Dear All,
I should begin by saying that this topic floated for discussion is not only very important, but timely too, considering the the fact that world is just emerging from the woods of the global financial and economic crisis. The crisis did ravage many of the economies of the world, and of course businesses were the worst hit. Now that the storm is over, or at least seems to be over, many of us are beginning to ask about the role of businesses in the post financial crisis. It is well known that entrepreneurs played a role in causing the crisis in the first place, and so they should also play a leading role in the recovery process.
It is in this regard that access to finance by entrepreneurs becomes very crucial for businesses to lead the recovery process. Young entrepreneurs allover the world (and especially in developing countries) face the problem of access to finance in their quest to start as well as to expand their businesses. Formal financial institutions are most times reluctant to lend to these young entrepreneurs possibly due to lack of a good business plan, lack of collateral to secure the loan, non registration of businesses, and lack of practical experience and business contacts.
So in order for young entrepreneurs to have access to finance, they should address some of these major issues just mentioned. For example, many of the businesses of young entrepreneurs are not registered with the relevant authority to gain legal status. Such an unregistered (or simply informal or even illegal) business should not expect to access finance through the formal financial institutions. This means young entrepreneurs should endeavour to register their business, this is surely the beginning to accessing finance. In addition, developing a good business plan is important for access to finance. such a plan will give an indication of the cash flows which is important for loan repayment, hence use by financial institutions to evaluate credit worthiness of the business. Further, micro finance loans should be provided support business start-ups.
Thanks
Abubakarr Turay
POSTED BY Mr. CH.L.PURNACHANDRA RAO
Chartered Accountant, Lakshmi Purna & Assosicates, Hyderabad
It is indeed a privilege to receive such an article written on young start-up entrepreneurs and heartening to know the importance of entrepreneurial traits which can be equated to collaterals.
In our opinion there are so many institutions in India and abroad like Technical Consultancy Organizations (TCOs), Management and Financial Consultancy Firms, Funding and donor agencies who are working for the development of entrepreneurs. However most of these firms are working in isolation and mainly concentrating on credit facilitation. If we can integrate these institutions for networking to reach out to needy entrepreneurs for mentoring, counseling and developing their skills, Indian SME Sector can definitely scale new heights in near future. Thus may we request Bharatiya Yuva Shakti Trust (BYST) and YBI to organise an international workshop on “Entrepreneurship – beyond collateral” by inviting all the related agencies so as to achieve the above said objective.
Through our organisation we are also counseling and helping young unemployed to start their units rather than expecting Government jobs. In our opinion the cost of not intervening with young unemployed will lead to local unrest and increase in crime rate. Thus it is the social responsibility of all the like minded organisations to propagate the idea of turning job seekers in to job providers and strengthen the hands of BYST who is the champion of the said idea.
The report reflected various practical modules. Basically I like the Multi Stakeholders intervention that the report highly recognizes the role of various Sectors like NGOs, social enterprise, Donors community, Private sector, Govermnet and financial institutions. In additions it would be good to have a commercial services provider’s role in the package to facilitate the sustainable service provision like business counseling, mentoring and business growth related services. Sometime you th themselves could be commercial service providers as well as the change agent in the youth entrepreneurship world.
Yes start up capital is on of the biggest challenges at the moment for youth to start the business. Beside that we should have appropriate support packages for pre business start up period like appropriate business selection process from the beginning. If youth are not well equipped in the business selection process from the beginning, there might be high chances of business failure. For the post business start up phase the report has already captured some of the successful module on mentorship and business cancelling
We should not limit the enterprise development supports at the individual youth level. We should be integrating them in to Value chain level.
Thanks Youth Business International (YBI), team for this commendable report with all the global best practices
As a youth advocate for over ten years, I know firsthand the challenges of enlisting both qualitative and quantitative support for ‘juvenile’ initiatives. When I started a non-profit in 1997, the obstacles to gaining support from skeptical donors and local businesses were crippling – but outweighed by the told-ya-so grin we could give each other, and our mentors, when time and again we proved that we were ‘more legitimate’ than our ages implied on paper. The experience of growing an organization, despite those obstacles, was daunting enough by itself – and only possible through enduring support by experienced mentors dedicated to our cause.
The goal of many microfinance organizations is to open up credit markets where opportunities are few. Providing access to the financial tools necessary to jumpstart a young social or business enterprise gives a chance to brilliant entrepreneurs our generation can’t afford to ignore. Especially where credit markets are already weak, financial support to a young entrepreneur could not only save his life, but that of those he employs and who he serves.
But YBI understands another key component – that it’s naïve to expect us to do it alone. I believe that shouldn’t be a reason to deny a loan, but instead, support should be extended to make sure the loan is financially sound for both the lender and the entrepreneur. Mentoring and business development services are two valuable approaches to harnessing young enthusiasm and channeling it into productive work.
I currently study how to best measure the impact of these financial and non-financial services – more specifically, how the services causally affect the success of a young entrepreneur during the course of her loan and beyond. YBI’s approach to access to finance, as going hand-in-hand with non-financial assistance, has and will continue to unlock the potential of heretofore motivated but unsupported youth around the world, and I am excited to uncover the true impact of these services on business as usual.
POSTED BY Karen Wilson
Senior Fellow, Kauffman Foundation, Europe
At the Kauffman Foundation, we have seen time and time again what an important role mentoring and social capital play in helping entrepreneurs start and grow their companies. Finance is only one component. The newly released YBI report highlights the importance of mentoring and other non-financial support in parallel with financial support.
POSTED BY Mr. S. M. Khan
Bharatiya Yuva Shakti Trust Mentor, Executive Director, Exacta Enterprises
Developing country such as India is besieged with problems such as poor capital and unemployment. They are closely related to each other. If capital is easily available then unemployment rate will decrease. But how to increase the capital?. Developing countries always follow conservative methods of funding entrepreneurs. Within conservative systems such as banks we need to look for funding entrepreneurs.
Will these banks provide the loan without collaterals? That is the crux of the issue. Going by the mentoring models of YBI – I certainly believe that these non financial support would motive conservative bankers to rejig their thinking of supporting entrepreneurs more so start ups.
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POSTED BY Fiona Macaulay
President, Making Cents International
This new YBI report is very timely, as practitioners, policymakers, employers, educators, researchers, financial service providers, and funders alike are searching for practical information on “what works” in the fields of youth enterprise, employment, and livelihoods development and youth-inclusive financial services. It is important to critically explore innovative strategies that increase the access young entrepreneurs and potential entrepreneurs have to the integrated capacity building, support, and financial services they need to turn their business ideas into reality.
This resource challenges current thinking, and contributes significantly to the effort of building an evidence base of proven practices on how we can create greater impact in a sustainable way that achieves scale in this field. Making Cents International agrees with YBI that the financial services sector should recognize high-quality non-financial entrepreneurship support services as an alternative to collateral in order to increase credit availability to young entrepreneurs.
Making Cents has greatly appreciated YBI’s contributions to the Global Youth Enterprise & Livelihoods Development Conferences, as a longstanding member of our conference’s Global Advisory Committee. YBI’s dedication to filling the knowledge gaps that exist and investing in the potential of young people is unwavering. We invite YBI and its to continue this conversation at the 2011 Global Youth Enterprise & Livelihoods Development Conference in Washington, DC and to share how they are increasing the access youth have to financial products and services via the Youth-Inclusive Financial Services (YFS) portal (www.yfslink.org).
POSTED BY Simon Bishop
Shell Foundation
The Shell Foundation (www.shellfoundation.org) and its partner GroFin (www.grofin.com) developed funds committing more than $250m to addressing the so-called ‘Missing Middle’: developing world SMEs who are unable to reach their potential because lack of collateral and a track record means local financial institutions will not invest in them.
YBI’s excellent new report may focus on one particular category of SME owner - 18-35 year olds or what they refer to as the ‘young missing middle’ - but the problems they face are almost exactly the same as for other entrepreneurs.
So how do we unleash these entrepreneurs to develop flourishing enterprises, which create jobs and drive economic growth?
There are no easy answers. But YBI is absolutely on the right track calling for non-financial support (like mentoring or help writing business plans) to be recognised as an alternative to traditional forms of collateral. Statistics repeatedly show that this type of support buys down the risk of investment.
Providing financial and non-financial support in tandem goes to the heart of the SF-GroFin model. In-country GroFin staff administer investments in entrepreneurs while simultaneously providing business development assistance to the entrepreneur. The added twist is that GroFin, while mainly administering funds from other financial institutions, invests some of its own money in the entrepreneurs; this incentives it to provide the best non-financial assistance possible. It isn’t always possible to bind financial and non-financial assistance together this tightly but we have found it is an important element of success – and played a significant role in attracting much needed funds into the SME sector.
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POSTED BY Sir Malcolm Williamson
YBI Chairman
It’s a new experience for YBI to host an online discussion, and the response has been fantastic. The breadth of contributions shows how critical access to finance is considered to be, for young entrepreneurs in particular.
Our focus is on the importance of combining financial and non-financial support to improve the business success rates of youth-led enterprises, and ultimately to increase access to capital for young entrepreneurs. The mentoring, training and other services that YBI provides to young entrepreneurs through its unique integrated package have been shown to deliver measurable results in terms of improved loan repayment and business sustainability.
As YBI’s President HRH Prince of Wales commented about the new report at our annual dinner last night:
“The importance of mentoring and similar support cannot be stressed enough, and I am pleased that the latest publication in YBI’s ‘Making Entrepreneurship Work’ series stresses the importance of non-financial support and recommends that governments, financial institutions and others recognise its value when considering supporting young entrepreneurs.”
“Recognise its value” is the crux of this. As an ex-banker myself, I have no doubt that enabling the financial sector to lend to a new generation of young business owners has commercial appeal. In part this can be achieved through establishing methodologies within financial systems that quantify and account for the tangible value of non-financial support as an alternative to collateral to secure lending to young entrepreneurs.
As we say in the report, this might be through certifying the providers of the services or the services themselves. In fact the report contains various examples of non-financial support being systematically recognised in the provision of capital to young entrepreneurs. The Indian government and the Inter American Development Bank are both front runners in this. We now need to systematise and spread this best practice.
So now the real work begins at YBI, turning our thought piece into tangible outcomes that will help improve access to start-up capital for young entrepreneurs. This will require cooperation across sectors, and YBI is ambitious to play our part.
As a next step, we will establish policy working groups with the remit to develop the key recommendations from the report. Thank you to everyone who contributed to our discussion this week. Please continue to keep in touch with us through our website www.youthbusiness.org
Sir Malcolm is Chairman of Clydesdale Bank, National Australia Group Europe, Signet Jewelers and Cass Business School’s Strategy and Development Board. He was formerly Group Chief Executive of Standard Chartered Bank, and President and CEO of Visa International.