Youth Entrepreneurship: Beyond Collateral

What are the barriers to kick starting growth through enterprise? What will it take to increase young entrepreneurs’ access to start-up capital? What change is required of banks, governments and development institutions?

Today, the first day of 2010’s Global Entrepreneurship Week, Youth Business International (YBI) – a global network dedicated to supporting young entrepreneurs – is launching a discussion on these crucial questions based on our new report, Beyond Collateral: How to increase access to capital for young entrepreneurs.

Through decades of collective experience in some forty countries around the world, YBI has shown that young people are far from a risky investment; on the contrary, they have the capability to start and grow sustainable businesses that create jobs and build stronger communities. The key to our success is the combination of financial and non-financial support.

How can non-financial support make young entrepreneurs more bankable?

Already some development and commercial banks along with some governments are recognising that providing young people with non-financial support makes them a sound investment. It’s happening in places as diverse as India, Argentina and Israel, and it makes sense for governments, businesses, financial institutions of course for the entrepreneurs themselves.

But the examples we cite in our report, whilst laudable, are not in themselves enough. In order to unlock more capital for young entrepreneurs, we need a fundamental shift in the way that the value of non-financial support is recognised. Only then will young entrepreneurs be able to reach their potential in social change, job creation and economic renewal.

What are your views on our report and on your experience in the critical importance of unlocking more start-up capital for the business champions of tomorrow?

395-BeyondCollateral.pdf (2 MB)

We looked at developing systems around large government contracts which require SME contracting. Women and youth populations are always challenges for governments to integrate because capacity building, etc. however, our model was a for-profit business model in which youth entrepreneurs were both trained, mentored, and ran a business with a contract from a government project. This gave the entrepreneurs the capacity, regular cash flow, and blue chip client, which makes them more appealing to funding agencies. In fact, we could approach the financing . as an umbrella contract so it would be easier for the financial institution to manage. As project administrators, we managed client relations between government client and entrepreneurs as service providers. We get a percentage of each project.

While the youth did not work on their “unique” competitive space to start it would give them the foundation they needed for any entrepreneurial business, enabling them to better get their “dream” enterprises off the ground. It is designed as a three to five year program.

I am attaching the concept documents. We were able to run a pilot of the first year in 2008. Our approach is a macro/micro system approach
408-uyfentreconf2007laurielliottpapers.doc (955 KB)
409-golyedpupdate11022008.doc (497 KB)

POSTED BY Myles A Wickstead

Head of Secretariat, Commission for Africa and Visiting Professor (International Relations), Open University

There are now more people living in the world than the cumulative total of all the people who have ever lived in the world before us. People are generallly living longer; and whilst there is still a long way to go before we can claim success against the fourth Millennium Development Goal of reducing by two-thirds the under-five mortality rate by 2015, many more children are living beyond their fifth birthday and into adulthood.

There are many implications to these developments, not least in the way that financial and other services are provided. At one end of the spectrum, it seems bizarre that people find it increasingly difficult to get insurance cover as they get older - even those who continue to lead active lives and have never made a claim. At the other, it will be crucial to look at the full spectrum of instruments to ensure that young people are able to lead healthy and productive lives. This includes the provision of post-primary and vocational training, but also finding ways of enabling and releasing the entrepreneurial instincts of the younger generation.

The downside of not doing this is clear - increasing numbers of young people with no jobs and no channel for their aspirations is a recipe for instability and conflict. The upside is equally clear, not least for the older generation who will come to depend increasingly on their children and their children’s children to support them into old age. That means, put bluntly, a younger generation which has jobs. It is important, therefore, to continue to find ways of providing collateral and guarantees for youth lending; but increasingly important as well to look at ways in which non-financial services can help in meeting these important objectives.

I very much welcome this Report from the Prince’s Youth Business International, which signals the start of the debate rather than the end of it. It could not be more timely, and I hope that the discussion which it generates will lead to a clearer recognition of the importance of access to non-financial (as well as financial) services in ensuring that young people can fulfil their potential.

Generally in Practice what I found a missing link is lack of market based skills both at technical and Business skills. Another issues is business counseling and couching and entrepreneurial behavior change program for youth are the missing links.

NGO and Government must do everything to elabore process for this case in Africa country.
Many young people project are blocked by finance. Some times; institutions not trusted young people. so i think government and NGO must do their best to assist young people in their search of finance.

POSTED BY: Per Kurowski

A former Executive Director at the World Bank (2002-2004)

I completely agree with what you express in “Youth entrepreneurship: Beyond collateral” about the overriding importance to help our youth to create the jobs they need, since the lack of jobs does conform without any doubt one of the clearest threats against peace.

But having said that, and though I also agree of course with the purpose of all your proposal to help young entrepreneurs to have more access to capital, I must put forward that these all, put together and multiplied by a thousand, will not signify as much as achieving the removal of that utterly misguided favoritism our bank regulators give to what is not perceived by credit rating agencies as having a great risk of default.

Though the capital requirements for banks when lending to clients normally perceived as more risky like small businesses, entrepreneurs, and of course youth, remained at traditional levels, the capital requirements for what is perceived as not risky were dramatically lowered, to such an extent that currently banks need FIVE TIMES as much capital when lending to a young entrepreneur than when lending to a triple-A rated client.

I call it utterly misguided regulation because not only is a higher perceived risk of default already covered by the market and the banks by applying higher interest rates, risk premiums, and that go straight into bank capital, but also because we all know that never in history has a financial or a bank crisis resulted from excessive lending to what is perceived as having a high risk of default, they have all resulted from excessive investing or lending to what ex-ante is perceived as not risky.

Given the current regulations then, and most especially in times when bank capital is scarce, all those who are perceived as having a higher risk of default, like youth, are odiously discriminated against, making it harder for them to access bank credit, and if and when they get it they need to pay the banks even higher interest rates than would be the norm, just so as to provide the banks with the same profitability per unit of bank capital required that the triple-A rated do.

I beg of the Prince’s Youth Business International to help me bring these arguments forward because the regulatory paradigm used by the Basel Committee, namely that of more risk of default more capital and less risk of default less capital, sounds so deviously logical that it is really hard for regulators who have invested their whole regulatory ego in it to comprehend how faulty it really is.

If we had capital requirements for banks which discriminated on anything, something which I do not propose, then obviously job creation would be a much more valid variable than the rather mundane and innocuous and almost necessary risk of default. Imagine a word without defaults, a nightmare!

Just a couple of weeks ago I heard a verse of a Swedish Psalm that reads: “God, from your house, our refuge, you call us out to a world where many risks await us. As one with your world, you want us to live. God make us daring!”

“God make us daring!” … that is a prayer that the members of the Basel Committee do not even begin to understand the need for, would you please help me to explain it for them?

More than a helping hand our youth deserves a fair deal!

POSTED BY Justina Charles

Minister Of Culture, Youth & Sports, Commonwealth of Dominica

Entrepreneurship is more than just the narrow pursuit of commercial success. It is the engine that solves the world’s problems. It is the cornerstone of economic growth and global stability, creating jobs and expanding human welfare. While older firms recede, young firms that grow, inject dynamism into an economy and innovations into society, creating new wealth and jobs.

This year is designated as International Year of the Youth by the United Nations; and this week, the third Global Entrepreneurship Week (GEW), is an occasion for the international community to focus on the opportunities that young people can create by starting and growing their own business.

Global Entrepreneurship Week (GEW) is a shot of adrenaline in the arm of the entrepreneurial community in shaping the next generation of entrepreneurs and turning creativity, ingenuity and tireless efforts into products, processes and technologies that change the world.

Global Entrepreneurship Week’s focus this year is on ‘dismantling barriers’. By removing barriers which suppress the spirit of entrepreneurship, a country stands to derive tremendous economic and social benefits from its young labor force.

Let me on the behalf of the government of Dominica pledge our continued commitment to the development of the Micro, Small and Medium Enterprise Sector, and to continue placing emphasis on the investment in our young population. The government will continue making resources available through the Dominica Youth Business Trust, the Small Business Support Unit, and other appropriate institutions to advance entrepreneurship in Dominica.

Extracts from a speech delivered on Monday 15 November at the official launch of Global Entrepreneurship Week in Dominica, raising the key issues from YBI’s new report, ‘Beyond Collateral’.

POSTED BY Markus Pilgrim

Manager, Youth Employment Network (YEN), an inter agency partnership of UN, ILO and World Bank

I fully agree with YBI’s demand to go for an integrated approach combining financial services for young start-ups and business support services like mentoring. From the relatively little that we know about what works and what does not work we can clearly see that integrated support programs tend to perform better with regard to labour market outcomes than only providing loans.

POSTED BY Peter Jones

Chairman of Enterprise U.K., founder of the National Enterprise Academy and a private equity investor. He has starred in Dragons’ Den since the show first aired in the U.K. on the BBC in 2005.

All over Europe, nations are banking on enterprise-led recoveries and that means more entrepreneurs and more enterprising attitudes in the workplace.

One of my central goals is to encourage others to be more entrepreneurial. But it is no good encouraging people to start a business when they have no idea about how to go about it. In order to deliver a vision for a new era of cultural entrepreneurial change it is vital to provide a combination of financial and non-financial support to entrepreneurs, in particular we must not ignore the elephant in the room: enterprise education.

I want our young people to grow up surrounded by enterprise because we must embed enterprise at the heart of the education system if we are looking to create the entrepreneurs we so desperately need now and in the future.

Of the 270,000 businesses registered in the U.K. each year, some 220,000 businesses go bust. It’s a challenge that faces every country in Europe.

The story is not only one of business failure but also one of dreams that never see the light of day. Only one in 20 young people who think about establishing a business actually go on to do it.

That’s why I welcome this new report from YBI about improving entrepreneurial capabilities. And the good news is that this is not just a passion of mine. It is a passion of many.

This week, nations around the world will celebrate enterprise as Global Entrepreneurship Weeks kicks off in more than 100 countries, involving 10 million people through 32,000 events.

The week is a timely opportunity to restate the central role of enterprise and to promote the every day entrepreneurial successes that provide the true grit of the global economy.

We need to back our entrepreneurs by creating new opportunities to set up and start new businesses, by investing in enterprise education and by celebrating the role that entrepreneurs play in creating a dynamic and growing economy.

As Chairman of Enterprise U.K., I want to champion this international celebration of entrepreneurship, which will provide an opportunity for millions of people around the world to learn, share and celebrate unreasonable ambitions that seem very reasonable to me.

Thanks Peter for this encouraging statements on youth enterprises and its prespects in creating a dynamic and growing economy. There are lot of challenges in developing world to adopt the similar modules and approaches. Yes you also rightly mentioned about mainstreaming entrepreneurial education with the education system. Can we share some of the model that developing countries can adopt to make the youths more entrepreneurial and employable in future

POSTED BY Stuart Macdonald
Owner of Seric Systems, Scotland, and YBI entrepreneur

YBI-supported entrepreneur Stuart Macdonald comments on the value of non-financial services.

Explaining the critical role of mentoring to the success of his business, he says of the support that he received:

“It’s not really about the money… if the money were halved, and the after-care support were doubled, it would be an infinitely better programme”.

Watch Stuart’s video here:

The YBI’s paper Beyond collateral highlights the proven premise that the collateral of matching funds, with compelling business idea with experience through the mentor programme. The connection of these factors whilst not the sole source of success, do facilitate greater likely hood of success. This tied to the energy and enthusiasm of youth, which may otherwise not have access to this collateral makes YBI’s role invaluable

The potential for success is greatly improved through the triangulation of capital, mentor and business advice, enabling individuals to sustain the motivation, inspiration and confidence necessay to deliver beyond the short tem.

Whilst funding may to typically a barrier to entreprenuership, the non financial factors are what seperate potential medium success and growth from failure. The value at a micro level of the Princes trust can therefore be immense, whilst its impact on the macro through the confidence, outlook and influence the local economy can be significantly more wide ranging.

Developing the mechanisms to deliver this coleateral is therefore essential. Both as a wider community and in the quality and suitability of the infrastructure and insight which YBI can deliver to its own community,

It’s refreshing to read this report . The proposal could be equally applicable to any individual starting a new business, as they face more or less the same difficulties. I very much welcome the case of the non-financial support and mentoring as the lack of focus and loneliness in start-ups can be bigger causes of failure than not having enough financial support.
Let’s keep in mind that a (successful) business is a system with many integrated parts and as such all the parts need to be considered.

I have two children being youths who are experienced in business as they worked with me for a while after leaving school. As I watched them operating, it surpriced me how vibrant, full of energy, and natural innovators they are. However, my only concern is emotional readiness. Burdening the youth with too much too early simply does not feel right. Surely it must propose some kind of early burnout??

I am actually in the nned of learning the service. I am actually struggling to help out in my community just I am trying to put up a business as well. Where to get the real mentorship from real people. How to get the help in form of training and financial help to start a business. Any help would be highly appreciated.

Senika Warner.

In my opinion entrepreneurship is a state of mind rather than a project itself. Readiness should prevail over any kind of financial issue.

Thus, education plays a key role to start up a succesfull entrepreneurship scheme. Training sessions and seminars can help young people understand better the tricky notion of entrepreneurship and then get the appropriate skills to cope with the reality on the ground.

However, African young people from urban areas face the consequences of poor governance from local authorities and highly corrupted environment.

Moreover, the situation is even worse in the poor areas where young people cannot satisfy basic needs with poor income generation.

Therefore we have initiated a kind of solidarity chain to help local communities in Congo start up rural enterprises according to their needs and skills. By assisting them we aim at giving local people with low income the opportunity to generate wealth and supply cities.

Entrepreneurship is not only about SMEs but also can involve cooperatives in poor rural areas.
402-GreenSolidarityProjectENGLISH.pdf (188 KB)


YBI Mentoring Consultant

The Case for Business Mentoring – a valuable source of non financial support for young entrepreneurs

Every 40 minutes a new business is supported by one of the 38 international programmes that form YBI (The Prince’s Youth Business International). Founded ten years ago, YBI has successfully created a model of support which matches experienced business people with young entrepreneurs. Although there is a small funding provision during start up, it is the regular support of the volunteer mentor that helps the business to succeed.

Does it work?

Well yes, if you compare YBI 3 year survival rates of 70% with a Barclays study in 2002 that suggested that 48% of small businesses closed their doors voluntarily. In fact, one of the YBI programmes CYBF (Canadian Youth Business Foundation) has a three year survival rate of 96%! CYBF say one of the one of the main factors for these impressive results is that there is a mandatory 1:1 mentoring relationship.

But what is it that mentors do?

First and foremost they are partners in a relationship that will last for a minimum of two years (with a third year option). During that period there are three separate phases; start-up, growth and exit.

At the start of the relationship role clarity is key. Both sides need to say what is important to them and how the relationship will work. As the business is at a fledgling stage, there will naturally be uncertainties and the mentor will be able to warn of problems on the horizon, help craft solutions to problems and be a sounding board for the entrepreneur.

At the second ‘growth’ stage, the business starts to create meaningful data and the challenges become clear. By using high level listening skills a competent mentor is able to ask the right questions in order to draw out the mentee’s own answers to problems.

The final phase of the relationship is perhaps the most important as it is a time when the entrepreneur needs to do things for themselves and the ‘ties’ that have bound both parties are finally cut. A measure of success is that the mentor is no longer required and the client is ready to face a new set of challenges on their own.

In summary, as a result of the support offered by a mentor, young entrepreneurs are able to increase self confidence, self reliance and an appreciation of their own potential. These are all necessary ingredients for business survival and sustainability and will be remembered long after the loan has been forgotten.

As one young entrepreneur said; “Without my mentor, I would not have made some of the better business choices because I wouldn’t have known any better.”

I commend YBI’s thought piece, ‘Beyond Collateral’ especially for envisioning a coordinated tripartite response to create entrepreneurial opportunities for young people. Sustainable economic engagement of young people will happen only when public, private and civil society sectors join hands and make a strong commitment to provide an inclusive, enabling environment to support youth entrepreneurship.

At the Commonwealth Youth Programme (CYP), we are constantly trying to address such inequities that see young people as ‘risky’ clients and have proved the bankability of youth through a Commonwealth Youth Credit Initiative (CYCI) in different regions of the Commonwealth. One of the important outcomes of the Commonwealth Heads of Government Meeting (CHOGM) held in November 2009 was the Declaration on young people, whereby the Heads of Government pledged their support to turn the CYCI into an integrated and holistic enterprise development programme, which is built around comprehensive and mutually reinforcing skills development, funding and mentorship. This initiative is looking to engage a considerably wider range of funders and partners, including Ministries of Youth in Commonwealth countries, international finance institutions, regional organizations, banks and businesses.

A good example of this mandate translating into action is the Government of Kenya’s Ministry of Youth Affairs and Sports that set up a Youth Enterprise Development Fund, an independent State Corporation with a vision to economically empower young people in Kenya. CYP endeavors to showcase the Kenyan model across different regions of the Commonwealth with a view to influence policy commitment among member countries.

Further, to translate CHOGM’s commitment to a tripartite response, CYP is launching a new pilot project in India this December in partnership with Central Bank of India and civil society organizations to promote youth enterprises through credit, mentoring and skill-building programmes.

Having said that, it has been a long and tedious journey and we can’t rejoice until such pilots turn into strong policy mandates so that long-term investments are made to help realize the dreams and ambitions of young people.

The central ideas in this report are both innovative and interesting. In brief: many young people are unemployed or underemployed; some of them are budding entrepreneurs; mentoring can help them succeed; if they are more likely to succeed, that makes them a better bet for bank lending; so banks should lend more and on better terms to budding young entrepreneurs who sign up to mentoring. Worth a punt, I would say, though if I were a bank, I would probably want this to be institutionalised, for example so that the risk was shared with an NGO which facilitated mentoring, or with a group supporting entrepreneurs with a range of services, including business planning, finance, marketing, personnel or technical innovation. I would also want to be clear that the selection process was robust enough to weed out the most implausible candidates.

The need is certainly immense. Youth un- and under-employment is both a waste of potential and a social threat. Recent estimates by the ILO are that as many as 230 million 15-24 year-olds are either unemployed or living in households that earn less than the international poverty line of $US 1.25 a day per person. Imagine that they each earned $US 2 per day, or $US 750 a year. That's $US 172 billion per year, translating into better health, nutrition, education and social well-being. The ILO has repeatedly called for 'decent work', an objective echoed by the G20. Helping to tackle youth unemployment is a key element contributing to that objective.

It goes without saying that the enabling environment needs to be right. Fostering entrepreneurship has limited appeal in war zones or in situations where surpluses will regularly be skimmed off by corruption or rent-seeking behaviour. But when the conditions are right - when markets exist or can be created, when minimal infrastructure is in place, and when institutions allow businesses to exist and even thrive - then small businesses run by young people can harness new energies and tap new opportunities. That suggests a strategy: marrying support for entrepreneurs with analysis and advocacy for a better business environment.
The evidence in the report shows that mentoring reduces default rates and increases the probability of business succeeding. It also quantifies these benefits, from case work around the world. Very good. There’s obviously a role for business in providing mentoring and supporting business in the community. Many businesses do this already. More should follow. The report is right to call for new partnerships in this field.

Simon Maxwell
Senior Research Associate
Overseas Development Institute

POSTED BY Jane Nelson

Director, Corporate Social Responsibility Initiative, Harvard Kennedy School and nonresident Senior Fellow, Brookings

From the United Nations and World Bank to the G20 and OECD, there is recognition that the achievement of more resilient and inclusive economic growth and job creation will be impossible without concerted efforts to promote entrepreneurship. In particular, millions of young people need to be provided with the appropriate tools and enabling environment to build their own businesses.

Access to finance is crucial but not sufficient. It must be combined with the provision of non-financial resources such as business development services, technology advice and mentoring, alongside access to networks and markets.

The Prince’s Youth Business International makes a compelling case for such integrated approaches. Drawing on the practical experience of youth enterprise programs in over 30 countries, YBI calls for commercial banks and corporations to work more strategically with policy makers, donors and civic organizations to implement these approaches.

We cannot afford to ignore their call to action.