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We looked at the role of mobiles in youth financial inclusion at our March 11th Technology Salon in New York City. Tim Nourse, Making Cents; Peter Goldstein, Intermedia; and Jamie Zimmerman, Bankable Frontier Associates; joined as lead discussants.

Though mobile financial services are seen by many as inevitable, some Salon participants felt that, like in so many other ‘mobiles for xxxx’ areas, we were long on enthusiasm and short on evidence and successful examples. Are we just too early in the game, as with so much of ICT4D? Emerging research on youth demand for mobile financial services may help answer some of those questions, but many other questions remain.

What do we mean by youth financial inclusion?

The Salon started with a quick overview of the terms “financial inclusion” and ‘youth.’ One lead discussant emphasized that the idea of ‘youth’ is context specific. According to the UN, “youth” are people between 15 and 24 years old, though in many countries this can extend to age 30 or 35. Segmentation within this wide age range is important when designing programs because of varying needs, demands, and concerns within age subsets. Using a gender lens is also critical, because young women and young men have different needs, concerns, barriers, interests and experiences. Cultural norms about girls’ and young women’s access to and use of assets and resources, financial services, and mobiles also come into play and need to be well-understood. When discussing youth financial inclusion, it’s useful to talk about the age ranges of 15-17 and 18-24, because in most countries 18 is the legal age at which youth can enter into a formal financial system, sign contracts, and purchase a SIM card in their own name. Program design, challenges faced, and workable business models may look quite different for these two age groups.

The term ‘youth financial services’ includes a full range of services (credit, savings, insurance, money transfer and payments) that help youth build assets. In other words, financial services go far beyond mobile money transfers. Most youth in developing nations are engaged in some kind of livelihood or education, and access to financial services can help them achieve goals in both arenas. It is important to reach youth with financial education when they are adolescents, as they are more inclined to form good habits if they are engaged early on. Availability of services at specific transition points in youth’s lifecycles when they are making serious decisions is another key to establishing good long-term financial habits. It can be difficult, however, to convince banking institutions to develop a menu of financial services for youth because few successful business models exist for youth-focused financial products and services. Savings, account balances and demand for credit tend to be lower among youth, so serving the youth market profitably can be difficult. Strategic rationales and successful business cases around expanded access to youth financial services are needed.

Emerging guidelines for good practice in design and implementation of youth-inclusive financial services being developed by Making Cents include:

  • Involve youth in market research and product development
  • Develop products and services that represent the diversity of youth
  • Ensure youth have safe and supportive spaces
  • Provide or link youth with complementary non-financial services
  • Focus on core competencies and collaborate with youth organizations to ensure holistic programs
  • Involve communities to reinforce and enhance the effectiveness of programming
  • Establish a strategic rational and ensure institutional readiness for serving youth

Mobiles and youth financial inclusion

Many have high hopes around the role of mobile phones in enhancing and expanding youth financial services. Mobiles may allow financial institutions to lower costs for financial products and thus enable new and profitable business models. In addition to providing direct services, mobiles might be able to improve the reach and impact of financial education aimed at youth, and encourage particular behaviors and habit formation. For example, SMS reminders are being used to ‘nudge’ youth towards particular actions related to savings and smarter purchases.

A report called “Beyond the Buzz” however, highlight some of the major challenges when it comes to the role of mobile and financial inclusion for the under 18 population. As explained by one lead discussant (also one of the report’s authors), most youth surveyed in Sub Saharan Africa believed mobile money would be far more important for financial inclusion in the future than SMS. Non-profit organization practitioners and financial institutions surveyed for the report expressed strong belief in the potential of mobile money and other mobile services for broadening youth financial inclusion.

Enthusiasm is quite high, though there has been little success thus far, and the evidence on the ground is not very encouraging. Even though most people surveyed felt that mobile money was the future and would change everything, mobiles are actually being used far more commonly for financial education (SMS and nudges) than for providing youth access to financial services.

So what are the obstacles?

Some of the challenges that prevent mobile financial services from taking off include:

  • Age restrictions and regulations. In most countries, a young person cannot obtain an identity card until the age of 18, meaning access to a bank account, a SIM and/or mobile money is restricted. Many young people get around this obstacle by borrowing a handset or asking a parent or guardian for support. When phones do not belong to youth, however, SMS ‘nudges’ for financial education may not reach them. In addition, the lack of a private handset may discourage youth from using mobile to manage their money due to the potential loss of privacy and control over their money. Children under the age of 18 are a protected group, and many countries have regulations around collecting information about or marketing to this population. Child protection policies and legal regulations are a positive thing, however, they can also create barriers to financial education and financial services for under 18s.
  • Lack of data. One discussant noted that age-disaggregated data from mPesa’s mobile money service would probably show that older youth (ages 18-30) are the majority of the mobile money users. The lack of data on youth, however, makes it difficult for non-profit organizations to develop targeted and demand-led financial products and services. Mobile Network Operators (MNOs) have data, yet their data are not easy to access. One Salon discussant told of a project where it took over two and a half years to obtain legal permission from an MNO to access youth data for an RCT on the impact of SMS on youth savings.
  • Industry barriers. Successful and sustainable business models for youth financial services are few and far between. The likelihood of low financial returns from youth make most banks uninterested in approaching the youth ‘base of the pyramid’ market. Institutions that make money from youth financial services are most likely making it from 24 and 25 year olds, not under 18s. Explaining the potential benefits of a long-term business model (that you may need to take a loss earlier on to gain from this segment later) to financial institutions is difficult. In addition, mobile operators are not fully empowered to launch mobile financial services on their own, even if they wanted to, because of government regulations (in some cases, added one Salon participant, because the banking industry actively lobbies government to avoid losing business to MNOs).

Long on enthusiasm and short on examples?

Considering all the obstacles, why are hopes so high when it comes to mobiles and youth financial inclusion? Some consider that MNOs have a fundamental advantage over banks in countries where the majority of people have access to a mobile phone yet have never used a bank or formal financial service. In many parts of the world, banking systems are unavailable and/or inefficient, and people do not trust formal systems or large bureaucracies. When it comes to mobile, however, use and availability of handsets, widespread recognition of mobile operator brands and services, and familiarity with the notion of transferring airtime mean that mobile money is a fairly easy idea for people to grasp and thus it may be easier to generate trust in mobile as a means to access financial services.

The impact of mobile money and mobiles on financial inclusion is difficult to evaluate rigorously, however, noted one Salon participant. The volume of money is very small, so we should have very low expectations in that regard. If 20% of a target population uses a financial service or product, we should be excited because we see an individual having more control over and information on their own financial transactions. This enables them to make better decisions over their finances. Mobile financial services are likely doing more good than harm, even if a large, broad-based impact study is not available. Another Salon participant pointed out, however, that market research to inform good product and service offerings is very much lacking, and a concerted effort is needed to document and research this area.

A large study is being conducted with youth ages 15-19 and 20-24 on youth demand for mobile money and financial services in several African and Asian countries as part of the Financial Inclusion Insights program, said one lead discussant, and data will be available to the public. The majority of youth surveyed for the study said that they did not use a bank because they did not have enough money to do so. In five years, according to the discussant, mobile financial products will be accessible in a wide range of countries and the number of youth using them is increasing. Research shows that urban youth tend to adopt these products more often than older people or rural populations, and there is a male-female gap, where more males are accessing and using them. In general, younger populations have been positive about mobile financial products and services.

An inevitable future?

Despite the dearth of successful business models, evidence, and large-scale sustainable examples, some Salon participants felt that we are entering a new era where financial products and services will be widely available through the mobile phone. As one person explained, it’s a question of moving with the times or becoming obsolete. In Southern African countries, she said, the move is towards rolling out products and services that provide holistic financial inclusion — credit, savings and insurance. In addition, municipal and utility bill paying is getting people accustomed to mobile financial services via MNOs. Banks who are running at a low level of innovation will lose out if they are not capable of providing these kinds of time-saving services through mobile phones.

So what should organizations be doing to prepare youth to widely access and use mobile financial services? Should financial education programs include content about mobile financial services, offerings and fees, and potential risks and benefits for youth of using them? Might mobile gaming be a way of getting around some of the barriers for under 18s, as one Salon participant suggested? In this case, children could practice important concepts around savings and loans, types of bank accounts, fee structures for banking, etc., without assuming any real risk.

Some broader questions linger around mobile financial services for youth as well: What impact does (or will) mobile financial services have on people’s lives and wellbeing? Will they impact how youth invest and manage their money? Will they improve redistribution of resources to households? Will they end up pulling a large segment of the population into unsustainable systems and backfire?  So far there’s no clear answer, but watch this space.

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A list of resources, links, projects, organizations and research on the topic is here. Please add anything that’s missing!

Thanks to participants and lead discussants for the great discussions and to Population Council for hosting us at their offices for this Salon. Thanks also to Peter Goldstein for suggesting the topic and to Somto Fab-Ukozor for support with notes and the summary. Salons are held under Chatham House Rule, therefore no attribution has been made in this post. If you’d like to attend future Salons, sign up here!

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I’ve been thinking quite a bit about the sustainability of ICT4D initiatives over the past couple months in preparation for a panel I participated in yesterday at ICTD 2012 and due to a good discussion on the topic while at a workshop in Cairo hosted by NetHope and Plan International in late February.

At the Cairo workshop a group of INGOs, ICT corporations and a representative from the Ministry of Education’s ICT section discussed replicability, scale and sustainability in ICT and Education programs at length. At yesterday’s panel, we tackled the more specific topic of financial sustainability with folks from NGOs, contractors, corporations, ICT associations and researchers.

The themes and challenges that came up in both of these discussions were similar, whether looking at more ICT-driven projects (eg., providing computer equipment) or smaller social enterprises or very large government or aid-funded programs that seek to integrate ICTs into other areas like health, education, agriculture, or economic empowerment.

Sustainability is a real challenge for all these kinds of programs. Individuals and organizations are trying to build in sustainability in various ways, from supplementing ICT platforms with advertising to charging end users small fees to seeking funds from corporations and institutional donors to conceiving of ICT initiatives as small enterprises.

Some key points I presented yesterday combined with some points brought up in our discussion group include that:

Financial sustainability should stem from the identification of a real need

The need should be identified by the community. The initiative should be owned by the community and co-created with end users, not designed and parachuted in from the outside. When the benefits of a program (ICT related or not) are not tangible, it may be necessary to do some buy-in work and awareness raising with people to help make the benefits of an initiative more clear to the broader population. It’s important to do a baseline and some monitoring and evaluation to know whether or not the initiative is indeed having an impact. If you have to pay people to participate, you’ve got issues.

Where the market doesn’t work…

The market by nature excludes large swaths of people. At the same time, giving away free stuff usually hurts development efforts because people often do not value that which is ‘free’. (On the other hand, if people are not willing to pay for something, some would say you haven’t identified a real need). Even ‘poor’ people do have some resources, so their contributions to this or that project need to be carefully analyzed and weighed as part of the process.

There are differing opinions around the privatization of services like water, education and healthcare and whether people should be paying for these or whether they are rights that governments need to be held responsible for as duty bearers. Some kind of balance needs to be found here.

Financial sustainability cannot be divorced from other aspects of sustainability, such as

  • political – consider election cycles and government budget cycles and support
  • legal –work within local legal frameworks or the project may fail once it gets going
  • managerial – have the right people managing a program, especially if it’s meant to grow and scale.
  • social sustainability – as mentioned above, ensure local community ownership, interest, buy-in
  • transparency, accountability, good governance are key in all the above

Financial (and other kinds of) sustainability requires creativity and a good understanding of:

  • client (end user)
  • context
  • capacity
  • culture
  • connectivity
  • cost

ICT solutions that save people money and time can be sustainable from within. If the problem can be resolved in a cheaper, simpler way without them, then don’t suggest using ICTs. Start small with scale and sustainability in mind from the very start.

Local, local, local and local… and more local…

For both financial and technological sustainability, it’s important that the technology tools and devices as well as the technical support is local. Local partners should be involved in implementation. Research on impact should also not be exclusively done by those from the outside, but rather should involve local researchers. Local feedback loops can assist with more real-time understanding of how the initiative is faring.

Tension between public, private and non-profit institutions is common

Telecoms and IT companies are looking out for their bottom line. Development agencies and civil society organizations by nature are supposed to be looking out for the most marginalized and excluded. NGOs and civil society will likely resist privatization of areas like education and health. Governments will have their own agendas and self-interests. NGOs will have their own funding interests as well. There are vastly different approaches, paces, deliverables, timelines and methodologies among these three types of institutions who are all involved in the ICT4D space. Trying to harmonize these interests alongside what communities want can be a huge management challenge and can have a strong impact on sustainability concepts and approaches.

In aid-funded and government projects

Often the sustainability plan for projects by INGOs or local NGOs is “the government will assume responsibility” or “the community will assume the costs and management.” This can be a big issue if not properly planned from the start. If every development program plans for the government to take on the costs for the program, but this has not been discussed fully, agreed on or budgeted by the government, there will be real issues with sustainability as there won’t be enough budget to cover the continuation of all these projects and programs. There is a role for greater aid coordination here, for example via the International Aid Transparency Initiative (IATI) and for open publication of government budgets and spending plans. Localization of costs is important. If an INGO is paying high salaries during the initial funding stage and then wishes the government to take on the program costs, the project may collapse.

A few models to look at:

Additional good resources on ICTs and sustainability:

Also check out last November’s huge debate on ICT4D vs ICT4$. It’s worth reading as it highlights elements of the sustainability discussion from a broader perspective and pulls in opinions from several well-known authorities on the topic.

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