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Youth – a promising market for micro finance sector

Universally youth between the age group of 15 to 25 is taken as the most vulnerable segment of population while judging their reliability from any political, economic and social perspective, but despite this fact that this being most efficient and energetic component of a county’s workforce is always focused while devising all development strategies.

Pakistan with 38 million adolescents and young adults ranks as fifth having largest population of people between age group of 15-25, but unfortunately due to fragile governance structure, stagnant or rather depleting economic growth rate along with growing political and social conflicts have negatively impacted efficiency and aspirations of this component of country’s work force and unfortunately country has failed to create quality jobs and business environments for youth.

Despite launching business loans programs by successive governments right from year 2002 lack of access to formal financial services has been one of the impeding factors hampering mainstreaming youth in economic process. Even in the area of micro financing, financing agencies like Micro Finance Institutions (MFIs), Micro Finance Banks (MFBs) and NGOs etc have reservations/apprehensions while considering loan applications from beginners in business. However it being a vast untapped market for financial services all stake holders of financial sector are coming forward with innovative products to suit young entrepreneurs and students as well. Unlike economically rich countries where number of youth is gradually depleting Pakistan’s young population is likely to be 50% of total population by 2050 in view of high birth rate.

The expanding segment of youth population combined with fast advancement in information technology relating to financial sector particularly advent of e-banking and mobile banking etc, promises vast opportunities to youth as financial service providers as well users of services as it is mainly youth who have exposure to latest information technologies.

In order to tap this vast market MFIs and MFBs need to attract youth right from their tender age by offering financial services like school banking accounts or minor accounts not only to inculcate saving habits among children and prime age adults, but also helping positioning of bank in the minds of young customers. This initiative on the part of micro finance institutions also develops a sense of economic empowerment particularly for girls right from their tender age in a patriarchal society where women are consciously and unconsciously are excluded from all decision making process in the family. Most importantly micro finance sector generally has to struggle a lot to mobilize deposits in a highly competitive financial market. As such by targeting this segment for deposits mobilization MFBs/MFIs will be able to have a perennial source of funds as students continue to patronize the bank of their childhood even after they grow and enter practical life. In mid sixties school Banking program was introduced by some of the leading commercial banks. This gave youth a needed identification and chance to be a part of formal financial system. These programs were, however, abandoned in course of time mainly due to high transaction cost involved. Now again, few of the private banks have launched children saving accounts with attractive returns on savings, but such initiatives have not been taken by any of the micro finance banks operating in the country. The legal hitch in this regard that banks cannot enter agreement with minors can be managed by taking child’s mother/father as natural guardian for opening a joint account.

It is the established fact that youth of a society are power agent of change. They present both great perils as well as hopes. Whether they can lead a productive life as full-fledged member of society depends much on which they experience during their schooling and initial stage of their entering job market. Taking this fact as a vision some of the conventional banks have chartered into the territory of business/banking education in collaboration with Institute of Business Administration and other business schools and offering MBA courses in Banking. MFBs in collaboration of credible foreign funding agencies can start business skills development courses including basic knowledge of financial transactions for youth. Women’s’ World Banking – an NGO based financial institution in New York who have representation on Board of Kashf Micro Finance Banks (Pakistan) also have launched such programs in low income developing countries including Pakistan in collaboration with MFIs/MFBs of the targeted countries. These training programs are basically focused on girls/women providing them business skills and household budget making etc.

 

MFBs and MFIs while working with a vision to expand spectrum of financial services for youth in the long run with a hope that students as their client complete their education, enter a professional life and start utilizing bank’s full-fledged services may not bother to bear increasing transaction cost as well as cost relating to education and skill development training program offered to youth as a part of their social responsibility.

Almost all the MFBs operating country wide in addition to financing of businesses are also catering to housing needs of their clients through launching of housing improvement schemes with proper insurance cover (of both life and property) with affordable cost. Some of them have floated higher education financing schemes for students also.

Increasing outreach of MFBs and MFIs in rural areas through their branch net work and e-mobile/digital banking has enabled rural youth to make use of their package of services. In order to have greater access some of the banks have also entered into agency arrangement with Pakistan Post for disbursing credit to rural population where they do not have branches and thus have significantly increased horizon of their operations. Despite these efforts findings of various studies show that out of 38 millions of youth population only 15% have access to financial services offered by micro finance sector. As such all MFBs, MFIs and NGOs involved in micro financing need to expand their outreach to untapped population of small towns and rural areas through E-mobile banking and by establishing agency arrangements with Pakistan Post who have provided post office facility either directly or through a franchise even in remotest part of the country.

No doubt maximum credit limit per person for MFBs is now Rs.0.5 million(and for housing loans 0.25 million) and recently State Bank has announced enhancement of business loans limit to Rs. one million, but still these banks need to come forward to facilitate young entrepreneurs’ initiatives to set up new businesses by offering venture capital and also project incubation facility on partnership basis. In such cases after a project starts operation and funds generation then financing bank can transfer their share of ownership to the client by providing finance to the client equivalent to investment made by the bank for the project. Through this service financing bank can earn technical assistance and management fee also in addition to mark up on finance provided.

MFBs/MFIs can prompt rural youth to undertake small scale infrastructure development projects like crop store houses, cold storage facility and solar energy projects, which are essentially required for the growth of agriculture. In view of growing demand for Live stock and dairy products there is need to launch special credit schemes with easy repayment arrangements (keeping in view their cash conversion cycle) to enable rural youth to enter this line of non-farming projects and achieve optimum level of production of these products.

In order to attract right type of youth clientele micro finance banks in collaboration with professional colleges/universities can organize youth festivals for providing a platform to young students who have done some research work and developed a project for facilitating energy and other utilities supply to display their work. This will enable MFBs/MFIs to select economically viable projects for financing.

No doubt above discussed strategies to tap this most important but rather a vulnerable segment of population will involve high transaction cost impacting sustainability of the financing institution, but it can be offset by making maximum use of e-mobile banking and enhancing outreach to avail economies of scale.

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