Youth enterprise financing has to be a priority area
P Koshy
Access to finance remains a challenge for micro and small enterprises (MSEs). Over the years, many high-powered committees have identified this problem and suggested remedial measures, with limited success. But the banking and the institutional finance system is still not very receptive to the financial needs of a young entrepreneur. Why can?t youth enterprise financing be viewed as a priority area?
Young people are three times more likely to be unemployed than adults, and over 75 million youth worldwide are looking for work, says ILO. And in India too the unemployment rate among the youth is high, at 10.5%. Funding youth ventures should receive high government priority. It is to be addressed as an essential initiative for creating more jobs in the economy.
Innovative and creative thinking is needed to resolve the challenges of this era of market upheavals and rapid changes. It is often the youth who come up with innovative ideas and business plans with promise. It is also true that they often face rejection from a traditional banker. Jobs could be created in new areas such as alternative energy technologies, resource/waste management & recycling, and cultural, entertainment and new media sectors, where often youth have an upper hand and interest.
The MV Nair committee on priority sector lending (2012) observed that financing by banks under the MSE category?in which most start-ups fall?remains stagnant and progress has been largely in terms of percentage share of credit flow, and not in terms of the number of new ventures financed. The committee recommended for a minimum annual growth rate of 15% in the number of accounts.
Finance remains an issue for educated young entrepreneurs when they venture into a business of their own. Attending a professional educational programme often involves paying a huge amount as fees. Education as an investment can surely pay in a knowledge economy, if it is supported by additional and continuous finance for the youth, in easy terms, post-education for launching their business ventures. Repayment of educational loans may become an issue for banks in the near future, in the absence new jobs to match the skills of emerging fresh graduates.
The issue is also that of the approach of banks to new era enterprises in the knowledge economy. Financing knowledge-based entities should be looked at with more ease and an open mind, fully appreciating the opportunities offered by many emerging sectors.
Funding youth entrepreneurs should be a priority and new schemes have to evolve. For SMEs to create more jobs as well as for start-up ventures to take birth, finance should not be a challenge. A boom in the business and technical educational infrastructure in the country is producing lakhs of fresh technically qualified people every year. Educational institutions have to go a step forward, and encourage the youth to come up with their ventures and provide them support, mentoring and facilities within the campus, by setting up business incubators and linking them with financial institutions.
In the UK, the government there encourages young people to launch ventures through a scheme called ?start-up loan?. This has some similarities to a typical education loan. Start-up loans provide budding entrepreneurs between the ages of 18 and 30 a series of support, including access to a business mentor and capital. While an education loan could prove a burden if the student doesn’t get a job in the stipulated period, a start-up loan, available immediately after education after 18 years of age, in contrast, would help the student earn and contribute to the economy in many ways.
In yet another case, in Hull, UK, a ?youth enterprise bank? was set up in 2004. Many stakeholders are involved such as City Council, Hull Youth Council, Chamber of Commerce, University of Hull and local entrepreneurs. The youth enterprise bank gives loans to young people to develop their enterprises.
In India, educational institutions can take the lead in creating entrepreneurs through the business incubator scheme on a large scale, going beyond the incubation and Udyami Mitra programmes of the government. For the banks to achieve 15% growth in new loan accounts annually would mean targeting educational institutes and incubation centres. Maybe, there is a meeting point for finance and entrepreneurship here.
The author is associated with Samadhan Foundation. email: caushie@gmail.com