Or will it last only as long as there is a donor supporting it?

Issue of Discussion: Children savings accounts tend to have very low balances, deposits and withdrawals are in small amounts, typically under $10 and many under U$1. Also their school or home is generally not near a bank or MFI, and bank officers are not trained to handle children in their branches. Children require significant amount of education to understand how to manage their savings.

Most banks have a very high minimum balance or charge fees that can exceed the capacity of children to save, wiping out all their money in the account.

Can a child savings product be developed that will be sustainable to the MFI in good and bad times?

Should MFI's attempt to promote savings in this segment at balances below their breakeven point?

By whom and where: Gabriel Solorzano, CEO at Mix Capital Inc [In Microfinance Focus LinkedIn Group]

Respondent 1

Comments:

Boudewijn Sterk- Dear Gabriel, you post an interesting question. I know of one international organization, 'Aflatoun', located in the Netherlands that focuses on providing social and financial education for children. Maybe they are able to provide you with more information?

Respondent 2

Comments:

Fehmeen Khan- A few commercial banks have started offering saving products for children, which indicates the idea is sustainable for larger institutions. MFIs may have a different outlook

Respondent 3

Comments:

Muhammad Ramzan Sheikh- Here in Pakistan, some commercial banks started saving accounts for young people as "MY FIRST ACCOUNT" etc. but the experience shows that when we talk about child savings in micro finance it looks difficult that any MF customer open an saving accounts for his/her child as most of MF customers are poor or very poor, they borrow and pay back. If a single installment is missed its difficult for them to pay double installment and fall in default.

However, idea can work, if link with future plans (schooling, higher education, marriages etc.) and risk coverage, I mean like Micro insurance schemes for poor

Respondent 4

Comments:

Gabriel Solorzano- Boudewijn: Aflatun is a great organization, I have researched their work and they have developed significant material mostly for financial literacy. A youth savings program requires not only financial literacy (Critical) but also the right products from the banks, along with many other elements.

Muhammad: You are right in pointing out the lack of sensitivity from regulators to reduce AML regulations for youth savings, which creates a barrier of entry; also banks and MFI's face the challenge that a $1 deposit in coins is delaying a significant depositor in the cashier queue, and managing this small deposit is costly.

Fehmeen: I have seen that some banks offer child savings as a way to provide full service to their adult clients, but not as a sustainable product. However children DO SAVE, and often hide it in their books or shoes, in order to buy a desired gift, candy or school materials.

I welcome other comments as you have identified Financial Literacy, regulations and bank sustainability as issues to be considered

Respondent 5

Comments:

Santiago Domingo Soliven- My experiences as a former bank examiner of rural banks (thrift banks) here in the Philippines indicate that these types of savings accounts for children are not sustainable. There were programs of some international organizations like PLAN International where they match each deposit of a child. However, looking at the movements of the balances of these deposits, it had indicated very minimal amounts and kept untouched for long periods. And then, they become dormant and closed as miscellaneous income for the bank or generally termed as bank charges.

Today, as I conduct external audits in really micro rural finance in villages here in northern Philippines, the same pattern is observable. As children are growing, they simply could not sustain the increases in their deposits; there is a rollercoaster trend in the deposit and withdrawal patterns of these accounts. Then, they are left dormant at very, very minimal amounts.

Some reasons for children's savings not sustainable are: a) most money being given out to children are spent on basic needs like food, school needs, transportation, among others. There is absolutely no extra money for purposes of savings; b) savings campaigns for families or children for that matter could not enter into the psyche of the poor precisely because there is not enough money to put food on the table, to begin with; c) international funding agencies who are into savings programs for the poor are being viewed by beneficiaries as "dole-outs" or " used strictly for economic survival” and not for savings purposes; d) it is rather unclear for a child why he is encouraged or lured to make savings, anyway.

What could be done? Thrift banks or micro finance institutions may make a real study on the status of children's savings. This study should recommend establishment of separate systems and procedures from normal savings of adults. Of course, this may involve revisions of laws now enforced for these types of accounts. The element of delayed gratification should be put into play. These accounts should be viewed as "long-term investments in small amounts" and could not be simply withdrawn on short notice. The purpose can be in the form of a fund to finance future in college like tuition fees, school uniforms and other daily needs of college students like room and board, etc.

or start-up capital for those who are inclined to put up their own businesses in the future.