Show Me the Money: Cost and Revenues of Youth Savings and Financial Education Services Offered by Credit Unions in Mali and Ecuador” for Those Sections Excerpted.
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Show Me the Money Cost and Revenues of Youth Savings and Financial Education Services Offered by Credit Unions in Mali and Ecuador Show Me the Money Cost and Revenues of Youth Savings and Financial Education Services Offered by Credit Unions in Mali and Ecuador FREEDOM FROM HUNGER REPORT JUNE 2014 by Christian Loupeda, Director Financial Inclusion, Freedom from Hunger © 2014 Freedom from Hunger Sections of this publication may be copied or adapted to meet local needs without permission from Freedom from Hunger, provided that the parts copied are distributed for free or at cost—not for profit. Please credit Freedom from Hunger and “Show Me the Money: Cost and Revenues of Youth Savings and Financial Education Services Offered by Credit Unions in Mali and Ecuador” for those sections excerpted. For any commercial reproduction, please obtain permission from: Freedom from Hunger 1644 DaVinci Court Davis, California 95618 Tel.: 1-530-758-6200 [email protected] Table of Contents Acronyms ……………………………………………………………………………………………………… i Aknowledgements …………………………………………………………………………………………… ii Executive Summary ………………………………………………………………………………………… iv Integrated services ………………………………………………………………………………………… iv Market-level levers ………………………………………………………………………………………… iv Cost, revenue and profitability main findings ……………………………………………………………… v Introduction ………………………………………………………………………………………………… 1 Methodology ………………………………………………………………………………………………… 2 Overview of the AIM Youth Initiative …………………………………………………………………… 4 Market-Level Levers in Ecuador and Mali and Organization Contexts ………………………… 6 Ecuador …………………………………………………………………………………………………… 6 Mali …………………………………………………………………………………………………… 7 Organization Description and Social Mission ………………………………………………………… 8 Organization description …………………………………………………………………………………… 8 A strong social case ……………………………………………………………………………………… 12 Costs and Revenues Analysis for Youth Financial Services ……………………………………… 14 Cost analysis …………………………………………………………………………………………… 14 Summary of cost analysis ………………………………………………………………………………… 25 Revenue Analysis ………………………………………………………………………………………… 26 Revenue structure ……………………………………………………………………………………… 27 Summary of revenues analysis …………………………………………………………………………… 35 Overall Profitability Analysis …………………………………………………………………………… 34 Enhancing the profitability of youth integrated services ………………………………………………… 36 Revenue-maximization strategies ……………………………………………………………………… 39 Summary on profitability ………………………………………………………………………………… 42 Conclusion ………………………………………………………………………………………………… 43 Annexes …………………………………………………………………………………………………… 44 Endnotes …………………………………………………………………………………………………… 51 Show Me the Money i Acronyms FSP Financial Services Provider GSA Group Savings Account MFI Microfinance Institution MNO Mobile-Network Operators OSS Operational Self-Sufficiency PAR Portfolio at Risk PEACE Poverty Eradication and Community Empowerment ROA Return on Asset UCU Union des Coopecs Umutanguha UFT Uganda Finance Trust VAS Value-Added Service YSA Youth Savings Account Show Me the Money ii Acknowledgements We would like to acknowledge Freedom from Hunger’s partners Nyèsigiso in Mali and Cooprogreso and San José in Ecuador for their valuable collaboration and full commitment to the success of the study. A special acknowledgement to The MasterCard Foundation and particularly to Ruth Dueck-Mbeba, Program Manager, Financial Inclusion (The MasterCard Foundation) for her support and to Rossana Ramirez, Director AIM Youth (Freedom from Hunger) for her valuable insights. Our gratitude also goes to Our peer reviewers: Tanaya Kilara (CGAP) , Melody Chen (Consultant) and Our colleagues Amelia Kuklewicz and Rocio Chavez from the Freedom from Hunger country office in Ecuador. Show Me the Money iii Executive Summary With more young people alive today than ever before, most of them in poor countries, the need to include youth in financial outreach has never been greater. The international development community, with its global agenda of financial inclusion, now fully recognizes the need to provide young people with financial services and education. But providing financial services to the youth market is more challenging than targeting adult market segments. Moreover, the financial sector lacks experience targeting and serving this changing and multifaceted population. The purpose of this paper is to shed light on some of the challenges and opportunities faced by financial service providers (FSPs) in providing savings integrated with financial education to youth. The analysis is based on the experience of three FSPs: Cooprogreso and San José, credit unions in Ecuador, and Nyèsigiso, a credit union federation in Mali. The three organizations offer a savings account, combined with a series of financial education sessions (collectively referred to as integrated services) as part ofAdvancing Integrated Microfinance for Youth (AIM Youth), an initiative launched by Freedom from Hunger in partnership with The MasterCard Foundation. The study analyzes quantitative and qualitative data collected from each organization and develops five-year financial projections. An examination of the projections reveals questions and challenges in the path toward profitability. By examining the impact on costs and revenues of key market-level levers, business structures and strategies, and competitive and regulatory environments, the paper aims to contribute to the development of a business case for providing combined savings with education to youth. It also offers FSPs considerations for optimizing costs, maximizing revenues and simplifying operations. Integrated Services The three organizations decided to provide integrated services to the youth market in their respective countries in the belief that a) beginning to accumulate assets before facing the demands of adulthood would help young people start to build a sound financial foundation and b) financial education has a positive impact on the financial behavior of participants. We believe, as do the participating FSPs, that integrated services have the potential for fostering better clients for financial products in the long run. However, delivering education is a pure cost to the FSP, and its potential financial benefit to the institution is unknown, so each institution took a leap of faith, comforted by the recognition that each was advancing a social agenda to which it was already committed. During the second phase of the project, Cooprogreso and San José incorporated some technology features into their product, including a text-messaging system offering financial education reinforcement messages to youth and the ability for field agents to collect savings remotely (in the field) using Smartphones instead of having the youth go to the credit union branches for their services.1 Market-level Levers In both Mali and Ecuador, young people comprise a high portion of the population—in Mali, more than 47 percent of the population is younger than 15 years old2—and yet, few youth have access to the formal financial sector. In Mali, only 5 percent of young adults had a bank account in 2011 while in Ecuador this figure was 23 percent. Show Me the Money iv Cooprogreso has 87,000 members, 24 branches (11 of which are rural) and represents 0.9 percent of the total microfinance assets in Ecuador. San José has 53,000 members, 10 branches, 5 of which are rural, and represents 0.2 percent of microfinance assets in the country. Nyèsigiso is a federation of 15 quasi-independent credit unions and is the second largest MFI in Mali. Its network has 75 branches (25 of which are rural). The microfinance market in Mali has been suffering from a trust crisis over the last five years because of weak supervision of the sector. This crisis was exacerbated by the 2012 political crisis, which greatly undermined the economy at large. In both Mali and Ecuador, regulations restrict the offering of formal financial services to people ages 18 or older. In Ecuador, however, people under 18 are permitted to maintain a savings account (but not a loan) in conjunction with a “tutor” who is 18 years of age or older. Ecuador is a more mature and competitive market, so Ecuadorian credit unions must adopt a business model based on increasing outreach and diversifying their products. An FSP in Mali faces more limited competition, which led Nyèsigiso to adopt a business model that balances the needs and limitations of young people with those of the FSP. Cost, Revenue and Profitability Main Findings The differences in projected costs and revenues among the participating FSPs can be explained by differences in product features, product delivery, allocation of staff and geography. Cost analysis This paper uses the measure of marginal direct cost. This is the best way to isolate the financial effect of integrated services on each institution. It represents how much additional expense will be incurred upon adoption and, correspondingly, how much will be saved if these services are ended. The largest cost components are salaries, marketing, transportation, education and interest expense. Salary costs Salaries are the most important costs for Nyèsigiso, comprising 70 percent of the cost of the integrated services in 2012. This reflects the institution’s decision to require dedicated field staff for the new product. The rationale was that the clients were remote from the branches, and the agent needed to create groups of savers. Nonetheless, this was a more expensive business model than that adopted by the Ecuadorian credit unions, which assigned