4 minutes read
The Opportunity
Unemployment among India’s adult youth is estimated at 23% (73 million people).[1] At the same time, OECD countries face labour shortages costing USD 1.3 trillion per year, with labour needs estimated to reach 400 million workers by 2050[2]2. Countries where economic foresight and political will align have begun opening visa pathways to facilitate the migration of workers to fill these gaps.
Germany, for example, has created a scaled visa route for mid-skilled workers with a goal of filling a 400,000 annual worker gap in its labour market. In 2022, the Indian and German governments co-signed the German-Indian Migration and Mobility Partnership, which has led to a sharp increase in worker demand in Germany. However, barriers on both sides have limited scalability.
Since July 2023, with grant funding from the Western Union Foundation, Labor Mobility Partnerships (LaMP) and KOIS have partnered to assess these barriers and design financial solutions to overcome them. Key barriers include the lack of foreign language skills among prospective migrants, who need B1/B2-level proficiency to obtain a German work visa. Achieving this proficiency requires an investment of minimum USD 2000 (including full-time classwork, course fees, and exams). Few prospective migrants (typically people at the outset of their careers earning under USD 250/month) can afford this amount. Only in certain cases do employers fully refund these costs post-migration. Appropriate financial instruments targeting the needs of labour migration candidates are nearly non-existent in India.
Currently, aspiring migrants are not viewed as viable candidates for credit. Candidates report being turned away from banks because of a lack of fit-for-purpose, “migration loan” products. Those who access personal loans must rely on a blood relative co-borrower with a high credit score and formal employment. Talented young workers lacking the required language skills either forgo opportunities to work abroad or take on predatory or ill-suited debt to finance their migration expenses.
The Solution
After exploring a range of financial products that could be offered to workers, employers, or recruiters (or a combination thereof), we decided to focus on designing a loan product for workers as it is the most pragmatic solution for a nascent sector and allows us to clearly design around the needs of workers.
We have anchored the design process on the elements below.
| Objective | Challenge | Solution |
| Design for quantum needed |
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| Include migrant potential/past record in underwriting |
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| Reduce co-borrower requirements |
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| Incorporate moratorium |
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| Offer financial education |
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De-risking for lenders
Financial institutions are often wary of entering new lending segments due to their inability to predict and manage risk in unknown contexts. Institutions we spoke with cited risk factors such as: lack of borrower experience with credit, uncertainty of migration success, counterparty risk introduced by recruiters and trainers and cross-border collections. To mitigate these risks, we are establishing a 3-year First Loss Default Guarantee (FLDG) facility to encourage financial institutions to offer the loan product at the terms and conditions described above. This would mitigate risk for lenders, as losses up to a certain threshold would be recovered while still enabling lenders to test a new product in a promising market.
We have also targeted recruitment models that secure conditional job offers for workers while they are taking language classes, thus reducing the risk of uncertainty of employment.
If you’re interested in exploring innovative financial solutions for labour mobility, please contact [email protected].
For more details read the full article by LaMP here.
[1] “Youth Unemployment Rates in India,” Statista 2024
[2] “Migration Matters: A Human Cause with a $20 Trillion Business Case,” BCG x IOM for UN Migration, 2022
