NMB’s Children and Youth Accounts

10 13 15 16 18 19 20 21 22 23 24 26 30 33 37 41

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1. Executive summary This study explores the rationale for banks offering financial products for children and youth. Drawing on the cases of financial institutions in Georgia, Lebanon, Tanzania and Yemen, the document examines the strategic aspects that financial institutions need to consider when designing, delivering and evaluating Child and Youth Friendly financial services. By doing so, the study offers valuable insights into recent good practices accentuating the benefits and incentives for other financial institutions worldwide to develop inclusive and sustainable products and services for their youth segments.

In addition to a desk review of multiple existing studies and reports on youth savings and regulatory systems, this comparative analysis consisted of a survey of financial service providers. The findings highlighted that there is a business case and a social case for developing and offering banking services for children and youth. However, adopting a long-term expectation of having revenues from youth clients is imperative. While there is a focus on the business case and sustainability, the main reason for launching banking products for children and youth is the social mission of the banks.

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2. Introduction Nowadays, access to financial services is a key component for achieving financial inclusion.1 The poor availability and accessibility of financial services is a substantial barrier to financial inclusion, and one which is more prevalent amongst children and youth.2 In 2014, only 62% of the world’s population owned a bank account. In addition, youth are even less likely than adults to have an account at a formal financial institution. Indeed, there is a gap in account penetration between young adults3 and older adults of 10 to 20 percentage points.4 While a number of countries worldwide have adopted Child and Youth Friendly regulations and financial institutions have developed products designed for children and youth, some financial institutions are still reluctant to offer such product lines and need to be convinced of their profitability and sustainability.

Against this backdrop, this study explores some of the main reasons why banks choose to offer Child and Youth Friendly banking products and services5 to young customers and analyzes the benefits of them offering these products. Furthermore, drawing upon the cases of reputable and less researched financial institutions in Georgia, Lebanon, Tanzania, and Yemen, this study examines the strategic aspects that financial institutions need to consider when designing, delivering and evaluating financial services for children and youth. By doing so, the study offers valuable insights into recent good practices accentuating the benefits and incentives for other financial institutions worldwide to develop inclusive and sustainable products and services for their youth segments.

Linas Cepinskas is Thought Leadership Manager at Child & Youth Finance International.

Jared Penner is Director of Thought Leadership and Consultancy at Child & Youth Finance International. For questions, please contact Linas Cepinskas at linas@childfinance.org or Jared Penner at jared@childfinance.org 1 Financial inclusion is defined in this paper as access to appropriate, quality, and affordable financial products and services. A distinction must be made between formal and non-formal financial services. Whereas formal financial services are linked to a financial institution and regulated by the central bank, non-formal financial services, like village savings groups, are not.

2 CYFI (2016a, p. 25) 3 Young adults refer to persons between 15 and 24 years of age; older adults are 25 years of age and older.

4 Demirguc-Kunt, A., L. Klapper, D. Singer at al. (2015, p. 2 and p. 16).

5 A Child and Youth Friendly product focusses on asset accumulation, financial management and skills development while respecting and complying with children’s rights and the principles of Child and Youth Friendly Banking of Child & Youth Finance International.

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3. Research evidence With the increasing growth of youth populations worldwide, addressing poverty and unemployment is becoming steadily more important.6 In 2016, children and youth made up 42.31% of the world population7 of which 71 million were unemployed and more than 152 million, primarily in emerging and developing countries lived in poverty.8 In addition, since 2011, the percentage of children and youth in the least developed countries has increased from 11.9% to 18.4% in 2015. 9 In terms of financial inclusion, only 46% of youth population10 owned a bank account at a formal financial institution and 18% saved at a formal financial institution in 2014.11 In the light of this, financial inclusion is widely regarded as an effective solution for stimulating national economies and empowering both children and adults to take full control of their lives. Research has shown that financial inclusion is positively correlated with economic growth and employment, thereby increasing financial stability, reducing poverty, and enhancing well-being. 12 Mastercard Foundation has identified three areas in which access to financial services can positively impact youth.

First, reaching out to children and youth provides an opportunity to instill positive behaviors like saving and budgeting.

Second, access to financial services enables asset accumulation and transaction management in a safe manner. Third, engaging young people in financial services has the potential for secondary benefits, such as psychological, educational, and health effects.13 In addition, contrary to popular belief, young people want to save and do so when they have the opportunity.14 Furthermore, studies have demonstrated that younger youth save more than their older peers.15 In terms of the effectiveness of savings products, research shows that savings increase when individuals are provided with savings accounts or simple informal savings technologies16. In addition, these products and services foster women’s empowerment17 and encourage productive investment, and consumption.18 Last but not least, the positive effects of having access to such savings accounts and payment services have been documented in several studies showcasing increases in investment in preventative health, productivity, and income.19 A number of studies also highlight the benefits of linking financial inclusion to education. For instance, a lack of financial knowledge is correlated with negative financial outcomes, such as less savings, lower wealth, and lower participation in stock markets.20 Moreover, by increasing financial literacy, children and youth are better equipped to benefit from financial inclusion and economic opportunities.21

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CYFI (2014, p. 8) UNICEF (2016a, p. 1) 8 Poverty is described as living on less than US$ 2 a day.

9 ILO (2017) 10 Youth defined as 14-25 years of age.

11 Avakyan, K., Isaincu, B. and F. Knoote (2015, p. 3) 12 CGAP (2014, pp. 2-7) 13 The Mastercard Foundation (2015, pp. 10-11) 14 CYFI (2016a, p. 18) 15 YouthSave (2015, p. 24) 16 Aportela, F. (1999, p. 34); Ashraf, N., Karlan, D. and W., Yin (2006, p. 669) 17 Ashraf, N., Karlan, D. and W., Yin (2010, p. 338) 18 Dupas, P. and Robinson, J. (2013, p. 1168) 19 Ashraf, N., Karlan, D. and W., Yin (2010), p. 338; Dupas, P. and Robinson, J. (2013, p. 1168) 20 CYFI (2014, p. 45) 21 CYFI (2016b, p. 21) 7

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When combined, access to financial and educational services can empower young people to become more responsible economic citizens.22 It helps them make informed choices, trust financial institutions and be comfortable with actively using the services, and above all, take control of their financial lives.23 The findings presented above illustrate that there is a need to develop financial products for children and youth. Yet, research and practice show that children and youth face various obstacles when opening a bank account at formal financial institutions. For instance, country regulations can pose barriers to youth savings. In fact, in many countries, youth under the age of majority cannot open and operate a bank account without the supervision of a legal guardian.24 Moreover, some children might be excluded from the financial services, because they do not have the required documentation, such as an ID, passport or birth certificate to open a bank account. The availability of financial services in rural areas can be a problem too.

3.1. CGAP Business Case Framework Despite existing barriers and challenges for banking children and youth worldwide, there is a growing number of Financial Services Providers (FSPs) which have created exemplary financial products and services for their children and youth segments. For that reason, it is interesting to look at contextual drivers for FSPs offering these services.

The Consultative Group to Assist the Poor (CGAP), a global partnership of leading organizations dedicated to financial inclusion, has designed a strategic tool enabling financial institutions to develop financial products for low-income youth in a more sustainable and inclusive manner. Based on interviews with financial service providers, including leading financial institutions in Mongolia, Nepal and Germany, the CGAP framework helps to analyze the business case for financial service providers looking to offer savings products to young clients in a profitable way. 25 22

CYFI (2016b, p. 15 and pp. 20-21) CYFI (2015, p. 21) 24 CYFI (2014, pp. 82-83) 25 CGAP (2014, p. 3) 23

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The CGAP framework looks at three different levers, including market, institution and segment, which reflect the internal and external contexts of financial institutions.26 It analyses different costs and revenues affecting the decisionmaking process of offering savings products for young people.

In more detail, the market-level analyses the competitiveness and regulatory environment of the market. Looking at these levers can help to determine the attractiveness of the market and hence the opportunity of entering the market. Since each country has its own regulations on the legal age to open an account, restrictions on minor’s account ownership, and protection policies, they can be an obstacle for financial service providers to serve minors; even worse, they can also discourage children and youth from subscribing to a savings account. On the other hand, a favorable regulatory environment can positively affect the decision to enter the youth market.

Competition Market-Level Levers Regulation & Policy

Opportunity Cost Capacity & Infrastructure

Institutional Levers

Time Horizon

Youth Segments

Cost and Revenue Drivers: Business Areas

Segment Specific Levers

Profitability Drivers

Figure 1. CGAP Business Case Framework (CGAP, 2014, p. 3)

Institutional levers describe the internal characteristics of the financial service providers: strengths and weaknesses, motivations and resources. The CGAP framework separates the institutional levers into four sections: the opportunity costs, the institution’s capacity and infrastructure, the time horizon and profitability and finally, the social mission and corporate social responsibility.

Once the institution has decided to develop a product for children and youth, it has to determine which sub-segments it will target. Each segment having different costs and benefits and requiring different levels of investment, the selection of the appropriate youth sub-segments is crucial in order to develop a successful youth savings strategy.

Finally, the CGAP framework compares the cost and revenue drivers (in terms of marketing, product, delivery, operational and credit and reputational risks) in order to determine if the segments they are targeting are profitable.

Moreover, understanding the cost and revenue drivers provides an opportunity to optimize cost-efficiency and influence profitability.

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3.2. Existing case studies The CGAP framework has been applied across different financial institutions worldwide. A study by CGAP involving XacBank (Mongolia), Sparkassen (Germany), and the Bank of Kathmandu (Nepal) has shown that the marketing and operational costs of offering banking products to children and youth are substantial compared to revenue generated from offering these products. As a result, banks struggle to cover the expenses of such products despite lower costs of client acquisition. However, the banks involved in this research expect to raise profit in the future and become sustainable as their clients become adult customers. Moreover, there is also an opportunity for banks to increase profit by cross-selling products to the family members of young clients. Finally, despite the importance of the business ase and sustainability, the main reason for launching banking products for children and youth because it aligned with the social mission of the banks.27 Similarly, the United Nations Capital Development Fund (UNCDF) through its YouthStart programme has analyzed the business case for youth savings and loans products in Africa. This study investigated three financial institutions, namely Umutanguha Finance Company (UFC) in Rwanda, Faîtière Des Caisses Populaires Du Burkina (FCPB) in Burkina Faso, and Opportunity International Bank Malawi (OIBM) in Malawi. The results demonstrated that the business case is stronger in highly competitive environments due to limited opportunity costs and the absence of a youth-friendly environment. Moreover, the business case is positively affected by stable and high GDP growth and low inflation. In addition, demographics, such as a youth population and geographical location can also influence the business case.

Finally, defining youth segments was perceived as a critical step when developing financial products for children and youth.28 The results of the research of two financial institutions in Ecuador (Coopragreso and San José) and one in Mali (Nyèsigiso) revealed that, to be more cost-effective, financial service providers should task staff with marketing and delivering products for both youth and adults. Further, the main costs related to the introduction of product lines for children and youth are salaries, marketing and transportation. In particular, financial institutions should carefully analyse these costs before deciding to develop products. Banks should also monitor the interest rates they offer.

Indeed, high interest rates are a good incentive for youth, but it is also a risk for financial institutions. In other words, they need to consider both the amount of savings anticipated and find a balance between how it will benefit them and how much it will cost.29 Finally, the analysis of financial viability of five FSPs in Sub-Saharan Africa conducted by UNCDF Youth Start Programme and Freedom from Hunger (FFH) showed that financial institutions are financially sustainable as long as they keep variable costs to a minimum, leverage higher-profits margins from older youth and cross-sell products to youth’s family and friends. Further, the studies demonstrate that most of the financial institutions have the potential to achieve profitability within five years or less without grants and even faster with financial support.30 Other studies also show that FSPs need to make a trade-off between greater profitability linked to products offered to older youth and the lower financial capacity of youth.31 Regarding non-financial services, such as financial education, each financial institution uses a different model.32 33 Some of them adopt a unified model where the same staff of the institution offer financial and non-financial services to clients. Other institutions train youth to replicate non-financial services to their peers, which may be considered a

27

CGAP (2014, pp. 11-17) Mastercard Foundation and UNCDF (2015, p. 26) 29 Freedom from Hunger and The Mastercard Foundation (2014, pp. 6-7 and pp. 25-27) 30 European Microfinance Platform (2015, pp. 14-15) 31 Ibid, p. 38 32 The Mastercard Foundation and UNCDF (2015, pp. 23-28) 33 Unified model: the same staff within the bank delivers financial services and financial education; parallel model: the bank delivers financial services and financial education is delivered by its own NGO; linked model: financial services are provided by the bank, and financial education is delivered by a partner organization such as an NGO or a government body; hybrid model: hybrid: The bank uses a combination of the previous models to deliver financial services and financial education.

28The

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hybrid between the unified and the parallel model.34 The hybrid approach, where a combination of delivery models is used, provides more flexibility and freedom for an institution to deliver its non-financial services. In fact, recent studies from YouthStart partners in Rwanda and Ethiopia have showed that the hybrid approach is the most effective, especially where youth are trained by the FSP and provide financial literacy trainings to their peers.35 Further findings also show different cost implications for financial institutions in terms of the different business models used to deliver non-financial services. For instance, when a unified model is used, staff salaries are the main cost line as staff spend more time delivering financial education. However, once a new department is set up and staff who specialize in delivering non-financial services are hired, the costs would increase (parallel model). If a financial institution partners with another institution to deliver non-financial services (linked model), the contribution of staff salaries to total costs may decline, but the costs of outsourcing this service would most likely be higher.36

34

The Mastercard Foundation and UNCDF (2015, p. 14) European Microfinance Platform (2015, p. 125) 36 Ibid., p. 19 35

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Levers

Key Findings •

Competitiveness is a strong motivation factor and a driving force in the development of products for children and youth.

Business case is stronger in highly competitive environments.

Opportunity costs are lower in more saturated markets.

•

CGAP (XacBank, BoK, Sparkassen)

•

Stable GDP growth and low inflation have a positive impact on the business case.

Large youth population has a positive impact on the business case.

•

YouthStart (UFC, FCPB, OIBM) YouthStart (UFC, FCPB, OIBM) YouthStart (UFC, FCPB)

Institutions receiving donor support do not face significant opportunity costs.

Having appropriate infrastructure is a motivating factor.

Opportunity to leverage its infrastructure facilitates the design of product line for youth.

Independence of branches and weak management information systems make it difficult to implement standardized policies.

Long-term view on profitability.

•

CGAP (XacBank) & YouthStart (UFC, FCPB, OIMB) CGAP (BoK, XacBank)

• •

CGAP (BoK) CGAP (Sparkassen)

•

YouthStart (FCPB)

•

Short-term business case for serving youth and adults and long-term business case for young children.

Short-term strategy through cross-selling.

Social mission as a main driver.

Profit as main motivation and social mission as second driver.

Target young people because other banks are already serving older youth.

Offer two products to serve two overlapping segments.

No segmentation of the youth market.

•

CGAP (BoK, XacBank, Sparkassen) CGAP (Sparkassen)

• • •

CGAP (XacBank) CGAP (BoK, Sparkassen) CGAP (XacBank)

•

CGAP (BoK)

• •

Offer four different products to children and youth.

Serve two different segments.

Marketing is the most significant cost associated with youth accounts.

Operational costs are high compared to other products.

Acquisition costs are lower for children than for adults.

Salaries are the most significant operational cost.

•

CGAP (XacBank) YouthStart (FCPB, OIBM, UFC) CGAP (Sparkassen)

•

CGAP (BoK, Sparkassen)

• •

Marketing costs tend to be higher in competitive environments.

Revenue from youth accounts is low.

•

•

Cross-selling of products to clients’ family generates most of revenues.

•

•

Accounts start to become profitable as clients become adults.

Revenues from cross-selling services to youth are the driver of total revenues.

•

CGAP (Sparkassen) YouthStart & FFH (Nyèsigiso) YouthStart & FFH (Coopragreso, San José) CGAP (BoK, XacBank, Sparkassen) CGAP (BoK, XacBank) & YouthStart & FFH (Coopragreso, San José) CGAP (Sparkassen)

• •

Market

• •

Institutional

Opportunity cost Infrastructure and capacity

• • • •

Time horizon

• •

Corporate Social Responsibility

• • • • • •

Segment

Profitability Divers

Costs

• • • • • • •

Revenues

Relevant Cases

•

•

•

•

•

•

YouthStart & FFH (Coopragreso, San José, Nyèsigiso)

Table 1. Overview of Business Case Findings for Child and Youth Savings Products from Secondary Research

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4. Objective of the comparative analysis The objective of the comparative analysis is to determine the main decision factors that led financial institutions to offer child and youth banking products, and what costs and benefits have come to the institutions as a result of these product lines.

4.1. Methodology For this comparative analysis, a desk review was conducted, drawing on many existing studies and reports on youth savings and regulatory systems and FSPs throughout the world. In addition, a survey was designed for FSPs addressing the key areas of decision-making factors for offering child and youth products. With regard to the survey, the research team selected four FSPs that were willing to complete the survey, providing a comprehensive overview of the decision-making factors for offering child and youth financial products in Georgia (BOG), Lebanon (Fransabank), Tanzania (NMB), and Yemen (AMB).

For the purpose of this research, the CGAP Business Case Framework was applied during survey design. To elucidate the main motivations and considerations of FSPs when offering youth savings products, follow-up semi-structured interviews were organized with the respondents lending a possibility for the research team to elaborate on the findings and validate information for both parties.

Although drawing from a small sample, the comparative analysis is illustrative of the key drivers and issues surrounding the decision-making context of youth savings products. Rather than trying to generalize on the many youth savings products and services offered worldwide, the analysis seeks to broaden the understanding of the perspectives on the business case for youth savings and, above all, showcase some of the little known good practices in the field.

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5. Findings overview In line with the CGAP Business Case Framework discussed earlier, the research findings are presented below under the corresponding sections, namely market, institution, segmentation levers and cost and revenue drivers.

5.1. Market levers The four FSPs analyzed in this study operate in the markets characterized by large youth (ages 15-24) populations. For instance, children and youth under the age of 24 make up 64% of all Tanzania’s, 61% of Yemen’s population, followed

by Lebanon with 41% and Georgia with 30% of total youth population.37 According to available data, most youth in Tanzania and Georgia live in urban areas (see table 2). Recent studies in sub-Saharan Africa, for example, suggest that urban young adult populations offer the most potential for FSPs. In particular, this youth segment becomes much more attractive to FSPs as older youth shorten the break-even horizon due to higher average saving balances and the fact that they are much more likely to take up other financial services.

Country Georgia38 Lebanon Tanzania39 Yemen

Urban 59.5% N/A 64.8% N/A

Rural 40.5% N/A 35.2% N/A

Table 2. Overview of Urban and Rural Youth Population (ages 15-24)

However, research shows that youth access to financial services is limited to a large extent throughout all four countries being studied. In Yemen, only 1.7% of all youth are financially included (7% is the average for youth financial inclusion in the Middle East and North Africa), whereas in Georgia they make up less than 10% of the total youth population (36% is the average in Europe and Central Asia).40 Surprisingly, young Tanzanians have much greater access to bank accounts, 31.9% (20% is the average in Sub-Saharan Africa).41 Last but not least, 29.8% of Lebanese youth have access to financial services, significantly above the regional average of youth financial inclusion.42 Furthermore, the lack of financial inclusion for youth is further exacerbated by prolonged youth unemployment.

Latest data show the highest unemployment rates among youth are currently in Yemen (34%), Georgia (29%), and Lebanon (21%).43 Alternatively, at least according to official statistics, there are 5.8%44 unemployed youth in Tanzania.45 In terms of regulatory environment, children under the age of 18 cannot open bank accounts by themselves in any of the four countries. They require an adult to co-sign the opening of the account.

37

The World Factbook (2017) National Statistics Office of Georgia (2017) 39 National Bureau of Statistics of Tanzania (2014) 40 Global Findex (2017) 41 Ibid.

42 Ibid.

43 The World Factbook (2017) 44 Only reflects formal unemployment and does not capture the full scale of those that are unofficially unemployed.

45 Ibid.

38

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Furthermore, the surveys, interviews and desk research revealed some profound differences in the levels of progress made on establishing and developing regulatory frameworks and strategies to promote financial inclusion and financial education for children and youth. For instance, Tanzania recently launched the National Financial Inclusion Framework (2014-2016)46 as well as the National Financial Education Framework (2016-2020)47, explicitly identifying children and youth as a target group. Similarly, in 2016, the National Bank of Georgia, presented its National Strategy for Financial Education.48 The strategy recognizes the young generation as a high-need target group and identifies the private financial sector as one of the key stakeholders in implementing the strategy. Furthermore, recent amendments to the legal framework for financial sector consumer protection have been made.49 In August 2017, the Central Bank of Lebanon, also known as Banque du Liban, announced its “National Strategy on Financial Inclusion: Regulation, Empowerment and Protection” outlining its determination to improve access to finance and investment, enhance financial capabilities of individuals and promote financial customer protection.50 However, the recent political situation in the country complicates the needed reforms in financial inclusion for young people.51 On the other hand, in Yemen, the ongoing civil war prevents governmental authorities from actively engaging and working together with FSPs on youth financial inclusion and financial literacy.

% of financial inclusion of youth (region average) Youth unemployment rate52 Minimum age to open bank account by themselves Regulatory framework for financial inclusion National strategies for financial education

Georgia 10% (36%) 29% 18 ✔

Lebanon 29.8% (7%) 21% 18

Tanzania 31.9% (20%) 5.8% 18 ✔ ✔

Yemen 1.7% (7%) 34% 18

Table 3. Overview of Market Findings

5.1.1. Concluding considerations •

Large youth populations offer untapped future potential for introducing financial products and services for youth.

Markets with higher levels of financial inclusion of children and youth, such as Tanzania, offer a more favorable environment to launch and develop financial products and services for youth. In addition, regulatory frameworks, including national financial inclusion and financial education strategies, can create an enabling and supportive environment for increasing access to finance and boosting financial literacy, especially among rural and disadvantaged populations.

Deep-rooted political and social challenges in the country mitigate efforts to promote financial inclusion, especially amongst children and youth.

•

•

46

AFI (2017) Financial Sector Deepening Trust (2017) 48 National Bank of Georgia (2017a) 49 National Bank of Georgia (2017b) 50 Banque du Liban (2017) 51 The Guardian (10 November 2017) 52 Official statistics only reflect formal unemployment 47

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5.2. Institutional levers All of the four interviewed FSPs are strongly established institutions in their relevant markets. BOG is the largest commercial bank in its market. AMB is the largest microfinance provider in Yemen, whereas NMB is Tanzania’s second and Fransabank is Lebanon’s third largest bank. The competitive advantage enables these FSPs to use their own internal funds to cover the development and promotion of their financial products as well as financial education for children and youth product lines. However, two FSPs, NMB and AMB receive donor support and technical assistance to cover the costs of some projects. For instance, Women’s World Banking (WWB) has helped NMB to update the features and value propositions of the youth banking programme. On the other hand, AMB has benefited from the Arab Gulf Programme for Development (AGFUND), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Silatech, and International Finance Corporation (IFC) in developing its financial literacy programme and institutional capacity building.

Notably, AMB allocates 35% of their total budget to products for children and youth. NMB approaches youth savings through a combined retail business and Corporate Social Responsibility (CSR) strategy, with internal resources to ensure long-term sustainability of the financial capability programme. Fransabank, on the other hand, has a dedicated team responsible for the youth market, closely working with other divisions with the support of top management.

Responsive to technological developments and the changing needs of youth, three out of four FSPs offer internet as well as mobile banking, whereas Fransabank and BOG, also invest in creating mobile services specifically designed for the youth segment. Furthermore, all institutions have a well-developed branch network and customer base throughout the countries. For instance, NMB covers 95% of Tanzania, whereas in Georgia, 70% of children in the target market use the current accounts of BOG. In terms of the time horizon for achieving profitability on children and youth financial products and services, out of four FSPs, only NMB assessed the profitability of its youth product line, indicating the importance of a sound business case. To illustrate, NMB did financial modelling with the support from WWB to create the business case with profitability projections. This was used to secure the approval for its youth proposition. Taken together, the analysis of profitability by NMB suggests the importance of both the business case and the social case for serving young clients.

Moreover, AMB, BOG and Fransabank have not implemented profitability studies or set clear targets for their youth product lines, indicating a focus on the social case instead. In addition, it could be argued that the motivation to serve young clients is largely management/board-driven.

On the whole, all four FSPs expect their young clients will remain loyal to the institution and make use of more profitable services in the future once they become of legal age and fully join the workforce. Notably, all four FSPs consider customer growth, creation of a savings culture in society, and the promotion of financial inclusion as their key motivations for serving young people.

In addition, all surveyed institutions consider financial education to be very important. For example, NMB and BOG have specialized financial education programmes for children and youth. Furthermore, all the FSPs identify youth as one of their priorities. NMB and AMB, in addition to youth, also include the poor and marginalized youth as their priority target group. All four FSPs collaborate with a wide range of stakeholders to drive financial inclusion in their countries. All the surveyed institutions also deliver financial education at schools. They do so either through their training centers (AMB and BOG) or through branches (NMB and Fransabank). Interestingly, BOG developed its educational programme together with the Ministry of Science and Education, which can be considered as illustrative example of public-private initiatives for financial education.

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Al-Amal Microfinance Bank (Yemen)

Donor support

Leading institution in customer base and branch network

>30% of total budget to youth product line

✔

✔

✔

Bank of Georgia (Georgia)

✔

Fransabank (Lebanon)

✔

National Microfinance Bank (Tanzania)

✔

✔

Specialized financial capability programme for children and youth

✔

✔

Investment in mobile services for youth segment

Strong social case for youth products

Strong social and business case for youth products

Youth as one of strategic priorities

Poor and marginalized youth are the priority

✔

✔

✔

✔

✔

✔

✔

✔

✔

✔

✔

✔

Table 4. Overview of Institutional Findings

5.2.1 Concluding considerations • • • •

• •

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A competitive advantage enables financial service providers to use their own funds to cover the development and promotion of their financial products as well as financial education for children and youth product lines.

Institutional commitment to serving children and youth should translate in higher percentage of budget allocation for operations as the cases of AMB and NMB illustrate.

The analysis of profitability by NMB highlights the importance of the business case and the social case for serving young clients. On the other hand, AMB, BOG and Fransabank tend to focus on the social case instead.

Donor support, including grants and subsidies, can facilitate and expedite operations, conduct market assessments for children and youth, especially in reaching out to the vulnerable ones. However, the operations cannot be sustained with external support only – they require a long-term strategy as well institutional commitment and capacity.

Financial modelling to create a business case with profitability projections, as illustrated in the case of NMB, can help to secure the approval for the youth proposition from senior management.

While all four FSPs identify youth as one of their priorities, only NMB and AMB consider the poor and marginalized youth as their priority target group.

5.3. Segmentation levers On the whole, as illustrated in the table below, the four FSPs distinguish two broad segments of young people: children (typically, under the age of 18) and youth/students (ages 18-35). The products vary per institution and typically include children’s savings accounts, current accounts, and loans.

Institution Al-Amal Microfinance Bank (Yemen)

•

Bank of Georgia (Georgia)

•

• • •

Fransabank (Lebanon)

• •

Segmentation Children 0-18

•

Youth 18-30 Children 0-18

•

Children 6-18 Students 18+ Youth 16-25 Students 18+

•

• • • • •

National Microfinance Bank (Tanzania)

• • •

Children 0-17 Teens 13-17 Students 18+

• • •

Product Al Amal Child Saving Account Al Amal Youth Savings Account (18+) Child Deposits sCool Card Student Card Lead Account Study Loan Bancassurance NMB Mtoto Akaunti NMB Chipukizi Akaunti NMB Mwanachuo Akaunti

Table 5. Overview of Young Customers’ Segmentation

Research conducted by NMB showed that children and youth are among the most financially excluded segments in Tanzania. Given their demographic size, NMB considered this segment as a factor to raise deposits. Furthermore, its recent study on client behavior and outcomes conducted, has shown that deposits are growing for both children and youth products. Of particular importance, two out of four FSPs (BOG and NMB) conducted surveys to align their products and services with the needs of children and youth. To help their young clients transition to adult financial products and services, the four FSPs have developed a number of relevant products (e.g. BOG offers a multifunctional school student card which can transition to a university student card whereas Fransabank, besides a current account for youth also offers study loans and Bancassurance products for youth above the age of 18. For this purpose, the FSPs segmented their client age to facilitate the product design and incentive systems (see the overview of the incentive systems in table 8).

Furthermore, all four FSPs stressed the importance of fostering a savings culture among all children and youth since many young people have not developed savings habits or set long-term savings goals.

5.3.1. Concluding considerations • • • •

Generally, FSPs identify two broad segments of young people: children (below 18) and youth/students (18 and older). The products vary per institution and are adjusted to the different life stages of young clients.

Several FSPs transition their young customers to adult customers by offering a number of relevant products and services.

Some FSPs use external technical assistance in product design and development from expert organisations (e.g. financial modelling, impact evaluations, education programmes).

Fostering a savings culture among children and youth is considered to be an important task as many young people have not developed savings habits and set long-term savings goals.

19

5.4. Cost and revenue drivers 5.4.1. Cost drivers Similar to secondary research findings, the marketing and operational costs of offering banking products to children and youth are substantial compared to the revenues generated from offering these products. Furthermore, the surveyed FSPs use a range of communication channels for their marketing campaigns. These often comprise both online (e.g., websites and social media) and offline channels (e.g., TV and radio adverts, banners, campaigns, posters, brochures). Notably, all respondents consider social media (e.g., Facebook, Instagram, and Snapchat) to be the most cost-effective channels of communication thanks to its availability, accessibility, and popularity among children and youth.

The interviews with the FSPs also showed that staff volunteering initiatives at schools and universities (Fransabank and BOG) can be an effective tool to promote the brand and build professional relationships with young people. In addition, all four FSPs offer incentives whereas some also offer loyalty programmes and vouchers. Further, other effective marketing strategies include quizzes, educational and sales booths during children’s and youth events (NMB).

It is worth noting that all four FSPs offer financial education (see table 6). Interviews revealed that two out of four FSPs also have training entities for financial education (AMB and BOG). AMB and Fransabank use a hybrid approach in delivering financial education. Furthermore, two out of four FSPs use a unified model (BOG and NMB) where the bank staff deliver financial education. Further, the staff of two FSPs receive training on financial curriculum to cater for their young customers (BOG and NMB).

Specialized training center delivers nonfinancial services Al-Amal Microfinance Bank (Yemen)

✔

Bank of Georgia (Georgia)

✔

Staff deliver financial education to schools

Financial education is offered at branch offices

✔

✔

Fransabank (Lebanon)

✔

✔

National Microfinance Bank (Tanzania)

✔

✔

Table 6. Overview of Cost Drivers

20

Staff receive training on financial education curriculum to cater for young customers

✔

Incentives (e.g., interest rates, special discounts and vouchers

Marketing materials and campaigns

Institution seeks external technical assistance

✔

✔

✔

✔

✔

✔

✔

✔

✔

✔

✔

Interest paid

No monthly fees

No transaction fees

No withdrawal fees

No or low opening fee

No or low initial deposit

Al-Amal Microfinance Bank (Yemen)

✔

✔

✔

✔

✔

✔

Bank of Georgia (Georgia)

✔

✔

✔

✔

Fransabank (Lebanon)

✔

✔

National Microfinance Bank (Tanzania)

✔

✔

✔

✔

✔

Free payment card

✔

Mobile/ Internet banking

Bonus points

Financial Education

Free public transportation

✔

✔

✔

✔

Free prepaid Internet card

✔

✔

✔

✔

✔

✔

✔

✔

✔

✔

✔

Table 7. Overview of Incentives across Child and Youth Banking Products

21

AMB (Yemen)

BOG (Georgia)

Delivery channel Hybrid

Details • •

Unified

• •

Fransabank (Lebanon)

Hybrid

• •

NMB (Tanzania)

Unified

• • • •

The bank offers financial literacy in partnership with a number of donor agencies.

It has developed the “Bank at University” programme to raise awareness about financial literacy in the classroom as well as the Savings Promotion Campaign to open savings accounts.

The staff deliver courses on a voluntary basis. Topics include money, banking products, budget management, and time management.

The bank’s training center, in cooperation with child psychologists, has developed a special methodology for training the staff in dealing with children.

The staff deliver financial education in collaboration with NGOs, government bodies and educational institutions.

The model allows for more flexibility and helps improve the quality of services offered through continuous expansion and collaboration with various stakeholders.

Each branch staff deliver financial education to 10 schools within their vicinity.

The bank has a specialized youth and children financial capability programme with over 2000 primary and secondary schools.

The staff receive in-depth training on the financial education curriculum and are accountable to financial capability KPIs at the branch level.

During financial capability sessions, both youth and their parents/guardians are familiarized with the importance of savings and money management.

Table 8. Overview of Delivery Channels of Financial Education

22

Delivery channels for financial services

Advantages

•

Mobile Banking

•

• •

Internet Banking

•

• • •

School Banking

• •

Fast, user-friendly, efficient, reliable (Fransabank) Helps guardians to service their children’s accounts, especially when they do not have standing instruction (NMB) Increases access to the accounts for teenagers and students (NMB) Fast, user-friendly, efficient, reliable (Fransabank) Makes it easier for parents/guardians to set direct debits to fund for their children’s accounts (NMB) Promotes financial access to youth through social media (AMB) Builds stronger relationships with schools and students (NMB) If schools are agents, it also increases the usage of the youth accounts (NMB) Encourages children and youth to use financial services (AMB) Very important for social reach and financial inclusion, and it is also a form of relationship marketing (Fransabank)

Disadvantages

•

•

•

•

•

Children under 18 years are not in most cases supported by families to have mobile phones (NMB) Loss of the human component in the banking relationship, which makes customer loyalty harder to attain (Fransabank) The majority of children and youth do not have or only have a limited internet access (NMB) Loss of the human component in the banking relationship, which makes customer loyalty harder to attain (Fransabank) If not properly administered, the likelihood of double standards in the delivery of financial and non-financial services increases (NMB)

Table 9. Overview of Delivery Channels for Financial Services

5.4.2. Concluding considerations • • • •

Social media is considered to be the most cost-effective channel of communication with children and youth.

Volunteering initiatives by FSPs, youth ambassador programmes, quizzes, educational and sales booths can also be used effectively and creatively to promote the brand and build professional relationships with young people.

Young people highly value the benefits that come along with financial products and services. Thus, they actively seek out incentives and rewards, and appreciate special interest rates, loyalty programmes, and vouchers.

When offering financial education, most FSPs tend to use the same staff that also delivers financial services, thereby saving staff costs and taking full control over delivery and content.

23

5.5. Revenue drivers With cross-selling, in other words, selling of additional products or services to existing customers, FSPs do not have exact statistics as many of them do not track them. Currently, cross-selling strategies are in place at all four FSPs (AMB, BOG, Fransabank and NMB).

In terms of the cross-selling results, BOG, for instance, reports to have been able to cover some costs by raising child deposits, opening new accounts and issuing cards for the parents of children. Similarly, NMB has also partially recovered the costs of the youth product line. However, taking advantage of the existing products, such as group lending and salaried workers’ loans to cross-sell and with current projections, NMB expects to recover the costs in the near future.

The surveyed institutions identify the following main sources of revenue from their child and youth product line: •

Youth credit. The average number of accounts associated with a single loan is 2 (AMB); Greater deposit growth is anticipated in the parent-controlled children’s savings accounts and fee income from transactions (NMB); Transaction commission from merchants and ATMs (BOG); The interest on educational loans (government subsidized) and debit and prepaid cards (Fransabank).

• • •

Cross-selling strategy is in place

Al-Amal Microfinance Bank (Yemen)

✔

Bank of Georgia (Georgia)

✔

Fransabank (Lebanon)

✔

National Microfinance Bank (Tanzania)

✔

Growth in deposits for children and youth products

Fee income from transactions

Interest on educational loans and debit and prepaid cards generate the most revenue from youth products

Youth credit generates the most revenue from youth segment

✔

✔

✔

✔

✔

✔

Table 10. Overview of Revenue Drivers

5.5.1. Concluding considerations • •

24

Although not immediately evident, cross-selling can help to cover some costs made by FSPs. Few FSPs track cross-selling associated with their youth product lines. However, those who do, have seen stable growth in child deposits, new accounts, and loans.

Levers • • •

Market •

•

Institutional

Opportunity cost Infrastructure and capacity

• •

• • • •

Time horizon

•

•

Corporate Social Responsibility

•

•

•

• •

•

Key Findings Few youth (15-24) have a bank account: Yemen 1.7%; Georgia 9.9%; Lebanon 29.8%; Tanzania 31.9%.

High youth unemployment (Georgia 29%, Lebanon 21%, Yemen 34% v.s. 5.8% in Tanzania).

Children and youth populations (under 24) are large compared to other age groups in the country (e.g.

Tanzania 64%; Yemen 61%; Lebanon 41%; Georgia 30%).

Before the crisis (2015), Portfolio At Risk (PAR) was below 1%, now it has jumped to 65%, limiting the range of services and outreach to children and youth.

Enabling regulatory environment is difficult to change due to the political and social situation.

Receiver of donor support and technical assistance support.

Leading institution both in customer base and branch network.

Allocates above 30% of its total budget to products for children and youth.

Specialized financial capability programme for children and youth.

The institution invests in mobile services for children and youth.

70% of children in target market use the product of the bank.

Child and youth products remain rooted in CSR with the promise that young clients will remain loyal to the institution and take out more profitable services in the future (a strong focus on a social case).

Profitability studies have been conducted (a strong focus on a business case and a social case).

The institution seeks to increase customer growth, create a savings culture in society and increase youth financial inclusion.

The motivation to offer financial products and services to children and youth is primarily management/boarddriven.

The institution considers financial education important.

The poor and marginalized are the priority of the institution.

Youth is one of the strategic priorities of the institution.

The institution collaborates with a wide range of stakeholders to drive financial inclusion.

Source Global Findex (2017) The World Factbook (2017) AMB, BOG, Fransabank, NMB AMB

AMB, Fransabank AMB, NMB AMB, BOG, NMB, Fransabank AMB BOG, NMB BOG, Fransabank BOG AMB, BOG, Fransabank

NMB AMB, BOG, Fransabank, NMB AMB, BOG, NMB, Fransabank AMB, BOG, Fransabank, NMB AMB, NMB AMB, BOG, NMB, Fransabank AMB, BOG, Fransabank, NMB

25

Segment

Profitability Drivers

Costs of the youth product line

•

The institution offers a banking product to children under the age of 18.

•

The financial institution distinguishes two broad segments: children (typically, under the age of 18) and youth/students (ages 18-35).

The institution has its own training entity which delivers non-financial services.

Branch staff deliver financial education to schools in their vicinity.

• •

• •

Revenues from the youth product line

•

Marketing materials and campaigns.

•

The institution seeks external technical assistance.

•

The main income of revenue comes from the interest on educational loans (subsidized) and debit and prepaid cards.

Cross-selling strategy is in place.

•

• • • • •

•

Table 11. Overview of Key Research Findings

26

The staff receive training on financial education curriculum to cater for young customers.

Incentives, such as interest rates, special discounts and vouchers.

Migration strategy is in place to ensure long-term profitability.

Growth in deposits for children and youth products.

Fee income from transactions.

Youth credit generates the most revenue.

Due to the ongoing crisis, a focus is now on social cash transfers that are provided to NGOs that target crisisaffected people.

The average number of accounts associated with a single loan is 2.

AMB, BOG, Fransabank, NMB AMB, BOG, Fransabank, NMB AMB, BOG BOG, Fransabank, NMB BOG, NMB AMB, BOG, Fransabank, NMB AMB, BOG, Fransabank, NMB AMB, Fransabank, NMB Fransabank

AMB, BOG, Fransabank, NMB NMB BOG, NMB BOG, NMB AMB AMB

AMB

6. Conclusion Today, the majority of children and youth still do not have access to financial services or financial education.

Empowering the next generation with the knowledge, skills and opportunity to save and accumulate assets has a great impact on both macro and micro levels. In combination, access to financial and educational services can encourage young people to become more responsible economic citizens, helping them make informed decisions, trust financial institutions and be comfortable with actively using the services.

The comparative analysis of the four financial services providers in Georgia (Bank of Georgia), Lebanon (Fransabank), Tanzania (National Microfinance Bank), and Yemen (Al-Amal Microfinance Bank) has demonstrated that there is a business case and a social case for developing and offering Child and Youth Friendly banking services. However, adopting a long-term perspective in expectation of having revenues from youth clients is imperative.

On the market level, the findings revealed that large youth populations offer untapped future potential for introducing financial services for youth. Notably, in markets with higher levels of financial inclusion of children and youth, the environment to develop and launch financial products and services for young people is more favorable. Furthermore, regulatory frameworks, such as national financial inclusion and financial education strategies, can be supportive agents for increasing access to finance and boosting financial literacy, especially among rural and disadvantaged populations. On the other hand, deep-rooted political and social challenges in the country can mitigate efforts to promote financial inclusion, especially amongst children and youth.

When viewing through an institutional lens, the competitive advantage of a financial institution is key. Not only it enables the institution to use its own funds to cover the development and promotion of their financial products for the youth segment, but it also provides the capacity to deliver financial education. Equally important, institutional commitment to children and youth, driven by the management board, often translates to a higher percentage of budget allocation for operations. In a similar manner, staff engagement and training to serve young people also plays a role in them promoting financial inclusion. Interestingly, the analysis highlights the importance of both the business case and social case for serving young clients. Many commercial banks may be motivated by social returns in youth savings accounts. However, their ability to examine historical client databases can provide valuable insight into assumptions related to client loyalty and potential cross-selling, which form the basis of the long-term business case for these product offerings. Where some financial institutions see both the business and social case for offering financial services to youth, others tend to focus mainly on the social case.

Corroborating previous research, the study points towards the importance of segmenting young customers. Findings showed that financial institutions adjust their products and services to the different life stages of their young clients.

Several institutions transition their young customers to adult customers by offering a host of relevant products and services. At the same time, staying on the market and being a leader in youth banking requires research and development. Findings showed that technical assistance in product design and development from expert organizations is becoming increasingly popular.

In terms of cost and revenue drivers, a large share of budgets is spent on marketing and operations. Findings revealed that the most cost-effective channel of communication with children and youth is social media. Furthermore, initiatives, such as staff volunteering can be effective in promoting the brand and connecting with young people. Last but not least, cross-selling can help to cover some costs made by financial service providers. Currently, few of them track cross-selling of their youth product lines. However, those who do, have seen stable growth in child deposits, new accounts, and loans.

27

7. Case studies

7.1. Al-Amal Microfinance Bank (Yemen) Background Al-Amal Microfinance Bank (AMB), the first microfinance bank in Yemen and the Middle East and North Africa (MENA) region to offer only Shariah-compliant products was established in 2008. Its slogan “The bank of the unbanked” accentuates the main goal of the bank, which is to provide a variety of sustainable financial services to small and micro entrepreneurs, particularly young women and men, who are otherwise unable to obtain such services. Regulated by the Central Bank of Yemen, AMB is a non-profit organization with a market share of 36.5%. With its 18 branches in 8 main governorates, AMB represents 80% of the total population of Yemen.53 Research has shown that the recent political crisis in Yemen has had a severe impact on the operations of AMB. Prior to the outbreak of the crisis in 2015, Al-Amal’s Portfolio at Risk (PAR) was below 1% - it has now dropped to 65% across the whole loan portfolio. In addition, the bank’s operations have shrunk by 90% compared to pre-crisis levels; the applications for services across the institution have decreased by 85%; in terms of youth savings accounts, more withdrawals have been recorded too. As a result of the ongoing crisis, the primary concern of the government is the political situation, which means that little attention is paid to the economy and youth.

AMB allocates 35% of its total budget to child and youth products. Given that 61% of the Yemeni population are under 24 years of age54, youth unemployment is at 33.7% of the total population55 (74% of them are females), and only 1.7%

53

European Microfinance Platform (2015, p. 47).

The World Factbook (2017) 55 Ibid.

54

28

of young adults (15-24) have a bank account (vs 6.4% of adults)56 while the regional average is 10%57, AMB continues providing financial services to its key target groups – youth and women. To remain operational, AMB has been offering cash transfer services since 2012 in partnership with international development agencies and nongovernmental organizations, such as UNICEF, Care, and Oxfam etc.

Regulatory environment The legal age to open a bank account in Yemen is 18. AMB offers child savings accounts that can be opened by parents at the birth of the child. In terms of consumer protection, AMB takes the following measures to protect its clients: it provides information about the product/service, an SMS service to track the withdrawals and deposits, mobile banking, and disclosure of dividend distribution.

Competitive advantage Being Yemen’s largest microfinance provider, AMB’s competitive advantage rests on its low-cost savings products designed for low income, poor, disadvantaged and underserved segments. These products include standard savings accounts, child savings accounts and fixed deposit schemes. Notably, these products draw on the best global industry practices and comprise a number of features designed to meet the needs of these segments while encouraging active saving. In addition to child and youth focused products, AMB also offers an educational component to its customers.

AMB does not have any specific profitability targets and has not performed customer evaluations due to the lack of funds. Although child and youth products are costly (the savings portfolio covers 100% of the AMB’s financing portfolio), AMB believes these will become profitable in the long-term once young people start working. AMB’s main motivations for introducing child and youth products and services were to increase their customer base, mobilize liquidity, create a savings culture, especially among children and youth, and contribute to financial inclusion.

Youth segment and products AMB distinguishes three broad segments: children (under 16), youth (16-30), and young adults (30 and older). These segments were created to facilitate the design and incentive structure of the products in collaboration with donors and partner organizations.

The most widely used products in the child and youth line are Al Amal Child Saving Account and Al Amal Youth Savings Account (see table 12). However, of the youth product line, youth credit brings in most revenue to AMB. Compared to adults, the child and youth products differ based on the method of implementation (e.g., outreach, partnerships, and awareness campaigns). It is worth noting that children and youth receive the same benefits and incentives as adults.

Cost and revenue drivers Before the crisis, AMB has actively organised promotional campaigns for its children and youth products. The main cost drivers were advertisements, visits to promote child and youth products and services, and staff in the field. Since the main target group of AMB is men and women above 30 years old, the strategy was to cross sell products to the children and youth of existing clients, introducing special products and promotions designed for youth and children.

According to the respondents, the cost-effective promotional strategy includes activities in schools, universities, technical and vocational institutes. In the past, the bank promoted its services on radio, TV, posters, brochures, websites, and social media channels. At the moment, there is no budget for marketing.

The bank has its own Foundation for Training and Entrepreneurship, which offers non-financial services comprising technical, vocational and managerial training and business advice to meet the needs of all youth between 18 and 35 years of age. It uses a hybrid approach in the delivery of its educational services, allocating its own staff as well as outsourcing external technical help. AMB maintains a close partnership with AGFUND, GIZ, and Silatech for its financial literacy programme.

56 57

Global Findex (2017) Ibid.

29

Product Name Al Amal Child Saving Account

Target Group This product is dedicated to children under the age of 18 from low-income families with the goal to foster a culture of saving. The product can be opened and managed under the supervision of the parents or guardians.

• •

• • • • •

Al Amal Youth Savings Account

This product is dedicated to youth above the age of 18 years. The goal is to help them build up a good asset base and assist them with improving their living conditions as well as provide them with resources to start income-generating activities.

• • • • • • •

•

Account Features No account opening fee Easy opening procedure at any branch Interest rate between 7-10% No service fees No transaction fees No withdrawal fees Islamic based profit distribution through a speculative principle No account opening fee Easy opening procedure Interest rate between 7-10% No service fees No transaction fees No withdrawal fees Islamic based profit distribution through speculative principle Enables the depositor to take a loan by using the saving account as a guarantee

•

•

•

•

•

•

•

Requirements The parent or guardian must be above the age of 18 and hold an identity card or a family card The guardian must have a good reputation and not be on any credit blacklist.

Minimum opening balance: YER 200 (EUR 0.68)

A minimum opening balance of YER 1000 (EUR 3.4) The applicant must be a Yemeni citizen over the age of 18 and hold either an identity card or a family card The applicant must have a good reputation and not be on any credit blacklist.

The applicant must be able to fill in an account opening application

Table 12. Overview of AMB’s Children and Youth Savings Products

AMB offers financial education before and after opening bank accounts. Due to the crisis, all activities of the foundation have been scaled back with the staff now focusing primarily on cash transfer services. The staff are trained in cooperation with International Finance Corporation (IFC) with the focus on institutional capacity building.

In terms of the effectiveness of cross-selling, all youth clients of AMB have savings accounts whereas adult clients and their guarantors are encouraged to open savings accounts for their children; on average, a single loan is associated with two accounts at AMB.

30

7.2. Bank of Georgia (Georgia)

Background In Georgia, 30% of the population consists of youth under the age of 24.58 Only 9.9% of Georgian youth own a bank account compared with 36% average in Europe and Central Asia.59 In addition, high youth unemployment (29%) further barriers to financial inclusion.

Bank of Georgia (BOG) is a leading Georgian bank with a market share of 33%. As of March 2017, BOG served approximately 2.2 million client accounts through one of the largest distribution networks in Georgia, with 274 branches, the country’s largest ATM network, comprising 813 ATMs, 2,723 Express pay (self-service) terminals and a full-service remote banking platform and a modern call center.60 Regulatory environment In Georgia, the legal age to open a bank account is 18 years old. Therefore, only parents or legal guardians of children can open bank accounts. An account can be opened in the name of the child but it must be done through a parent or a legal guardian. Children can operate the account independently but their parents can set spending and withdrawal limits on the account. In terms of consumer protection, alongside standard personal identification documents, BOG has enabled 3D security, SMS banking, and pin codes for transactions exceeding EUR 15.30 (can be modified by parents).

Importantly, in 2016, the National Bank of Georgia, presented its National Strategy for Financial Education.61 The strategy recognizes the young generation as a high-need target group and identifies the private financial sector as one of the key stakeholders in implementing the strategy. Furthermore, recent amendments to the legal framework for financial sector consumer protection have been made.62

58

The World Factbook (2017) Global Findex (2017) 60 Bank of Georgia (2017) 61 National Bank of Georgia (2017a) 62 National Bank of Georgia (2017b) 59

31

Competitive advantage The sCool Card provides an opportunity to pay at canteens, receive discounts, bonus points as well as attend free trainings at BOG Business School (see table 13 for further information). The card also allows parents to set limits on daily expenses or cash withdrawals. Another important advantage of the card is free public transportation for school children thanks to the exclusive agreement between the Bank of Georgia and the Municipality of Tbilisi.

Since September 2016, the official launch of sCool Card, 143,000 cards have been issued across the country of which 19,000 in rural areas. At present, 70% of sCool Card users are school children in Tbilisi. Part of the long-term strategy of BOG, sCool Card has been officially endorsed by CYFI as a Child and Youth Friendly banking product in 2016.

BOG uses internal resources to fund its children and youth product lines. Being a social and educational project without a profitability target, BOG aims at growing and educating new clients as well as reaching out to parents and teachers as potential customers.

Youth segment and products BOG has divided its youth segment group into three categories: children aged 0-18 (savings deposits controlled by parents), school children aged 6-18 and students aged 18 and above. Offered to school children between 6 and 18 years of age, sCool Card is a multifunctional debit card helping children to get accustomed to a financial culture and teaching them to save money and use banking products. Once the card holder reaches the age of 18, the sCool Card transitions to a Student Card (for students enrolled in colleges, institutes and universities recognised by the Ministry of Education and Science of Georgia), ensuring customer retention. The card is valid for 4 years. Upon graduation, standard public transportation fees apply. Furthermore, BOG offers a wide range of products at different life stages, e.g. study loans, child deposits, and electronic money boxes.

Cost and revenue drivers In terms of cost-effective marketing, BOG has used TV adverts, direct communication channels, outdoor marketing, meetings with school authorities, social experiments among children and their parents, posters at schools, discount vouchers.

Initially, BOG used mass media, both online and offline, to promote the features and benefits of sCool Card.

Importantly, once the product was introduced on the market, BOG has switched to online and direct promotion channels using children’s and parents’ databases. In response to technological developments and the changing needs of youth, BOG also invests in creating mobile services specifically designed for their children and youth segment.

Furthermore, BOG monitors young customer satisfaction by carrying out surveys among children and headmasters. It uses questionnaires from Child and Youth Finance International (CYFI) and the National Bank of Georgia to evaluate the educational component of sCool Card whereas the research team of the branding department assesses the product component. The research results are then used for further product development and improvement. In the same manner, BOG organizes meetings with parents, children, and school authorities nationwide. It regularly sends SMS messages about its innovations to children and parents.

Through its business school, BOG staff offers trainings to school children from the age of 12 on a voluntary basis. Up until now, 12 staff members have been trained to cope with a range of questions related to the full spectrum of financial services and were divided across different schools. To mention a few, topics, such as money, banking products, budget planning, time management are discussed with groups of children twice a month spread over the course of three months.

Ongoing revision of the educational programme (developed jointly with and approved by the Ministry of Science and Education) is done together with the BOG University. Additionally, BOG closely cooperates, with the Ministry of Education and Science of Georgia, the City Hall of Tbilisi, LTD Tbilisi Transport Company, amongst others. Furthermore, the training center of BOG has involved child psychologists in developing a staff training methodology for working with children.

32

Reportedly, cross-selling (e.g., child deposits, bank accounts, bank cards) has partially covered the costs of the sCool Card. New customers have been drawn from a wide pool, including parents, teachers, and schools. Transactions fees from merchants and ATMs constitute the main source of revenue from the child and youth product lines.

With sales of the sCool Card increasing, BOG further seeks to create loyalty among its young customers and, importantly, develop habits in children to use the card not only for public transportation, which is offered for schoolchildren for free, but also for making their daily purchases and other payments.

Product Name sCool Card

Target Group This Mastercard debit card is equipped with a transport and a contactless payment option.

The product is dedicated to school children between 6 and 18 years of age, helping them get accustomed to a financial culture and teaching them to save money and use banking products.

• • • • • • •

• • • • • •

•

Account Features Easy opening procedure (also online) No account opening fee No maintenance fees No minimum deposit Children can operate the account from age 6 Account can be opened in the name of the child Payments nationwide and abroad (parents can restrict them) Free SMS Banking and Internet Banking Free payment card Financial education programme available Payments at school canteens Free public transportation Government-approved educational programme is offered Bonus points on every transaction made

•

• •

Requirements The applicant must be above the age of 18 and be a parent or legal guardian of the child The applicant must present their ID card Birth certificate and ID card of the child age 14,5 and older

Table 13. Overview of BOG’s sCool Card

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7.3. Fransabank (Lebanon)

Background Lebanon boasts a relatively high number of young people; children and youth (under the age of 24) make up 41% of the total population.63 Presently, around 30% of the youth population (15-24) do not have a bank account (regional average is 7%).64 Furthermore, youth unemployment is also high (21%).65 Taken together, this demographic and social situation presents both challenges and opportunities for financial service providers.

As a leading universal bank, Fransabank offers tailored retail, commercial, corporate, investment banking products in 10 countries across the world: Lebanon, France, Algeria, Belarus, Cyprus, Sudan, Iraq, Cuba, UAE, and Ivory Coast.

Listed as the first amongst registered banks, Fransabank has the largest local branch network with 125 branches spread over the Lebanese territory. Today, the Group enjoys the ranking of a top 3 leading Lebanese Financial Group.

Regulatory environment The legal age to open a bank account in Lebanon is 18. Therefore, parents can open the account in the name of their child, but the account is linked to them or the child’s legal guardian, which means that children cannot manage their accounts independently.

The current regulatory environment in the country is difficult to leverage due to political and social instability; yet Fransabank is eager to encourage young people to open accounts, putting efforts in raising awareness about the banking system, and offering them tailored financial products. This is done based on the expectation that when they turn 18, they will have the sufficient knowledge to carry out banking operations and transactions and know what financial products and services they need.

In August 2017, the Central Bank of Lebanon, also known as Banque du Liban, announced its “National Strategy on Financial Inclusion: Regulation, Empowerment and Protection� outlining its determination to improve access to finance and investment services, to enhance financial capabilities of individuals, and promote financial customer

63

The World Factbook (2017) Global Findex (2017) 65 The World Factbook (2017) 64

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protection.66 However, the recent political situation in the country complicates the needed reforms in financial inclusion for young people.67 Competitive advantage Fransabank ranks third among Lebanese banks, providing the Group with a solid reputational advantage in the Lebanese banking industry. In terms of its youth product range, the institution launched the LEAD current account in 2015, offered to young people between 16 and 25, featuring interest rates on current accounts, zero account fees, and access to a large variety of discounts. Additionally, the bank offers educational loans with minimal interest rates to students over the age of 18.

Having the largest branch network in the country covering rural regions, Fransabank places a special emphasis on youth as part of its Corporate Social Responsibility (CSR). Hence, serving youth is seen as both a social and economic goal, where having a positive and leading role in Lebanese youth financial inclusion is key.

Fransabank’s strategic goal is to become a bank for youth in Lebanon, attracting the younger generation whether for employment or for financial education and inclusion. Its goal is not only to provide financial services, but also to support a developing society. Their strategic action plan includes educational programmes and updating the banking system to meet the digital banking demands of young people. Ultimately, their long-term objective is to have a separate youth business line with a wide range of tailored products for youth.

Presently, the Youth Programme comprises a dedicated team from the Strategic Projects Department, closely working together with the Marketing, CSR, and the retail Banking Division with the support of top management.

Fransabank collaborates with the Ministry of Finance, Lebanese American University, “Institut des Finances Basil Fuleihan”, Child and Youth Finance International as well as other local and international organisations working with children and youth.

Youth segment and products Fransabank has not yet segmented the youth market. However, it has identified the age ranges 16-25 as the most relevant for its existing product: 16 is the age when young people get more accommodated to the banking system; starting 18, they gain financial independence when they start a job in parallel to their studies; and starting 21, they become employees or entrepreneurs.

Fransabank has developed three products for children and youth: the Lead Account (see table 14), the educational loan (subsidized by the Central Bank of Lebanon with a low interest rate to enable students to continue their studies), Bancassurance products (tailor-made products targeted to help parents and their children with their Education Saving Plans as well as optional scholarship coverage).

Cost and revenue drivers Fransabank finances its youth product range internally. As the current youth proposition is part of the CSR programme, there are no profitability targets. With regard to the Lead Account, long-term profitability is only viewed as the positive consequence from the improved economic environment: higher financial inclusion and more financially aware young people.

Significant cost drivers include human resources associated with the development of non-financial services. These encompass mainly financial awareness initiatives at schools and universities as well as other collaborations with governmental and non-governmental organizations, to provide youth with financial education initiatives. For example, a banking course is being prepared to be offered in partnership with one of the leading Lebanese universities; and an educational card game “The Big Bank Challenge” has been developed in collaboration with “Institut des Finances Basil

66 67

Banque du Liban (2017) The Guardian (10 November 2017)

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Fuleihan”, and is currently offered to schools and school students at different events and exhibitions including book fairs and university events, as part of Fransabank’s financial literacy programme.

Furthermore, the institution is active on a community level, organizing local educational events and competitions. It uses the hybrid delivery model in offering non-financial services, whereby financial services and education are delivered both by the bank and together with partner organizations. The advantage of this model is flexibility since it helps improve the quality of services offered through continuous expansion and collaboration with a wide range of partners.

Moreover, Fransabank is developing a volunteering initiative whereby bank employees visit schools and universities or youth-related conferences and share their professional experience with the younger generation.

As far as cost-effective marketing is concerned, social media has helped greatly in increasing exposure to youth: Fransabank has been able to reach youth through its Facebook and Instagram pages by advertising new products and campaigns, and sharing news, competitions, and events; real-time updates keep customers informed about significant events or updates to offered services.

Fransabank actively observes market trends, taking note of the latest developments and the changing needs of young customers, and modifies products and services accordingly. They recently upgraded their main banking application, which allows the bank to develop more features and products for the youth segment.

Sources of revenue from the youth products are mainly the interest rates on educational loans and debit and prepaid cards. Incentives offered by Fransabank include special discounts, zero fees on accounts as well as minimum interest rates on educational loans.

Since keeping in touch with customers has taken a different approach with the changing social behavior, Fransabank recognizes that the bank’s digital reach will become as important as its physical reach, and is adapting its delivery model to these future requirements. However, while the number of customers shifting to digital banking is growing in Lebanon, some customers are still not confident enough to perform banking transactions online and prefer the traditional banking system. Thus, it is important to ensure a soft transition and to take into account the consequences of a more digital business model.

Fransabank offers a variety of online banking solutions enabling customers to manage basic banking transactions without assistance through accessible, user-friendly, and secure access points: Fransabank’s online banking, mobile banking application, and Apple Watch app provide customers with internet banking services, allowing them to conduct banking transactions online.

Moreover, Fransabank is preparing for the upcoming launch of PinPay, the latest innovation in mobile payment and bill aggregation platforms. This application will allow Fransabank customers to pay various bills, purchase vouchers and gift cards on the platform, along with other banking transactions.

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Product Name Lead Account

Target Group Lead Account is a current account tailored for teens and young adults aged between 16 and 25 in order to help youth gain financial independence and start leading their way into the future.

• • • •

• •

•

• • • •

Account Features Available in US$ or LBP Minimum deposit of US$ 50 (EUR 43) Maximum deposit of US$ 20.000 (EUR 16.900) Preferential interest rates worth 1.5% on US$ and 3.5% on LBP No monthly account fees Free Prepaid PayPass Card with contactless features (for ages below 18) Free Debit Card or Free Prepaid PayPass Card (for ages 18 and above) Free Prepaid Internet Card No transaction fees at Point of Sale No cash withdrawal fees at Fransabank and BLC ATMs Special discount at selected merchants

• •

•

Requirements Lebanese nationals The youth age range between 16 and 25 If youth client is under 18 years old, account to be opened through his/her parent/legal guardian

Table 14. Overview of Fransabank’s Lead Account

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7.4. NMB - National Microfinance Bank (Tanzania)

Background In Tanzania, the majority of the population (64%) are children and youth under 24 years old, representing enormous untapped opportunities for businesses and the further development of the country. In terms of financial inclusion, 31.9% of youth (15-24) already have a bank account68. Furthermore, unemployment rate in this segment constitutes 5.8%.69 Considering both statistics, the country stands out as an illustrative example of progressively advancing financial inclusion and financial education through the development and implementation of national strategies.

NMB Bank Plc (thereafter NMB) is a leading retail and commercial bank in Tanzania, both in customer base and branch network. Regulated by the Central Bank, NMB has over 200 branches, and is represented in more than 95% of Tanzania’s districts. NMB serves individuals, micro and small enterprises, farmers as well as large businesses and the government.

Regulatory environment Tanzania launched its national financial inclusion strategy in December 2013, with priority given to youth as a target group. The Central Bank also gives a mandate to commercial banks to provide financial services to children through their parents or guardians who can open accounts for their children, as the legal age to open a bank account is 18.

Competitive advantage For NMB, offering Child and Youth Friendly banking products is motivated by a large number of youth and children in Tanzania not using financial services. Compared to other banks in the country, NMB is well-positioned to serve youth given its wider geographic reach and name recognition, as well as a specialized, nationwide financial capability programme for children and youth.

68 69

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Global Findex (2017) The World Factbook (2017)

Youth Strategy NMB approaches youth savings through a combined retail business and Corporate Social Responsibility (CSR) strategy, with dedicated internal resources to ensure long-term sustainability of the financial capability programme. Thanks to NMB’s wide network of branches and alternative channels, the institution can offer accessible services to unbanked children and youth. Having children and youth banking products places NMB as the bank that is responsible for the development of children and youth and positioning them as the bank for the future generations.

NMB considered the sustainability and scalability of children and youth products during the product design and development stages, ensuring the migration from youth products to other products offered at the bank. Further, the products were piloted in a few branches and later scaled up to cover the entire bank’s network.

NMB has not set clear profitability targets for its children and youth savings products. However, to secure approval of the youth proposition, it modelled profitability projections, with support from Women's World Banking (WWB), to build the long-term business case. Moreover, having children and youth included in the utilization of financial services, given their demographic size, was also considered as a factor to mobilize significant deposits over time.

Furthermore, although profitability has not yet been realized, NMB understands that building a relationship with youth is not a short-term strategy. Hence, the bank anticipates the relationship which is beginning now will last throughout the working life of its young customers. The bank will benefit in the next ten years or more once the young people, who have developed a banking relationship with NMB, start their employment and need more financial services.

Wajibu Youth Proposition Together with Women’s World Banking, NMB conducted research revealing that children and youth are among the most financially excluded segments in the community. However, they understand the importance of savings and aspire to save in a bank.

NMB developed the “Wajibu” (“Responsibility”) youth proposition, comprised of three tailored products for youth and their parents and guardians throughout different life stages: NMB Mtoto Akaunti for parents of children 0-17 to save for their child’s future; NMB Chipukizi Akaunti for teens 13-17 to save money and practice good money management, with parental oversight; and NMB Mwanachuo Akaunti for tertiary students 18+ to save and prepare for their future after graduation.

The Chipukizi account is the first bank account in Tanzania where teens can operate the account themselves. They are given an ATM card which enables them to deposit and withdraw money at an ATM, or NMB Wakala. When the teen transacts, their parent/guardian is alerted by SMS which specifies an amount and date of the transaction. The ATM card given to the teen also has a lower daily withdrawal limit. This account helps teens to prepare for the future with continuous guidance from their parents/guardians to help shape their teens’ financial behaviour.

The terms and conditions vary depending on the product (see table 15 for further information). However, unlike adult accounts, the children and youth accounts have no monthly maintenance charges. The Mtoto and Mwanachuo accounts replaced the previous Junior and Student accounts, respectively, with updated features and value propositions based on the research conducted with Women’s World Banking.

These products migrate to other products as youth get older, to ensure youth graduate to appropriate products throughout their lifecycle. This migration strategy is important both for the customer – by building savings and money management skills over time that are key to their transition to the workplace – and for NMB, as graduation and customer retention are necessary for a sustainable business case for youth products.

The products are complemented by the “Jifunze, Jipange – Wajibika” financial capability programme. NMB Bank uses a unified model whereby branch staff deliver financial education to 10 schools within their vicinity, reaching over 2,000 primary and secondary schools nationwide. Staff receive in-depth training on the financial education curriculum and are accountable to financial capability KPIs at the branch level.

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During the financial capability sessions, both youth and their parents or guardians learn the importance of savings and money management and have the opportunity to open NMB youth banking products. With the programme, NMB clarifies various misconceptions around saving and the use of banking services.

NMB conducts regular product and financial capability evaluations to assess customer satisfaction and usage, staff awareness and training gaps, and further opportunities for improvement. Currently, they are implementing a baseline study in collaboration with Ipsos and Women’s World Banking to evaluate client behavior and outcomes. Specifically, they are investigating savings attitudes and behaviors, financial capability, and individual and household outcomes.

Cost and revenue drivers Revenue is driven through deposit mobilization as well as fee income from transactions.

Key cost drivers for its non-financial services include the hire of permanent staff to manage the financial capability programme, curriculum and material production, and system adjustment to allow a reporting functionality, such as gender tracking. NMB also offers school items, such as pens, pencils, rulers and mathematical sets as motivational learning materials for youth. To ensure the quality of services to the youth segment, NMB has trained over 600 staff who work with schools. The bank also has dedicated a budget for supporting the financial capability programme to promote the utilization of bank services by children and youth.

NMB also uses a broad range of cost-effective marketing tools in its operations, including fliers, financial education quizzes for schoolchildren, educational and sales booths during children and youth events including free account opening, a school programme comprising financial education sessions in schools where the bank staff interact with children, youth and parents.

Cross-selling has helped NMB to partially recover the costs of the youth product line. However, taking advantage of the existing products, such as group lending and salaried workers’ loans to cross-sell and with current projections, NMB expects to recover the cost in the near future. Furthermore, NMB anticipates greater deposit growth in the parent-controlled Mtoto account, which will cross-subsidize the Chipukizi and Mwanachuo accounts.

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Product Name NMB Chipukizi Akaunti

Target Group Chipukizi is dedicated to teenagers ages 1317 to help them manage their money with their parent’s or guardian’s consent and guidance.

Account Features The first account in Tanzania for teens ages 13-17 Opened and operated by the teen with parent or guardian’s consent and guidance TZS 2,000 (EUR 0.76) to open (including ATM card) No monthly maintenance fees Receive an instant ATM card and deposit or withdraw through NMB wakala, NMB Mobile, NMB ATMs, and NMB branches Parent or guardian receives free SMS alerts on all withdrawals Attractive and competitive interest on all balances Free standing orders from other NMB accounts to NMB Chipukizi account Available in local and foreign currencies (TZS, USD, EUR and GBP) Educational programme is offered

• •

• • •

• • •

•

•

NMB Mtoto Akaunti

Mtoto is specially designed for parents of children 0-17 to plan and grow their savings for their children’s bright future.

• • •

• •

•

TZS 5,000 to open (or USD/EUR/GBP 5) No monthly maintenance fee Deposit any amount through NMB Mobile, or any NMB Wakala or NMB Branch and access funds at any time Earn attractive and competitive interest on all balances Free standing orders from other NMB accounts to NMB Mtoto account to help achieve the savings goals Educational programme is offered

• •

•

• •

•

• • •

• •

•

Requirements Teen should be of age 13-17 Legally accepted identity card of the parent or guardian Introduction letter of the parent or guardian from local authority or employer Teen’s birth certificate, affidavit, or passport 2 recent passport photos for both the teen and parent/guardian A minimum of TZS 2000 (EUR 0.76) for opening an account

Child should be below 18 years of age Legally accepted identity card of the parent or guardian Introduction letter of the parent or guardian from local authority or employer Child’s birth certificate, affidavit, or passport 2 recent passport photos for both the child and parent/guardian A minimum of TZS 5,000 (EUR 2) for opening an account

Table 15. Overview of NMB’s Children and Youth Accounts

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8. Acknowledgements We would like to acknowledge and thank each of the financial service providers and others for their generous contributions of their time and expertise to this research report: • • • • • • •

Abdullah Al-Kassim and Ahmed Al-Athary (Al-Amal Microfinance Bank, Yemen) Georges Andraos, Carine Azkoul and Marwa Nakib (Fransabank, Lebanon) Elena Kurtanidze-Bezruchko and Nino Shengelia (Bank of Georgia, Georgia) Ryoba Mkono (National Microfinance Bank, Tanzania) and Ryan Newton (Women’s World Banking) Dr Lew Mandell, Professor Emeritus, School of Management, University at Buffalo, United States Maëlle Valoir, a Thought Leadership and Consultancy intern at Child and Youth Finance International Ricardo Ribas Santolim, a Thought Leadership and Consultancy intern at Child and Youth Finance International

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