Fostering alternative Know Your Customer (KYC) for youth in Tanzania

What you need to know:

FinScopeTanzania2017 indicated that 63 percent of these youth aged between 16-24 years old,which is a focus of this paper, are economically active – 27 percent in farming, 10 percent in business/trade, 21 percent in casual labor, 5 percent employed mostly informal.

Neema is a 16-year-old, living in rural Katavi Region, with her grandmother. She dropped out of school after her parents passed away and has been helping her grandmother with household expenses through her local food vendor business, also known as ‘Mama Lishe’.
Neema has been engaging in this business since she was 15, and her business has been growing every year. Neema’s dream is to one day upgrade from her stand at the market area to own a proper restaurant at the busiest part of the market area with high human traffic.
Currently, she depends on her profits and some help from her cousins to grow, but this will not be enough for her to reach her goal soon enough.
She currently stores the profit she makes at home in a ‘Kibubu’ only because she is under age to qualify for a bank account or mobile wallet. To have either or both requires her to have a national identification number, which at the moment is only attainable starting at 18 years of age.
Her grandmother, too, has never had a bank account or own a mobile phone because she did not have the right documentation.
Therefore, two years’ worth of savings is currently in Neema’s Kibubu. At the same time, Neema could really use an affordable loan product to fast track her dream of growing her business.
Neema’s challenge in accessing much-needed formal financial services is commonplace among many younger youths in Tanzania.
According to the 2018 National Population Projections for the year 2021, younger youth between the ages of 15 and 24 account for 35 percent of the adult population.
FinScopeTanzania2017 indicated that 63 percent of these youth aged between 16-24 years old,which is a focus of this paper, are economically active – 27 percent in farming, 10 percent in business/trade, 21 percent in casual labor, 5 percent employed mostly informal.
This age group is better educated compared to any other population, with higher numeracy and literacy levels, and they are more technologically savvy, but less likely to own smartphones. Formal borrowing (from banks, MFIs, and other financial institutions) remains low as they mainly borrow from family, friends, and other informal mechanisms.
However, for those owning a mobile phone, mainly male youth, do borrow and save through their mobile money wallets, which has helped to advance their digital transaction footprint, a key enabler to accessing formal credit from financial service providers.
Unlocking opportunities for this segment to start or expand their economic activities to earn a living and prosper will contribute fundamentally to their development.
The Tanzania National Youth Policy (2007), currently under review, defines youth as a young woman or man between the age of 15 to 35 years; while the Law of the Child Act (2009) defines a child as a person below 18 years old.
It is worth noting that while the Act is focusing on protecting the welfare of a child or a young person, which is very important, the policy is more progressive in terms of acknowledging the need to have a holistic and sustainable development approach for youth, starting from 15 years.
The policy recognises the youth as key drivers of economic growth, and the progress of our society is determined by how much we invest in their future.
Building on from the policy definition, youth have been identified in the Tanzania Development Vision 2025, Five Year Development Plan III, as well as the Zanzibar Strategy for Growth and Reduction of Poverty III (MKUZA III), as a generation of potential, which if not attended to, may result in negative economic impact.
The National Financial Inclusion Framework 2018-2022 and Financial Sector Development Master Plan 2020/21-2029/30 underscore this fact and acknowledge the need to prioritize initiatives that will have an impact on the lives of the youth to promote their improved well-being and empowerment, using finance as an enabler.
Furthermore, the National Youth Agriculture Policy 2016-2021 recognizes low youth participation in agriculture, despite being the largest employment sector nationally, and has put in place strategic objectives to make agriculture attractive to the youth, including the need to facilitate land acquisition and accessibility for agriculture investments, such as financial resources for youth to invest in agriculture.
While discussing youth it is important to recognize that when one is young, they have more freedom totest boundaries in terms of what works and what doesn’t and discover endless opportunities.
Creating an enabling environment for these dynamic youth to thrive will mean improved opportunities for them to capitalize on. By the time they reach 25 years and above, they will be better placed to gain more meaningful engagement and derive value from economic activities.
They will have better ability to mitigate shocks, risks, and plan well for the future. Therefore, intentional approaches are required if we are to redefine and optimize this age group for sustainable development of Tanzania.
Mirroring on the youth aspirations largely informed by studies such as the Tanzania Integrated Labor Force Survey of 2014,over 50 percent of Tanzanian youth aspire to have their own businesses and venture into entrepreneurship.
Looking deeper into this aspiration, those not in any form of institutional setting and between 16 to 24 years have challenges in producing any form of identification, let alone the required documents for a business-related account or loan, such as a Tax Identification Number (TIN), Business License or audited accounts.
Youth between 16 to 17 years cannot even produce National Identification numbers or voters ID since they are not eligibleand yet a significant number is already active in the economy.
On the same note, agriculture is recognized as the main sector for youth employment. However, FinScope Tanzania 2017 noted that only 15 percent of rural youth aged between 16-24 years personally own land, 4 percent have core ownership with just 7 percent having title deeds.

Fostering alternative Know Your Customer (KYC) for youth in Tanzania

What you need to know:

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