Making Cents Global Youth Economic

Opportunities Conference

September 2013

Building a Business Case for Youth

Savings: A Framework

Context

• Widely varying approaches to „business case‟

• Proposing a common framework for assessing the

business case from a providers perspective

• Answering the question: “What makes youth savings attractive—

or not—for financial institutions in different contexts”

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As a reminder…a definition of “business case”

A decision making tool that an institution uses to make a

business decision about profitability and returns. This

decision could be about whether to enter a new market,

invest in a product, etc.

Methodology

• Desk Review

– Youth savings

– Small savings

– Business Case

– Data- Findex

• Industry-level interviews

– YouthSave

– UNCDF

– MEDA

– Freedom From Hunger

– Silatech

• Interviews with Financial

Institutions

– Africa

– Asia

– Europe

– Latin America & Caribbean

Completed interviews with:

• ADOPEM (Dominican Republic)

• Bank of Kathmandu (Nepal)

• BRAC (Bangladesh)

• Banco Caja Social (Colombia)

• Cooperativa San Jose (Ecuador)

• CARD Bank (Philippines)

• Equity Bank (Kenya)

• HFC Bank (Ghana)

• Kenya Post Office Savings Bank

• ProCredit Ghana

• Sparkassen (Germany)

• Xac Bank (Mongolia)

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What is a Business Case?

• Bankable Frontier Associations (2012). GAFIS Focus Note 3

– Net interest income (float income) from balances

– Fixed costs (origination, maintenance)

– Transaction activity revenues (fees, transaction costs)

• Lubwama, A., & Rekogama, K.M.D.B. (2011). SEEP

– “Scaling up is defined to include depth, breadth, scope, and market

penetration.”

– Institutional “muscle” strategy, buy-in, sufficient human and financial

resources, long-term horizon, demographics (demand)

• Kilara, T. (2012). What Does the „Business Case‟ for Youth Savings Really

Mean? New America Foundation

– Competitive market dynamics

– Long-term horizon

• Westley, Glenn D., and Xavier Martin Palomas. 2010. “Is There a Business

Case for Small Savers?” Occasional Paper 18. CGAP

– Approach focuses on costs/revenue drivers: marginal cost low,

cross-selling loans 4

Segment Specific

Levers

Profitability Drivers

Children

Youth Students

Youth Workers

Marketing | Products | Operations | Delivery | Risk

Business Case Framework for Youth Savings

Cost and Revenue Drivers

Market-Level Levers

Institutional Levers

Macroeconomic Factors

Demographics

Financial Market Depth and Access

Regulatory enabling environment

Opportunity Costs

Institutional “Muscle” (potential for scale)

Time Horizon

(Brand/CSR)

5

Market-Level Levers Macroeconomic Factors

Demographics

Financial Market Depth and Access

Regulatory Enabling Environment

Business Case Framework for Youth Savings

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• Macroeconomic Factors

– Higher per capita GDP growth correlated with greater financial inclusion of

youth

• Demographics

– Population density correlated with deeper access to financial markets

– Large youth population “bulge” may be influencing some players

• Financial Market Depth and Access

– Youth savings correlated with adult savings- likely a lagging indicator

– Youth savings correlated with usage of ATMs

• Regulatory Enabling Environment

– Restrictions for minors‟ account ownership can discourage entrants into the

youth markets

– Positive enabling environment for savings can encourage new product

development

Market-Level Levers

Institutional Levers

Macroeconomic Factors

Demographics

Financial Market Depth and Access

Regulatory Enabling Environment

Opportunity Costs

Institutional “Muscle” (potential for scale)

Time Horizon

(Brand/CSR)

Business Case Framework for Youth Savings

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• Opportunity Costs

– Institutions seek high return markets first

• Institutional “Muscle”

– Sufficient management team, staffing, and resources (linkage to scalability)

• Time Horizon

– Long-term vision can be critical to thinking about long-term gains from youth

– National institutions must make local markets work-foreign players can pull out

• CSR

– Strong social commitment can help to overcome some of the above limitations

Segment Specific

Levers

Children

Youth Students

Youth Workers

Business Case Framework for Youth Savings

Market-Level Levers

Institutional Levers

Macroeconomic Factors

Demographics

Financial Market Depth and Access

Regulatory enabling environment

Opportunity Costs

Institutional “Muscle” (potential for scale)

Time Horizon

(Brand/CSR)

8

Segmentation is Key to Understanding the

Drivers of the Business Case

Children Youth Workers

(formal) Youth Workers

(informal)

Youth Students

9 Youth Transitions

Continuing to Learn Starting to Work/Starting a Family

Segmentation: Illustrative Examples

Sparkassen (Germany)

Notes that youth 14-25 are profitable, however, over 18 seems to be the best

niche because of cross-selling opportunities

• 3 main segments: o Children under 13

o Youth 14-25 (students and workers)

Bank of Katmandu (Nepal)

• “Most extensive market research we‟ve done was with Youthsave Project"

• Identified sub segments that differ by financial education needs, perceptions of

savings, and incentives o Under 14

o 14-18

o Boys/girls

Equity Bank (Kenya)

• "The definition of youth and who youth are was critical at that point”

• 3 main segments: o Children 0-12

o Teenagers 12-18

o Youth 18-35

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Profitability Drivers

Marketing | Products | Operations | Delivery | Risk

Business Case Framework for Youth Savings

Cost and Revenue Drivers

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Business Areas Key Cost Drivers Key Revenue Drivers

Marketing Cost of recruiting children now vs. in the future as adults banking at another institution

Branding- social good

Products May require development of unique products

Current or future revenues from fees and cross-selling to current Youth

Low cost funding Cross-selling other products to the same segment

Operations May require additional processes for remote (branchless) outreach

Delivery May require unique delivery channels & processes (schools)

Cross-selling to the children’s parents

Risk Youth loans may be higher risk loans

Cost and Revenue Drivers: Business Areas

Competition

Opportunity Cost

Youth Segments

Time Horizon

Driving the Business Case for Youth Savings

Institutional “Muscle”

Market-Level Levers

Institutional Levers

Segment Specific

Levers

Profitability

Drivers

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What is the Business Case?

First, what isn‟t it?

– Not yes or no

– Not CSR

It depends, and it varies.

– Market levers

– Institutional levers

– Cost and revenue drivers

What can support/improve a business case?

– The „policy case‟ and the „business case‟ go hand in hand

– Leverage lessons/donor funds to address high fixed costs

– The institution‟s motivation for offering youth savings influences

the “levers”

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Advancing financial access for the world’s poor

www.cgap.org 14