> Posted by Maria Perdomo, YouthStart Programme Manager, UN Capital Development Fund
Opening a bank account in Senegal gave me first-hand experience in how a bank can fail to apply the client protection principle on transparency. On my visit to open the account, I spent one hour waiting and another hour completing forms and asking the sales representative questions. When I decided that I had spent too much time trying to understand exactly what fees were associated with the account, I asked the representative for a brochure that explained it all. She looked at me as if I were speaking another language because, in fact, the bank did not have a single document disclosing all the fees associated with the account. So there I was, writing down all the fees the representative could remember. In the end—and after a lot of probing—together we estimated that I would have to spend about US$30 (CFAF 15,000) to open the account and then US$10 to US$15 on monthly fees! But, of course, I would not know exactly how much I was paying in fees before receiving my first statement.
A couple of months later, I went to visit a financial service provider in Uganda and interviewed the group of young women and girls that you can see in the photo. I was completely taken by how these empowered young women were saving in their individual accounts as little as 1,000 Uganda shillings (US$0.39) per week. For them, every penny counts, and they can only afford saving in an institution that is transparent about its fees and responsible about its pricing. Seeing this group of young women and girls, in contrast with my not-so-positive experience at the bank, reinforced my commitment to client protection for youth, who are among the most vulnerable clients.
When the fees associated with an account are not fully disclosed, a client may decrease his or her savings, become dissatisfied with the account, and eventually drop out. While it’s important to recognize that this applies to all clients, it is especially true for youth for three primary reasons. First, very few provider institutions have experience serving youth, which can lead staff to have misconceptions or biases (such as believing youth to be unreliable). Second, youth have little experience using financial services (i.e., lower financial capability) and thus must trust adults (parents, guardians, husbands) to help them make decisions about their money and the services they use. Third, when young clients are not given maximum control over use of their financial products, they face the risk of having their money misappropriated or misused by ill-intentioned adults (sometimes including parents and guardians).
Recognizing the vulnerability of this population, UNCDF, under the YouthStart programme, used the Smart Campaign’s self assessment tool to highlight aspects in each of the Client Protection Principles that, when seen through a youth lens, require special attention. The results of this exercise can be found in the UNCDF and The MasterCard Foundation publication, Client Protection for Youth Clients, which identifies the main youth-specific client protection issues and aligns them with the Client Protection Principles. This publication is meant to be used alongside the Smart Campaign’s CPP self-assessment tool.
For example, to address the issue of lower financial capability, UNCDF-YouthStart emphasized the need to focus on financial education when looking at the principles of Appropriate Product Design and Delivery, Prevention of Over-indebtedness, and Transparency. UNCDF-YouthStart also added guidelines on the need to look closely at the role of guardians and co-signers when youth are under age.
In addition to highlighting specific areas of the Client Protection Principles where youth are more at risk, UNCDF-YouthStart highlighted new areas that need to be taken into consideration in order to address the key standards of the Child- and Youth-Friendly Banking Certificate promoted by Child and Youth Finance International (CYFI) . These standards, which can be found here, include maximizing control by the youth, employment of child-friendly communication strategies, and availability and accessibility of banking products for youth. An area to consider in this principle of availability and accessibility, for example, is product pricing that takes into consideration the characteristics of the youth market (small and irregular income, leading to irregular, small deposits in a savings account). Developed over the past year by the members of the CYFI Regulation and Inclusion Working Group (members included CGAP, UNCDF, UNESCO, OECD, Microfinance Opportunities, Save the Children, and representatives from 11 central banks), we used these standards to provide additional considerations in examining the Client Protection Principles for this especially vulnerable client segment.
We especially highlighted the availability of services to youth. Some financial service providers that view youth as a risky market segment due to their mobility and do not see the business case for serving youth due to small deposits and high administrative costs, may set higher age requirements for savings accounts than those imposed by the government. We also highlighted the issue of giving youth greater control. Without providing this control, financial service providers miss a tremendous opportunity to empower youth and could even increase the potential for youth’s monies to be misappropriated or misused by guardians. Another pervasive theme is the need to focus on financial education.
Issued on the occasion of the Second Annual Child and Youth Finance Summit, this publication also summarizes how financial service providers supported by the YouthStart program are applying principles of responsible finance to the services they offer to more than 140,000 youth in sub-Saharan Africa. For example, to make sure age barriers are not set higher than those imposed by the law, PEACE in Ethiopia allows youth as young as 14 to open an account without a guardian present. As a result, 67 percent of their youth clients are below 18 years old. Overall, the YouthStart institutions demonstrate pricing in-line with the Child- and Youth-Friendly Banking Certificate standard of availability and accessibility in their low account-opening fees, no minimum balance requirements, and no withdrawal penalties. For example, FINCA/DRC allows youth to open an account for as little as US$1.00. At UCU in Rwanda, youth pay around US$3.50 to open an account, whereas adults pay US$21.00. PAMECAS in Senegal, allows youth clients to pay the credit union membership fee over the course of one year.
If providers adopt and implement the youth client protection considerations outlined in the UNCDF publication, we can expect that the youth will have a far better experience with the provider of their choice than the one I had during my first days in Senegal – one closer to the Ugandan young women in the picture. We need to make sure we are taking the necessary measures to reduce the risk of harming youth so that they have a real opportunity to benefit from the increased access to financial services and increased capability through financial education.
Maria Perdomo is the YouthStart Programme Manager at the UN Capital Development Fund. Ms Perdomo, a native Colombian, joined UNCDF in 2010 as the Programme Manager of YouthStart, a UNCDF Initiative that aims to bring youth financial inclusive services to more than 200,000 youth in Sub-Saharan Africa. Prior to joining UNCDF, she worked and consulted for several International NGOs (Reach Global, Freedom from Hunger, Microfinance Opportunities, and OXFAM America) where she developed trainings and business models to enable different types of Financial Service Providers (FSPs) to offer in a sustainable manner integrated financial and non-financial services to their clients.
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