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.

Don't just create jobs - empower the employer

Juma sits on a bench at the Kenyatta National Hospital waiting to be called for his physiotherapy session. He has been coming every week for the last two months after he got injured in a car accident whilst driving the company car.

A driver by occupation, Juma was employed by Antoinette the owner of a small boutique in Nairobi. He has always had a good relationship with his boss who also happens to be his aunt, but recently he can see that she is not as happy with him as she was before.

Everyone in the boutique, including Juma knows the reason for this. It is because he can no longer drive and it is now becoming a drain on Antoinette to keep paying his salary as well as his medical bills.

As an employee of a micro or small enterprise, Juma is hardly any different from what other employees in such businesses face. It came to pass that Juma lost his job at the end of August. Antoinette explained that she needed a driver and as he was unable to handle a car for the next few months, she had to hire someone else.

Decent work

Job creation seems to be the buzz word going around these days. Even the newly inaugurated second National Economic and Social Council was directed by President Kibaki to address youth unemployment. There are approximately 3 million unemployed youths, but are they really any worse off than our recently unemployed friend Juma?

This week marked the commemoration of the World Day for Decent Work. The day brought together global trade union advocates with the declaration that every person on earth should have access to a “job that enables them to live a good life in which their basic needs are met”.

Not just any jobs, but decent jobs.

To most people around the world, lack of decent work means poverty. A 2007 UNDP on employment in Kenya (Pollin et. al) found that the earnings received by the majority of Kenyan working people placed them close to the official food consumption poverty line. In their survey on non-agricultural enterprises, monthly earnings in 2007 for employees was Kshs. 2,370 for all firms, Kshs. 2,200 for informal and 6,000 for formal sector enterprises. The informal sector salary is well below the national minimum wage level.

In the same year, about 475,000 jobs were created in the informal sector whilst formal sector jobs went down 50,000 positions. This is why the push for entrepreneurship development has become even more vigorous. The government understands that entrepreneurs are the drivers of economic prosperity and empowering them translates into jobs.

The 475,000 jobs created last year is no mean feat, but can they really be described as jobs? With the majority of the positions being low paying, with low job security, working within poor workplace conditions. Even the unions do not have much clout in these small enterprises so the workers have virtually no social protection or recourse in the event of job dismissal.

One cannot blame these small businesses or their owners for that matter. They are also struggling and face challenges on a daily basis. This mainly results from sub-optimal capitalization, shortage of entrepreneurial skills, weak market linkages and lack of business development services and associative networks. The overall result is an extremely high rate of enterprise death.

So Juma is without a job, all because he was in the wrong place at the wrong time, he has lost his livelihood. And you really can’t blame Antoinette either, she has a business to run.

Decent Job Creation

Just creating jobs is not enough. There are various reforms that will ensure that enterprises are able to offer rewarding job placements. These are just a few:

• Improving the physical and financial infrastructure in order to enhance private enterprise productivity and competitiveness;
• Ensuring greater access to financial resources especially for institutionalization and expansion.
• Ensuring that an enabling environment for business is in place.
• Promoting entrepreneurship development by ensuring that the three keys for entrepreneurship supply of entrepreneurial spirit, human and venture capital are abundantly in place.
• Providing technical assistance and business development services to MSMEs;
  

In short, first ensure that the entrepreneur can pay a decent wage, then act on job creation.

Business Planning: Looking forward to 2012

As much as politicians may try to deny it, campaigns for the 2012 Kenyan elections are on. Leaders are being anointed as flag bearers, this not even long after the bloody chaos that marked the beginning of 2008.

At Yipe, we just put up a new advice section for start-ups, but whist doing that I thought, is it worth the bother? After all, apart from the lives lost and people displaced living in camps, many entrepreneurs lost their livelihoods. It must take a lot of faith on their part to take the bull by the horns (so to speak) and begin a new venture.

As political parties race to comply with the requirements of the new Political Parties Act, news reports frequently tell us this or that leader has been appointed torchbearer to vie in the next elections.

Now, every start-up has (or we hope has) a plan, but seriously have we planned for 2012 and indeed 2013 after the results are declared? Unless your business plan is to re-locate out of Kenya, this is a critical consideration. If we don’t it will be as someone (it may have been Judge Johann Kriegler recently formerly of IREC) said, what happened at the beginning of 2008 will look like a Christmas party in 2012 if nothing is done to prevent it.

It seems like the debate for an official “grand” opposition to our “grand” coalition has taken over the national agenda as opposed to pertinent issues such as constitutional review and the agenda 4 items.

So if politicians have forgotten to ensure that 2012 and 2013 are safe for doing business in Kenya, what can the micro and small entrepreneur do? Should we just have a four year plan and spend the beginning of 2012 closing or looking for (gullible) buyers for our businesses?

Will there be any repercussions of what happened this year on consumer demand come 2012? Maybe people will be scared to spend, remembering how prices skyrocketed because normal product distribution channels were closed. This effect could trickle westwards and affect markets in Uganda and Rwanda who bore the brunt of delayed shipments (particularly of fuel) when the Mombasa-Kisumu highway was blocked.

On the other hand, the post election violence may mean booming business in 2012 as consumers stock up in case of the re-emergence of violence. However, this will be felt in a slow market come 2013. What about the kiosk owner in Kibera, Mathare or any other flash-point for that matter? Have they thought if they will stay open past the elections? And if so, how will they manage to get their products past the protestors and the policemen, that is assuming that their property is not looted.

Location, Location, Location: the mantra for business

It matters not where you are in Kenya or indeed Uganda or Rwanda (if you depend on supplies from or through Kenya) for that matter, your business will be affected in some way if due to the early campaigns and jostling for prime positions in political parties means that nothing is done regarding constitutional reform, poverty and inequity, unemployment, cohesion, land reform and transparency, accountability and impunity (Agenda 4 Kenyan National Dialogue and Reconciliation).

On an individual level what can we do?

Recently I did a test that asked me to describe myself in 10 words. My answers in order were my gender, occupation, physical attributes, nationality, belief system and my roles in family and the wider society. It’s a test you should try. Simply imagine you have 10 words to describe who you are to someone who has never met you. But know there are no correct answers for this test. In a nutshell you are who you believe yourself to be.

What does our social identity have to do with our role in 2012 and 2013? The post election violence was mainly driven by ethnicity, with members of one community attacking the other, and the victims responding in revenge attacks.

That means that my ethnicity either marked or saved me from being a victim of the violence. Yet from my top 10 social identities, my ethnic group is not a priority in how I perceive myself as a person and member of Kenyan society. In fact in terms of grouping I feel more affiliation with my fellow entrepreneurs, women and Kenyans long before my tribesmates. Yet, and I can't help this, there are other people who have made assumptions about me based on what community I happen to be born in (note: I said "born in" and not belong to). They have already foretold that come 2012 I will vote for a certain leader. If say that leader happens to win or lose, I will bear the brunt of their animosity if I happen to be in the wrong business location at the wrong time. That I cannot help.

But I can help in how I conduct myself and business to show that we are above ethnicity. I can be Kenyan. By treating every person I know and customer fairly and equitably (barring the one’s who don’t pay on time!).

I can ensure that amongst my small social group there is understanding that we are all Kenyan, East Africa or African for that matter. The Ubuntu spirit sums it up: if you hurt, then I hurt.

Leave the politicians to the campaigns (however early they have begun), but when they approach us in 2012 to take up arms or fists against (their) perceived enemies, know that it may be YOU in that IDP camp come 2013 figuring out what business to start-up with the Kshs. 10,000 from “Operation Rudi Nyumbani”.

Ok… I just realized there is hope for the start-up section!

Finally ... the Yipe.org site is up & running!

Its finally done...!

Yipe.org is now online.

Right now we have news on enterprise, but its a work in progress, so be sure to check in for updates. There's also a weekly newsletter as well as the chance for your articles to be published.

Let us know what you think. You can find the site here

Notes from the bleachers at the National Youth Convention ‘08

An extraordinary session of the The National Youth Convention opened yesterday at the Bomas of Kenya in Nairobi. The theme of the largest gathering of Kenyan youth this year, was the reconstruction, reconciliation and reform.

Speeches by the organisers centered on the need for the youth to be more proactive in Kenya. Kenyan youth were accused of saying nothing when each election resulted in the appointment of leaders who do not have their best interests at heart. Now is the time to fix the wrongs of the past, the convention delegates were told. They were asked from now on, as leaders, to consider themselves as engines of change and to challenge the status quo.

Regarding entrepreneurship, nominated MP, Hon. Rachel Shebesh decried the slow pace of the National Youth Policy Draft being tabled in parliament seven months into the current parliament. She also advised the youth to be cautious about the proposed method of grassroot elections for the National Youth Council. Reminding the delegates of how the Maendeleo Ya Wanawake elections had in the past been manipulated by the political class, Shebesh told the youth to ensure that the election method would be inclusive and representative.

How can you have a Ministry with no policy?

The governments commitment to improving the welfare of the youth was called into question.

The Youth Ministry was termed as being there solely for “PR” purposes. Being toothless, not only does it operate without any policy, but it is there to hoodwink Kenyans of the governments commitment to the youth. Furthermore, the same Youth Ministry does not even have the creation of jobs for the youth under its mandate.

The youth fund was also termed as a “shame”, which brought loud applause from the delegates. Many participants decried the fact that they had no access to the funds and were even unaware of the process to receive the funds. Some asked, why is the government force-feeding the youth to be entrepreneurs? Why spend all those years in school in order to be given Kshs. 10,000 to have a boda boda business?

Our view is that if the fund is going to make any real impact in the lives of youth entrepreneurs, it should:

• ensure that ALL youth nationwide have access to information about the fund, skills on how to apply for the funds, and close access to the financial intermediaries.
• The fund should not only target groups. That in our view is grossly disrespecting the youth of Kenya. As Hon. Kabando wa Kabando who was present at the convention said, repayment of loans was over 90%. That intimates that the youth are not out just to be given money and not pay it back. Why lie? Why should one have to go find other youths in order to be given a pepper corn amount that will only just barely put any enterprise on the ground? Why? …

Well, Hon. Raila Odinga who also attended said that the fund needs to be adressed. Kenyan youth entrepreneurs, let’s make sure it is!

Kenyan youth UNITE … in Obama-speak: YES WE CAN!

The Secret to Less Anxiety Over Business Cash-flow

To reap any significant earnings from your enterprise, you need to plan your business spending and a budget is crucial to business success.

Before mapping out spending, it is important to start with a forecast of expected incomes. This can be in terms of sales revenues, consultancy fees etc. To develop your forecast, first look at your past business income history (for instance sales revenue of the last year). This gives you an indication of what you can reasonably expect in the next year in terms of income.

It is also vital to take to take into account the factors that influence how much money your enterprise makes. For instance, in a clothing store, sales of jerseys will not be as high in the hottest month of the year. In case you don't have such records, start today by recording your sales and expenditure daily. At the end of the month, use this to forecast your expenditures for the next month, and so on. This process also allows you to get a clearer picture of what products or services are popular amongst your clients.

After looking at projected income, you need to look at several factors in the process that culminates in the received income. This is where you take into account materials required for production and inventory levels. At this point, you also need to forecast your labour needs based on expected production and how much you are expected to pay them.
Don't forget to add important costs such as marketing, rent, and the cost of upgrading or purchasing new equipment. If you borrowed money to start up or expand your business, you also need to include this amount as income and outline how you intend to repay the debt as a projected expense.

You can now complete your budget in the form of a budgeted income statement which consolidates all revenue and expense estimates you have made. There are a large number of free budgeting tools online that can take you through the budgeting process.
Budgeting is vital because if one sticks to it, the looming threat of financial loss diminishes. Once you have a track record of sales and expenditures, you are better placed to know when the low seasons in your business occur and budgeting helps you, to take steps to sail through them relatively unscathed.