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Growing up in Himalayan City, Philippines, Stephen Lumanog helped his mother sell food around their neighborhood to earn extra money. At 22, Stephen was earning about US$160 per month as a junior welder at a local sugar company. A promotion to certified welder would help him earn a raise and provide a more comfortable life for his family, but the required training was too expensive. Fortunately, Stephen’s mother is a client of the Negros Women for Tomorrow Foundation (NWTF).  After NWTF partnered with Vittana to develop a student loan product for post-secondary education, Stephen borrowed US$160 to attend a three-month welding course. He is now employed as a certified welder, earning US$210 per month, a 130% income change just six months after graduating from his training program.

Stephen is not unique. Millions of young people around the world cannot complete post-secondary education, leaving valuable, income-generating skills unlearned, and years of higher wages permanently out of reach. As financial service providers to hundreds of millions of poor and low-income[1] families, microfinance institutions (MFIs) are uniquely positioned to reach the 100 million youth worldwide who lack the resources to complete higher education. But until recently, MFIs had done little to tap into this market, discouraged by a set of common misunderstandings: we like to call them the Five Myths of Student Lending.

Check out Vittana's presentation to see how the organization has debunked those myths by creating high-performing student loan products at 20 MFIs in 12 countries.

Now that Vittana and its partner MFIs have shown that student loan products are viable, we believe that as the products evolve to reach more and more students, a hyper-data-driven approach will allow MFIs to simultaneously reduce risk and amplify impact. Vittana is already noticing some interesting trends: for example, women studying accounting in Nicaragua repay at a better rate than their counterparts in Mongolia. The average projected change in income for Filipina women between the ages of 20 and 24 is 900%, more than three times the Vittana average. The sample sizes are far too small to draw conclusions, but we’re excited to continue to explore these trends as our portfolio grows.

As the next generation of borrowers comes of age, they will look for more than an opportunity to run a small business. Education will give them the skills they need to compete, to create jobs, and to find work that will support their families. But without financial assistance, even low-cost vocational training will remain out of reach for many poor students and their families. In most markets, very few financial service providers, if any, have stepped in to fill this need; the institutions that make up the microfinance industry can and should be the ones to do it.

If you’d like more information on Vittana, please visit their website at http://www.vittana.org.

In May 2011, the SEEP Network, in partnership with The MasterCard Foundation, officially launched the Youth and Financial Services (YaFS) working group.  The vision of the working group is to contribute to the YaFS industry by bringing stakeholders together to produce and disseminate documentation that further contributes to the learning of industry practitioners. We hope to move beyond case studies to develop trend analyses that provide a comprehensive and overarching view of where the industry currently stands as well as where it is headed.

We are currently in the first phases of our two-year work plan and we’re working to reach out to industry stakeholders to ensure the relevance and quality of the group’s objectives and deliverables.  We’re looking for input from stakeholders like you:

What is your vision for the future of the YaFS industry?  What tools could the working group develop to help you work more effectively?  Click here to have your say by filling out a short survey before October 7^th.

We expect the working group objectives to complement work being done in the area of youth and financial services, but also provide additional knowledge in the form of learning tools and trend studies that practitioners can call upon when contemplating the design and implementation of youth financial service programming.  The group’s focus will be on formal youth financial services but will necessarily include discussion of non-financial services and savings groups insofar as they are directly related to increasing access to, and effectiveness of, financial services offered to youth. 

In June and September 2011 the working group held its first sets of meetings in Washington, DC with approximately 30 practitioners from organizations including Save the Children, Making Cents, Freedom from Hunger, MEDA, Plan International, StreetKids International, World Vision, ChildFinance, the Aga Khan Foundation, Alatoun, World Relief, WOCCU, FINCA International  and CRS.

If you have any questions or comments on the working group or if you are interested in joining us in November 2011 at the SEEP annual conference, please contact Rossana Ramirez (rramirez@freedomfromhunger.org) or Jennifer Gurbin Harley (jharley@meda.org). If you’d like more information on the SEEP Network, please visit their website at www.seepnetwork.org.

With the “golden age of behavioral research,” as New York Times columnist David Brooks recently described, comes a golden opportunity for the asset building and financial inclusion fields. Indeed, the latest breakthroughs in social science and behavioral research beg – or perhaps even force – us to think differently about poverty reduction and the policies and mechanisms that can enable it. Already, a deeper understanding of human behaviors born out of this research has inspired small tweaks in initiatives across various fields to create big changes – in health policy to increase HIV/AIDs testing, education policy to promote school attendance, and financial policies to increase savings behaviors. At the Global Assets Project, considerations of the complexities of human behaviors and their impact on social and economic lives of the poor are woven through the various threads of our work – on the psychology of poverty, conditional cash transfers, and youth savings – increasingly informing the global asset-building strategies we advocate around the globe.  

Most recently, on June 27^th we co-hosted an event with Innovations for Poverty Action (IPA) to release a new Global Assets Project paper, ”Accelerating Financial Capability among Youth: Nudging New Thinking” and to discuss Dean Karlan and Jacob Appel’s new book, More than Good Intentions. One of the major themes of the book is behavioral economics, which is beginning to shed light on how development initiatives that consider human irrationality or psychological barriers to positive financial behavior can improve the lives of the poor. Our paper extends this exploration of the human irrationality-financial behavior relationship, largely by emphasizing that psychological variables in the standard financial capability equation – financial education + access to financial services = sound financial decision-making — is grossly lacking. In actuality, temptations to consume, lack of self-control, and other psychological biases can prevent positive financial behaviors, such as saving regularly, even when a person has the ability (through financial education), opportunity (through access to financial services), and desire to do so, which should not be underestimated.

In fact, the financial choices that the poor have to make can be both emotionally and mentally draining. Click here to read more...