SOCAP 2011 Social Entrepreneur Scholarship Program

You’re in the wrong place if you just have an idea without a business plan, design methodology, or track record. However, if you are ready to launch with all of these things and are committed to working at the intersection of money and meaning, then you are welcome to apply for 1 of 50 scholarships to SOCAP11.

For more information on how to apply visit http://www.yipekenya.org/SOCAP Social Entrepreneur Scholarship Program.htm

How to write a budget for your business

A budget is probably the most crucial document required for your business. 

To start on your budget you first have to define what expenses you anticipate will occur. These can be categorised into operating expenses and overheads. Operating or working expenses include items such as stationery, fuel and communications which are variable in terms of how they are used. Overheads cover the fixed costs of a business, including items such as rent and machinery.

Read more on how to write a budget for your business

New interactive Business Finance Tool launched for Kenyan small business owners

Financing is the lifeblood of a business. Whether one is starting an enterprise or if they are seeking to expand their business – the lack of money can be detrimental.

After having polled its users, the Youth Interactive Portal for Enterprise - YIPE (www.yipekenya.org) found that the reason for the low uptake of formal business financing opportunities among Kenyan small business owners was not due to perceived barriers such as tedious application processes as previously thought. The main reason amongst the sampled business owners was simply that they did not know of the availability of business financial products on offer.

This finding spurred YIPE to develop and launch its Business Finance Interactive Search Tool (www.yipekenya.org/Business finance.htm) which enables business entrepreneurs in four easy steps to access information of business financial products that suit their stage of business. 

This product easily reduces the time and expense required in searching for appropriate financial products. As a value add-on, users can also access information from a database of over 1,000 entries (and rising) of financial sources in the county their business operates in.

Having the available financial product information in one place makes it possible for users to find banks and micro-finance institutions near them as well as compare the various financial products from multiple providers.

Users are given the options to select their business stage, the type of financing required and the county they reside in. YIPE’s business finance tool then presents them with a list of financial institutions (commercial banks, micro-finance institutions etc) whose products match their criteria, along with the providers’ contact information.

The Business Finance Interactive Search Tool is available on www.yipekenya.org/Business finance.htm and is free for all users.

For the time being, YIPEs Business Finance Interactive Search is available for Kenyan based businesses only.

About the Youth Interactive Portal for Enterprise – YIPE

Since its founding in 2008, the Youth Interactive Portal for Enterprise has emerged as a highly valued source of quality content for both aspiring and operating entrepreneurs. The Portal was one of the winning case studies for the Society for New Communications Research 2009 Excellence in New Communications Awards in the Online Publishing – Technology Innovation category. In 2010, YIPE was named the Kenyan partner for the Global Cleantech Ideas competition which is the search for the world’s best social enterprises that proactively address environmental degradation.

For more information, visit www.yipekenya.org and follow @yipeorg on Twitter.

Where nobody needs to work or study hard anymore

An article published in this week's Pambazuka raises issues about policies to promote economic development.

The article, “South Africa’s ‘bling’ culture is a disgrace” by William Gumede tells of a growing new-money class, living a Hollywood-esque life in the midst of poverty.

He writes that this bling lifestyle of parties and fast flashy cars amongst South Africa’s elite, is encouraging others to look for the fast buck, rather working hard or studying.

Even the leaders have joined this new life, with no less than President Zuma’s party the ANC launching a fashion line of leather jackets; the cheapest costing US$ 217.

All this social pressure to live the bling life has for some compromised their integrity and ethical business behaviour because of links to sugar daddy’s, senior politicians and even crime bosses.

Gumede faults South Africa’s Black Economic Empowerment (BEE) programme as having contributed to this state of affairs. Because one does not have to build a business brick and mortar, entrepreneurial drive has been culled. 

And even for those that have slogged to build their enterprises, corruption in the big business market of public procurement has only benefited a few well connected entrepreneurs.

And Gumede warns that “this ‘bling’ culture will break down South Africa’s productive capacity. We are ‘eating’, but we are not building any new factories or plants that can create jobs …”

Lamentably for the young aspiring entrepreneur, it seems that it may be more worthwhile to try and connect with a blinged elite patron, than to put pen to paper and write their business plan.

Read South Africa’s ‘bling’ culture is a disgrace here >>

The missing Kshs. 8 billion: Uncovering Kenya's pyramid schemes

On 14th January, 2009 the Hon. Minister for Co-operative Development & Marketing appointed a Taskforce to look into the operations of pyramid schemes. The appointment of the Taskforce was a reaction to the hue and cry from victims of pyramid schemes and other related schemes.

The Taskforce held public hearings countrywide where views from the victims were received. A lot of data regarding the particulars of the investors, directors and promoters of pyramid schemes was collected during the exercise. Interviews were also held to provide opportunities to directors of pyramid schemes, individuals and groups to give information on the role they may have played in the pyramid schemes saga.

270 pyramid and other related schemes were identified with148,784 investors registered as having invested a total sum of Kshs. 8,178,737,402.

The top ten institutions in terms of amounts invested were:

• DECI , founded by one George Donde and his sister, Mary Odinga with 93,485 investors amounting to a total of Kshs. 2,405,518,832.00
• Clip Investments Sacco Ltd 5,846 1,993,866,422.00: The taskforce discovered that a director of Clip Investments Sacco, Peter Ndakwe bought plots in Runda estate worth Kshs. 200 million. He later transferred the property to a company in Panama "at the height of complaints by investors". The transfers of the four plots in Runda L.R 1470/15,14970/14, 14970/7 and 14970/6 were made on July 11,2006 and April 20, 2007, when the crisis broke out.
• Kenya Business Community Sacco Ltd with 921 investors amounting to Kshs. 780,698,218.00. In early 2007, The Standard newspaper reported the founders of Deci (listed above) and Kenya Business Community had previously been involved in another financial scam, Kenya Akiba, banned in 2005. 
• Sasanet Investment Sacco Ltd with 629 investors amounting to Kshs. 739,948,412.00; and whose director is identified as Michael Chege. Sasanet allegedly bought 30 units of flats worth Sh60 million in Sunrise Estate, 11.5 acres of land in Nyari Estate, Nairobi, four flats along Chaka road in Nairobi and later sold 32 flats at Sh2.5million each in Nairobi’s Imara Daima Estate through his advocate Ajaa Olubayi. 
• Jitegemee Investment Sacco Ltd with 3,828 investors amounting to Kshs. 494,401,600.00. Jitegemee was faulted for dual registration both as a limited liability company and as a co-operative society.
• Circuit Investment with 1,392 investors amounting to a total of Kshs. 348,943,103.00. The director of that company which closed in September 2007 was Emilio Kifue Mwangi.
• Family In Need Organisation (FINO) with 4,580 investors amounting to Kshs. 157,280,553.00. Investors in the scheme were told they would double their initial investment after three weeks.
• Global Entreprenership with 9,206 investors and a portfolio amounting to Kshs. 139,006,632.00.
• Spell Investment with 544 investors amounting to Kshs. 120,326,860.00 whose deceased director was Boniface Anderson. At his death Sh200 million held in his account at Stanbic Bank was transferred to his mother. 
• Mont Blanq Afrique with 774 investors amounting to Kshs. 82,834,000.00. The directors are listed in the Task Force report as being the same as those for Jitegemee. 

Read the Report of the Taskforce on Pyramid Schemes here

Youth Fund: it is not enough just to open the gates of opportunity

“You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, ‘You are free to compete with all the others,’ and still justly believe that you have been completely fair… it is not enough just to open the gates of opportunity. All our citizens must have the ability to walk through those gates. This is the next and more profound stage…” - President Lyndon Johnson.

Teething problems in both the youth and women enterprise development funds have emerged. This week, no less than the Planning Minister Wycliffe Oparanya was urging financial intermediaries to relax their requirements for youths seeking to cash in on the enterprise fund loans.

Recently, the minister for Gender and Children Affairs, Esther Murugi had also expressed concern that over Sh700 million meant for women projects had not been disbursed.

Water, water everywhere and not a drop to drink!

It seems that there is so much money available but the means of accessing it are dead ends. In common parlance: money, money everywhere, but no way to get it in the pocket.

As long as these funds rely on financial intermediaries, they will continue to have problems of their target populations being unable to access these funds.

After all these intermediaries are banks, and banks are in the business of giving loans whilst enforcing conditions and requirements that make it difficult for the person taking the loan to default. So, without any culture change in the banking fraternity, you can still expect the loan officer in the bank to ensure that the youth or woman entrepreneur has a viable business that will pay back the loan. This will happen regardless of whether the government wants to throw the money at these people. If that is how they will measure their performance in terms of beneficiaries of loans, then we suggest that they put a desk in front of the Kenyatta International Conference Centre (KICC) and give loans to any Tom, Ochieng or Wanjiku who happens to be strolling past them.

Both the youth and gender ministries should not feel toothless if they cannot reach their stipulated number of entrepreneurs. They also must remember that small business owners have a natural aversion to exposing their business to risk, and thus are hesitant to take out loans.

In seeking funds, small business owners tend to use what can be described as the ‘pecking order’ model. This suggests that entrepreneur’s attitude towards and use of financial sources are most positive towards first, internally generated equity (for instance injecting own savings into the enterprise), followed by debt financing from sources such as banks.

Small business entrepreneurs also prefer sources of finance associated with the least information asymmetry. It is easier to approach your brother for a startup loan than it is to wade through the rigorous formalities of a bank loan. For one, you need a fully developed business plan, something not many people in business have. This requirement is also asked for when seeking finance from the youth and women’s funds.

There is also the ‘theory of the discouraged borrowers’ (Kon and Storey, 2003) which posits that some existing small business owners believe they will not be successful in obtaining external finance and therefore do not apply.

Apart from a shyness in opening oneself to be asked confidential questions on one’s business, there is also the overriding need to maintain control of one’s business. Thus such firms prefer using retained profits and cash flow to fund their business development, rather than opening up themselves to losing control of their enterprise. This is why seeking capital from personal savings or other informal sources (such as family and friends) is the preferred option for entrepreneurs who seek to minimize intrusion into their businesses.

The emergence of the micro finance sector has somewhat filled in this gap as a particular type of informal finance that takes the form of a small loan to individuals. However, as can be seen from the rapid growth of Equity, Family and K-REP Banks, these institutions have now outgrown this approach and their operations are now more akin to commercial banks than the informal micro-finance.

So instead of forcing entrepreneurs to take their money, the two funds can actually reach more enterprises if they become innovative in assisting existing small business owners to expand their businesses.

Apart from solely financing entrepreneurs, the funds could have more impact if they were in a position to expand business opportunities by providing collateral support, mentorship and technical assistance, which are lacking or too expensive for many small enterprise owners.

Loan guarantees can assist entrepreneurs with the potential for success but lack the current capacity to qualify for conventional bank loans to access more funds than are currently available within the funds. This will enable such businesses to expand so they can achieve the economies of scale that are necessary to compete with larger businesses.

Both fund managers can also learn lessons from the US Small Business Administration (SBA). Innovatively this independent agency is mandated to enter into contracts with Federal (government) Agencies and then sublet these contracts to small firms, that is apart from assisting small businesses in obtaining government contracts.

The Small Business Act (1953) which created the SBA also has a small business subcontracting clause in all government contracts over $10,000, requiring Federal Agencies to publicize in the Commerce Business Daily (CBD) all procurements over the small purchase threshold and any others with subcontract potential.

In lieu of setting up that table outside KICC, this could be a more impactful solution to both funds, that is if their sole measure of performance is how many groups of entrepreneurs they finance.

No small business owner would pass up the chance to grow their business by receiving technical expertise or collateral to access higher value loans. Neither would they refuse to competitively take part in the profitable public procurement market sector.