Microfinance as a tool for economic empowerment and development has made tremendous progress over the past two decades, but the sector currently faces numerous risks. Widespread economic downturn poses ongoing threats to microentrepreneurs’ ability to remain economically active, to save and to repay loans – thereby imperiling the financial sustainability of many financial service providers (FSPs).

The reduced availability of donor funds – also brought about by battered economies – has forced many FSPs and their partners to curb the development or scale-up of new product innovations, including savings products that could better address clients’ diverse needs.

Extreme competition in some markets poses a threat to transparency, responsible lending practices and many institutions’ long-term sustainability. And the controversial Initial Public Offerings (IPOs) of Compartamos in Mexico (2007) and later SKS in India (2010), followed by the critical microfinance crisis that began in India in 2010 are having far-reaching repercussions on the sector’s reputation.

Many are calling for a return to the sector’s original focus on fair service for the poor, and initiatives such as the Social Performance Task Force, (SPTF), the Smart Campaign, Microfinance Transparency and the Center for Financial Inclusion are endeavoring to address aspects of this demand.

Against this backdrop, though, there is another issue on the horizon that presents a significant potential setback for the development sector generally and for financial inclusion in particular: the surge of impoverished youth coming of age in least developed countries.

The United Nations (UN) defines ‘youth’ as people between the ages of 15 and 24 – although it is clear that important factors such as gender, psychological maturity, cultural norms and marital, parental and schooling status make this age group far from homogenous. According to the UN, more than 18% (1.2 billion) of the world’s population is comprised of youth, and the combined group of youth and children (those under age 15) makes up fully 40% of the world’s population today.

This proportion is closer to 60% in the least developed countries, where youth lack adequate access to education, financial services and formal employment.