Even though credit is critical for commerce, it’s not just in Kenya where entrepreneurs are not jumping with joy over announcements of easier and cheaper credit. In India, according to Ragini Verma writing in an article titled “Easy loan access fails to enthuse SMEs”: the Indian micro, small and medium enterprises sector has given an average rating to the easy and cheaper credit announcement by the public sector banks, saying it was not enough to boost growth.
Today’s business owner is more concerned with macro factors, in light of the financial slowdown. Even though the media keeps bombarding us with ads on the youth and women’s funds, a prudent startup owner not only wants to ascertain how they will pay back the loan, but also ensure that the business environment allows their enterprise to thrive.
In this severe economic climate, it is now more imperative than ever that the macro environment allows these small businesses to trade their way out of the downturn. This means addressing barriers to trade, of which probably the level of taxation is high priority.
Just like Dehli entrepreneurs are saying, these extra credit facilities would have more impact on the economy if they came matched with fiscal concessions. VAT at 16% for instance already outprices goods and services, making local goods less competitive compared with imports.
Another way of making these funds more attractive would be to allow flexibility regarding the loan amount and duration. The ability to reinvest the principal into the enterprise and accrue more profit would probably act as a further incentive for entrepreneurs to seek the funds.
Wednesday, December 17, 2008
Thursday, December 11, 2008
Kenya Youth Enterprise Fund: Show us the money - "tusiharibu wakati bure!"
Yesterday the youth fund management and leading banks were at State House launching their three year strategic plan and signing partnership agreements. This event has been covered in the media, however the story on the nation online carries a very interesting comment. A reader called “ronns” posts: “hey, is this for real? if anyone has received this funding please let us know tusiharibu wakati bure”.
And ronn’s comments belies the real controversy over the effectiveness of the youth (as well as the women’s enterprise) development funds. How many people have actually received this funding?
This is not the first time this issue is being raised. In an earlier blog, we actually wrote about the failings of both funds, in that they were not equipped to reach as many Kenyan youth and women entrepreneurs as possible. The blog “Youth Fund: It is not enough just to open the gates of opportunity” posted in October this year decried the fact that it seems that there is so much money available (yesterday the youth fund received another injection of Kshs. 1.75 billion shillings ($22 million) from the government) but the means of accessing it remain remote. So it is not surprising that people such as ronn are asking the fund managers to show them the money. It’s no use getting our hopes up and wasting valuable time.
Youth entrepreneurs have already managed to fight the odds. Still engaging in enterprise despite facing multitudes of negative stereotypical and patronising attitudes as well as a perceived lack of credibility, particularly from formal finance institutions. These young innovators have without recourse to bank loans managed to grow businesses on bootstraps. Relying on their wits and sheer fortitude, they have become adept at sharing and sub-letting even the smallest amounts of space, using innovative and cheap marketing techniques, outsourcing work for which they don’t have specific technical expertise, amongst other resourceful means of operating their businesses.
Of course they would appreciate the chance to borrow money to startup new ventures as well as expand existing ones; but the model of the youth fund distribution also acts as a deterrent to their accessing finance.
Firstly the number of intermediaries particularly in rural areas are few, though it was commendable to hear that First Community Bank has at least taken up the mantle to ensure that as many youth in Northern Kenya can get access to the youth fund.
However, the second issue that we have previously posed was that banks as intermediaries for the fund act as a disincentive. For youth entrepreneurs who may have previously been denied credit by these same institutions, there is a marked hesitancy to approach these banks again, despite the ongoing advertising campaign by the Ministry of Youth Affairs. Being denied a loan for your business is preety much on the same scale as being denied a visa to the US or Europe. An entrepreneur who has tied up all their own resources and financial future in their enterprise takes it as an affront to their business vision, and hence themselves. Trying to convince that same entrepreneur to go to a bank to access the youth funds is a bit like pulling teeth without forceps.
Thirdly, even if you can get the young entrepreneur to go to the bank to apply for the funds, they will find a banking culture that is based on assessing whether the loan can be repaid, not on the actual viability of the startup. As we wrote in our previous post, without any culture change in the banking fraternity, you can still expect the loan officer in the bank to be more focussed on when the youth entrepreneur will pay back the loan rather than on the business profitability.
Finally we suggest that the youth enterprise fund should place more emphasis on its social impact rather than the number of loan beneficiaries. Yes, it is good to hear that loan repayments are in the 90% range. However, what has been the actual impact of growth on the 55,000 funded youth enterprises, the livelihoods of the youth who received the loans and the wider community?
For instance regarding the over 200,000 new jobs which the youth fund say have been established over the last two years: What proportion of these are the founding entrepreneurs and specifically how many people have been employed to work in these ventures? If there is to have been a significant impact on society, how much money in salaries and wages do the employees in these youth owned ventures earn?
The first two can be measured almost immediately by the youth fund whilst we do agree the wider societal impact would take longer. However, these indicators are what will truly measure the success of the enterprise fund rather than how many youth groups repaid their loans.
During yesterday’s event, President Kibaki also said that the youth had proven that they could “be trusted with any amount of money”. Isn’t it time that the youth fund starts lending money to individual entrepreneurs rather than groups?
The Youth Fund’s three-year strategic plan seeks to boost the Fund to Sh7.2 billion by 2011. As it is youth entrepreneurs are busy enough, most being the sole operators of their businesses. They lose money when they have to close shop to go seeking these funds, only to come face to face with a system riddled with obstacles and negative attitudes towards youth business. So please Youth Enterprise Fund managers don’t waste their time, in ronn’s words, tusiharibu wakati bure!
And ronn’s comments belies the real controversy over the effectiveness of the youth (as well as the women’s enterprise) development funds. How many people have actually received this funding?
This is not the first time this issue is being raised. In an earlier blog, we actually wrote about the failings of both funds, in that they were not equipped to reach as many Kenyan youth and women entrepreneurs as possible. The blog “Youth Fund: It is not enough just to open the gates of opportunity” posted in October this year decried the fact that it seems that there is so much money available (yesterday the youth fund received another injection of Kshs. 1.75 billion shillings ($22 million) from the government) but the means of accessing it remain remote. So it is not surprising that people such as ronn are asking the fund managers to show them the money. It’s no use getting our hopes up and wasting valuable time.
Youth entrepreneurs have already managed to fight the odds. Still engaging in enterprise despite facing multitudes of negative stereotypical and patronising attitudes as well as a perceived lack of credibility, particularly from formal finance institutions. These young innovators have without recourse to bank loans managed to grow businesses on bootstraps. Relying on their wits and sheer fortitude, they have become adept at sharing and sub-letting even the smallest amounts of space, using innovative and cheap marketing techniques, outsourcing work for which they don’t have specific technical expertise, amongst other resourceful means of operating their businesses.
Of course they would appreciate the chance to borrow money to startup new ventures as well as expand existing ones; but the model of the youth fund distribution also acts as a deterrent to their accessing finance.
Firstly the number of intermediaries particularly in rural areas are few, though it was commendable to hear that First Community Bank has at least taken up the mantle to ensure that as many youth in Northern Kenya can get access to the youth fund.
However, the second issue that we have previously posed was that banks as intermediaries for the fund act as a disincentive. For youth entrepreneurs who may have previously been denied credit by these same institutions, there is a marked hesitancy to approach these banks again, despite the ongoing advertising campaign by the Ministry of Youth Affairs. Being denied a loan for your business is preety much on the same scale as being denied a visa to the US or Europe. An entrepreneur who has tied up all their own resources and financial future in their enterprise takes it as an affront to their business vision, and hence themselves. Trying to convince that same entrepreneur to go to a bank to access the youth funds is a bit like pulling teeth without forceps.
Thirdly, even if you can get the young entrepreneur to go to the bank to apply for the funds, they will find a banking culture that is based on assessing whether the loan can be repaid, not on the actual viability of the startup. As we wrote in our previous post, without any culture change in the banking fraternity, you can still expect the loan officer in the bank to be more focussed on when the youth entrepreneur will pay back the loan rather than on the business profitability.
Finally we suggest that the youth enterprise fund should place more emphasis on its social impact rather than the number of loan beneficiaries. Yes, it is good to hear that loan repayments are in the 90% range. However, what has been the actual impact of growth on the 55,000 funded youth enterprises, the livelihoods of the youth who received the loans and the wider community?
For instance regarding the over 200,000 new jobs which the youth fund say have been established over the last two years: What proportion of these are the founding entrepreneurs and specifically how many people have been employed to work in these ventures? If there is to have been a significant impact on society, how much money in salaries and wages do the employees in these youth owned ventures earn?
The first two can be measured almost immediately by the youth fund whilst we do agree the wider societal impact would take longer. However, these indicators are what will truly measure the success of the enterprise fund rather than how many youth groups repaid their loans.
During yesterday’s event, President Kibaki also said that the youth had proven that they could “be trusted with any amount of money”. Isn’t it time that the youth fund starts lending money to individual entrepreneurs rather than groups?
The Youth Fund’s three-year strategic plan seeks to boost the Fund to Sh7.2 billion by 2011. As it is youth entrepreneurs are busy enough, most being the sole operators of their businesses. They lose money when they have to close shop to go seeking these funds, only to come face to face with a system riddled with obstacles and negative attitudes towards youth business. So please Youth Enterprise Fund managers don’t waste their time, in ronn’s words, tusiharibu wakati bure!
Friday, December 5, 2008
Will a true leader emerge from the “Jipange Generation”?
Check out this great blog by Marvin Tumbo on what it means to be a youth in Kenya. He laments having graduated with an economics degree but facing unemployment. Unlike other countries where the youth are drivers of change, Marvin tells us of the deterioration of youth leadership, particularly at our universities.
Saying that the youth leaders we voted into parliament “have turned out to be Mugabes’ in Obama’s skin, he wonders whether the “Jipange generation” this time have what it takes to form a veritable youth movement.
Read “Still Proud to be Kenyan” >>>
Saying that the youth leaders we voted into parliament “have turned out to be Mugabes’ in Obama’s skin, he wonders whether the “Jipange generation” this time have what it takes to form a veritable youth movement.
Read “Still Proud to be Kenyan” >>>
Monday, December 1, 2008
HIV/AIDS affects more than just the bottom line
A UNAIDS study in the year 2000 on the impact of HIV/AIDS on the Kenya predicted that the scourge would leave the Kenyan economy one-sixth smaller than it would have been in the absence of HIV/AIDS. Well, the pandemic has wreaked more havoc both on the economy as well as business.
Not only has the scourge adversely affected productivity and costs, but HIV/AIDS continues to have an invidious effect that is unquantifiable but yet profoundly impacts on enterprise.
Absenteeism is usually the first and most common impact on business productivity. The number of days an employee reports to work can be measured, but this can also be a trigger for discord in labour relations when other healthy workers have to shoulder the responsibilities of the absentee.
The next impact is usually a loss of vital skills, which in turn makes entrepreneurs hesitant in investing in training their employees. Most times, when a small business owner sponsors an employee to training they also expect that this employee will act as some sort of champion of the newly learnt skills or knowledge spreading it amongst the other employees. Thus the loss caused by AIDS doesn’t just end with the illness or death of that employee.
Finally there is the emergence of a loss of morale amongst the other staff members. What else can you expect when attending funerals of colleagues and their family members becomes a common event.
On World AIDS Day, the National AIDS Control Council should salute small businesses that take measures to protect their workers who are uninfected, whilst offering appropriate support and services to those who are infected. These are the entrepreneurs who are on the front-line fighting the scourge that threatens to shrink and sink the economy.
The government on its part could also provide incentives to small business entrepreneurs by introducing tax incentives for greater involvement in AIDS prevention.
Not only has the scourge adversely affected productivity and costs, but HIV/AIDS continues to have an invidious effect that is unquantifiable but yet profoundly impacts on enterprise.
Absenteeism is usually the first and most common impact on business productivity. The number of days an employee reports to work can be measured, but this can also be a trigger for discord in labour relations when other healthy workers have to shoulder the responsibilities of the absentee.
The next impact is usually a loss of vital skills, which in turn makes entrepreneurs hesitant in investing in training their employees. Most times, when a small business owner sponsors an employee to training they also expect that this employee will act as some sort of champion of the newly learnt skills or knowledge spreading it amongst the other employees. Thus the loss caused by AIDS doesn’t just end with the illness or death of that employee.
Finally there is the emergence of a loss of morale amongst the other staff members. What else can you expect when attending funerals of colleagues and their family members becomes a common event.
On World AIDS Day, the National AIDS Control Council should salute small businesses that take measures to protect their workers who are uninfected, whilst offering appropriate support and services to those who are infected. These are the entrepreneurs who are on the front-line fighting the scourge that threatens to shrink and sink the economy.
The government on its part could also provide incentives to small business entrepreneurs by introducing tax incentives for greater involvement in AIDS prevention.
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