Youth outreach in UNRWA’s 2010 Microfinance Portfolio – UNRWA focus note

Note on Youth Outreach in UNRWA’s Microfinance Portfolio

Introduction

As part of its commitment to pioneering the development of social performance management in the MENA region in a form that is coherent and consistent with its mission, UNRWA’s microfinance programme has developed a range of social performance indicators and tools that measure and rate its targeting of specific sectors and social groups. This enables it to improve its product design and/or develop specific products that serve specific sectors or population segments, such as the poor and low-income households, microentrepreneurs, informal enterprises, refugees, women and youth.

In the context of achieving its human development mission, UNRWA has targeted increasing credit services to youth through its microfinance outreach as a significant means of improving the livelihoods of youth through creating youth self-employment and entrepreneurship that contributes to reducing youth unemployment and poverty.

UNRWA normally uses the standard UN definition of youth as young people aged between 15-24 years of age. However, as one of the qualifying conditions for receiving microfinance loans is that a person must be 18 years of age or older to enter into bona fide legal contracts, this results in a very compressed age cohort spanning just seven years from 18-24 years of age. In common with many other institutions working with youth and enterprise, UNRWA’s microfinance programme is now defining young microentrepreneurs and young economically active clients as those that are less than 31 year of age, providing a standard measure of young business people as those aged from 18-30 years old. This “relaxed definition” of youth provides a better standard of measure and give a more realistic account of young people who are legally empowered to be engaged in economic activities under the constraints of formal contract law. Since those under 18 years of age are usually not able to undertake the legally-binding contractual obligations that are central to the economic and financial engagement of young persons in the economy.

UNRWA’s microfinance programme retails a range of microfinance credit products, which are all provided to youth, with four microenterprise products that include; a core microenterprise credit (MEC) product that provides working capital loans with tenors of less than one year; an augmented microenterprise credit plus (MEC+) product with tenors of up to 24 months; a women’s household credit (WHC) product for home-based women’s income-generating and microenterprise projects; and a women-only solidarity group lending (SGL) product that is confined to Gaza for women’s market-based microenterprises.¹ In addition, UNRWA provides a consumer lending product (CLP) to wage-workers and low-income salaried employees to enable them to create household assets and provide for household education, healthcare and other needs. It also provides a housing microfinance (HLP) product to help poor and low-income households repair and improve their shelter, renovate their homes, construct new building and attach additional rooms, and purchase land for home construction.

Regional Youth Outreach

In 2010, UNRWA invested USD 42.29 million to finance 33,593 loans across the West Bank, Gaza, Jordan and Syria. Some 31 percent of these loans financed youth up to 30 years of age.² These youth loans were valued at USD 10.30 million and accounted for just over 24 percent of the total value of the portfolio. UNRWA’s outreach in Syria accounted for 43 percent of the total loans to young clients, while the West Bank financed 30 percent, Jordan 18 percent and in Gaza just 9 percent.

Youth outreach in each region ranged from 25 percent to just over a third, with 34 percent of loans in the West Bank (3,109 loans valued at USD 4.22 million) financing young clients, compared to 32 percent in Syria (4,556 loans valued at USD 2.56 million), 28 percent in Jordan (1,845 loans valued at USD 2.05 million) and 25 percent in Gaza (906 loans valued at USD 1.46 million).

In terms of the microfinance programme’s standard social performance indicators, young women received 34 percent of all loans financing women clients, with 3,946 loans worth USD 2.41 million, while loans to Palestine refugee youth accounted for 20 percent of all loans financing refugees, with 3,663 loans valued at USD 4.32 million. Youth engaged in enterprise activity in the informal sector of the economy accounted for 31 percent of informal clients financed, with 6,824 loans worth USD 5.70 million. Moreover, youth microentrepreneurs accounted for 29 percent of all microentrepreneurs, through the financing of 7,329 loans valued at USD 6.58 million. Thus, loans to youth are heavily concentrated in the enterprise sector, where they account for 70 percent of all loans to youth and 64 percent of the value of such loans.

While UNRWA does not provide youth-specific loan products, it endeavours to reach young clients through marketing all its loan products to them. In this context, some loan products are more attractive to youth clients than others and they thus have a better ratio of outreach to youth. The business loan product which has the highest outreach to youth is the gender-specific women’s household credit (WHC) product. Some 38 percent of clients with WHC loans, with 2,885 loans valued at USD 1.26 million, were young women microentrepreneurs that are engaged in enterprise and income-generating activities within their homes.³ Just over a quarter (26%) of clients that were financed by the programme’s core microenterprise credit (MEC), with 4,177 loans worth USD 4.95 million, were young clients running a broad range of microenterprises. Young women in Gaza financed through solidarity group lending product (SGL) accounted for 24 percent of all SGL clients with 247 loans worth USD 156,400. The product with the least outreach to youth is the microenterprise credit plus (MEC+) product, with just 10 percent of clients being youth who held just 20 loans worth USD 209,766.

Thus, the business products with the greatest current outreach to youth are WHC and MEC loans, but although the WHC product had a higher rate of outreach to youth, the MEC product provided a greater number of loans to them. In 2010, both products combined financed 7,062 loans to young microentrepreneurs and self-employed persons worth USD 6.21 million.

UNRWA’s non-business products also have significant outreach to young clients, with 38 percent of clients with the programme’s consumer lending product (CLP) being young clients who received 2,985 loans worth USD 2.98 million, enabling young working people to pay for further education and supporting young married couples in establishing and developing their households. Moreover, young clients were also supported through the programme’s housing microfinance product (HLP), where 23 percent of housing clients were young persons who received 101 loans worth USD 728,533.

Country Outreach to Youth

As we seen in chart 1 above, the ratio of youth outreach varies from country-to-country and region-to-region, with the West Bank and Syria having the broadest outreach to youth, followed by Jordan and Gaza. In terms of the programme’s social performance indicators, in 2010, the programme in Syria has the highest ratio and number of young women (37 percent) among women clients, with 2,600 youth clients with loans valued at USD 1.07 million. This was followed by the West Bank, where 31 percent of women clients were youth, with 655 youth clients with loans valued at USD 654,520. Next was Jordan where 29 percent of women clients were young, with 397 loans valued at USD 321,610. Last was Gaza where young women 5 accounted for 24 percent of women clients, receiving 298 loans worth USD 366,400. Clearly Syria has the greatest outreach to young women, which has largely been achieved through its WHC product.

In terms of the Programme’s outreach to young Palestine refugees, the West Bank has the best ratio (33 percent) of young Palestine refugees among Palestine refugee clients, with 869 loans invested in young Palestine refugees worth USD 1.11 million. This is followed by Syria where young refugees account for 32 percent of refugee clients who were financed with 774 loans worth USD 370,245. However, although they have the highest ratio of young refugee clients, both the West Bank and Syria have achieved this result on a lower density of refugee clients. Jordan invested more loans in young Palestine refugees than any other region, as young Palestine refugees accounted for 27 percent of refugee clients who were financed with 1,258 loans worth USD 1.50 million. In Gaza, which has the highest demographic density of Palestine refugees, 25 percent of loans to refugees financed young Palestine refugees who received 762 loans worth USD 1.34 million.⁴ 

In terms of purely business indicators, Syria has the highest youth outreach to microentrepreneurs, where young microentrepreneurs constitute 33 percent of microentrepreneur clients, with investment in 4,116 loans valued at USD 2.34 million. This is followed by the West Bank where 28 percent of microentrepreneurs are young persons that were financed with 1,649 loans valued at USD 2.32 million. Next was Gaza where 25 percent of microentrepreneurs were young and financed with 546 loans worth USD 516,300. Last was Jordan where 22 percent of microentrepreneurs were young and financed with 1,018 loans worth USD 1.42 million. This pattern was largely replicated with the financing of informal enterprises, which tend to have few barriers to entry and lower start-up costs than formal enterprise. Thus, 35 percent of informal enterprises in Syria were owned by youth, compared to 31 percent in the West Bank, 25 percent in Gaza and 22 percent in Jordan.

There are also quite important variation of outreach within countries and regions. Thus, in the West Bank the outreach to young clients in each branch office ranged from 26 percent in the Nablus and Tulkarm to 40 percent in Hebron and Qalqilya, with outreach to young persons in the other three branches reaching a third or more. In Syria youth outreach through the programme’s five branch offices in Damascus and Aleppo ranges from 25 to 37 percent, while in the four branch offices in Jordan it ranges from 24 to 35 percent and in Gaza’s three branch offices it ranges from 22 to 28 percent.

Conclusion and Summary

Although UNRWA has not specifically designed microfinance products for youth, its commitment to social performance management, as part of its social mission, is ensuring that a significant portion of its portfolio is financing the young with best practice microfinance services. By ensuring that youth have access to operationally self-sufficient, sustainable and inclusive financial services for enterprise, households and individuals, UNRWA is providing increasing and continuous services to youth, with broader scope and scale, than would normally be achieved by youth-only microfinance activities.

Thus, in 2010, UNRWA invested 31 percent of its loans to youth, with financing that was valued at 24 percent of its portfolio. Over a one-year period, youth received 10,416 loans valued at USD 10.30 million. As UNRWA continues to grow its outreach in each region, it will provide more credit to an increasing number of young clients. This will create increased employment opportunities and improved living conditions for young people. But UNRWA could further improve such outreach, particularly for youth with no business experience, if it had access to a credit guarantee fund to secure financial support for risk mitigation to enable UNRWA to provide credit for business start-ups for youth. However, while a guarantee fund underwriting a business start-up portfolio for youth could provide a number of self-employment opportunities for youth, it would be unlikely to attain the scale that can be achieved by providing loans to youth through UNRWA’s regular products.

Notes

¹ The microfinance also provides a small-scale enterprise (SSE) loan product in Gaza only, but this has been scaled back because of limited financial resources. Moreover, as the number of such loans is very low, the data on this product has not been included in the current presentation.

² The youth portfolio using the standard UN definition was just less than 11 percent of outreach.

³ This product was initially developed for the Syria market in 2008 and introduced into the West Bank in late 2009 and into Jordan in 2010.

⁴ The outreach to young refugees in Gaza, as with the volume of outreach through all social indicators in Gaza, remains constrained by the 5-yearlong siege of the Gaza economy.