Building a Business Case for Youth Savings: A Framework · business case from a providers...
Transcript of Building a Business Case for Youth Savings: A Framework · business case from a providers...
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Making Cents Global Youth Economic
Opportunities Conference
September 2013
Building a Business Case for Youth
Savings: A Framework
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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.
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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
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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)
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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
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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
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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)
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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
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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
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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