Younger credit profiles could open financial access to youth bulge

Written by Oral East Africa

With 60 percent of Africa’s population is under 25 the next banking customer is without a doubt the youth, a digital and assertive Gen Z generation who are eager to claim their place in society and contribute to the economy by building the largest workforce in the continent’s history.

By their sheer numbers, these demographic dividend is expected to accumulate savings faster growing the banks that will capture this growing market.

This has seen lenders like Family invest in young people while upgrading the bank's digital offering to increase customer satisfaction and lock in young savers.

Through the Family Bank Foundation, the lender has invested Kes300 million to catalyse transformative change for wealth creation among young people by building a more inclusive society through sustainable community investment programmes in the areas of education, health, agriculture, youth empowerment and entrepreneurship development through a Shared Value Initiative.

Family Bank hopes it’s commitment to customer excellence is centred on delivering compelling customer solutions, enhancing operational productivity and efficiency, advancing digital infrastructure and data utilisation, and strengthening governance frameworks to drive sustainable growth and long-term value to customers will place them ahead of the pack.

Yet for many policymakers and company strategists, this youthful population remains one of the least understood especially in how the generation has been shaped by the explosion of digital evolution and the marked differences from our current realities.

While young Africans are less likely to have a bank account than adults on the continent, they are more likely to have a mobile phone, try out new things and be aware of digital channels. According to the Global Findex Database in 2017, 30 percent of youth across Sub-Saharan Africa received digital payments (compared to 37 percent of adults).

This means many of them have created a digital profile of themselves with information that can unlock their ability to access finance at a younger age, creating a unique opportunity for lenders who are looking at this demographic for the long haul.

As Kenyan banks move their lending models from a blanket rate to new pricing models that will assess the risk of each individual and assign specific interest rates, it is this youthful demographic that will score big.

The cost of credit has been thorny issue in the country because bankers were unable to generate granular data on their clients but that should change soon with the risk based model.

The Risk-Based Credit Pricing Model (RBCPM), introduced in 2019, was a collaborative strategic initiative by the CBK and the banking sector within the broader reform agenda to address persistent challenges in the credit market, including high lending rates and opaque pricing mechanisms, by creating a market‐driven framework for pricing credit risk.

Borrowers are now hoping that the new model and lower benchmark rates will unlock credit to the private sector to kick-start the economy after Kenya witnessed a slowdown in 2024.

CBK Governor Dr Kamau Thugge has been urging banks to bring down cost of loans as the regulator lowered CBR from 12 percent to 10 percent over the last few months to kick start the economy after private sector lending crushed.