Aging and Financial Inclusion: A Client Protection Issue?

> Posted by Haset Solomon, Associate, the Smart Campaign, and Sonja E. Kelly, Fellow, CFI

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Earlier this year we shared a puzzle: microfinance institutions reported that they had age caps on credit products, but we couldn’t figure out what data or rationale was backing them. Leveraging the Smart Campaign’s endorser network of over 2,000 microfinance institutions, we set out to get to the bottom of this puzzle. What we found in our survey surprised us.

Consistent with our research in the Financial Inclusion 2020 (FI2020) publication Aging and Financial Inclusion: An Opportunity, 61 percent of respondents indicated that they have age caps at their microfinance institutions. Indeed, it is common-place for institutions to place age caps on their credit products. The practice is not limited to one country or region – respondents to the survey came from 45 different countries across every region. As we analyzed the survey, we figured there is either a global phenomenon of discrimination against older people or everyone has a very good reason for their actions that we have been missing.

When asked what the age cut-off is at each respondent’s institution, the responses ranged between 55-80 years, and the average age was 65. Our research earlier this year, however, found that this age cut-off is not always consistently applied within each institution. New customers may have an earlier age cut-off, whereas customers with an existing relationship with an institution may be given an additional few years to apply for a new loan.

So, why do institutions impose these age caps on credit products? We received two competing answers:

  • “Older people have diminishing health and life expectancy, and this has implications for their income flows.” We heard variations on this theme from about half of those responding to this question. Some were motivated by the national retirement age, with the assumption that after retirement people are not likely to have a steady, dependable, and adequate income to pay back a loan. Others were concerned about older people’s ability to work, thinking that if they were entrepreneurs they may not be as motivated as younger people.
  • “Portfolio insurance does not cover loans to older people, and we refuse to lend to people for whom our insurance is not valid.” Most microfinance institutions take out portfolio insurance that covers their credit portfolio in case of massive default or other major problems. About half of the respondents mentioned insurance as the reason they don’t lend to older people, pointing to the country-level actuarial tables or other data on which insurance companies base their information. Though respondents indicated these resources are outdated in determining an accurate risk profile at particular points in the life course.
Word cloud based on survey responses to the question "Why does your institution have upper-age credit limits in place?"

Word cloud based on survey responses to the question “Why does your institution have upper-age credit limits in place?”

The most surprising finding, however, was one that came out of asking respondents what their personal opinion was on the topic. We asked all survey respondents to voice whether they thought there should be upper-age limits to credit products. The response? Over half of respondents personally disagreed with the practice. Their explanations were enlightening:

“Each person has the right to make a living without any discrimination due to age or disability.”

“Because we can design products for the older-age population.”

“The decision to grant a loan should depend on the appraisal or risk assessment of the client, not his/her age.”

Smart Campaign endorsers, on average, seem to think that age caps are not ideal or necessary. Older people, just like any other segment of the population, need credit products suited to their needs. We hope this helps to continue the conversation about legitimate assessment of credit risks and credit discrimination of older adults, which is among the fastest growing of any segment of the population.

Have you read?

Moving to Action on Aging and Financial Inclusion

Aging and Financial Inclusion: An Opportunity

Aging in Latin America and the Caribbean: Challenge Meets Opportunity

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