This is the first in a three part series, published in the lead up to Standard Chartered’s Futuremakers Forum online events 2020. To join the conversation exploring innovative ideas and tangible solutions for financing young entrepreneurs – the live event will take place on 30 July 2020. Please click here to register.
Globally, more than 200 million young people– often disproportionately impacted by the challenges of inequality – are out of work or live in low-income poverty.1
Young people in low-income countries are particularly affected – as many as 66 per cent of Africa’s 420 million young people are unemployed or vulnerably employed, and only one in six is in waged employment.1 According to the African Development Bank, by 2025, 263 million young people will lack an economic stake in the systems that govern their lives.2
It is therefore essential that young people are given the opportunity to succeed in any entrepreneurial ventures they undertake. Yet, they continue to face barriers to success. It is important that different actors – including from the private and non-profit sectors, academia, government and intergovernmental organisations – work together to drive systemic change. Private and corporate clients, development banks and other donors all have a role to play in creating opportunities and transforming the environment in which young entrepreneurs operate.
Young people around the world, and particularly in low income countries, have made great strides in starting businesses of their own, finding ways of generating income and creating employment. When it comes to obtaining finance, to scale up or further develop their businesses, they face numerous challenges. The difficulties that micro, small and medium sized enterprises (MSMEs) and entrepreneurs face in accessing finance are well documented.3 Young people experience additional barriers, such as not having sufficient collateral, underdeveloped track records, immature networks and having weak credit ratings. They may be unfamiliar with the requirements of a business plan, or the information needs of investors and they may not know who to approach for funding. A lack of educational opportunities and very few role models add to the challenges young people face.
Access to finance is particularly difficult for women,4 and young women may face some of the highest barriers to generating bankable businesses. Some interviewees noted that male founders tend to source and secure investment faster, while women lacked confidence in seeking out investors and role models to show them the way. The challenges facing young women are multifaceted and complex. Due consideration needs to be given to provide equal opportunities for women-led businesses; enabling them to find the right financial backing in order to thrive.
Despite these challenges, many of the ideas that young people put forward are innovative, future-focused and bankable. Forward-thinking investors and philanthropists know this and are keenly seeking out businesses led by young people, in which to invest. An area of shared interest, therefore, is looking at ways of connecting young entrepreneurs with those who wish to invest in them.
Important topics of discussion include how to: become investment-ready; work with the finance sector to extend finance to young people; and connect suitable financiers with young entrepreneurs. Developing a mutual understanding of the needs and challenges of stakeholders on both sides is important to find new innovative solutions to bridge the gap.5
Until recently, entrepreneurs – and particularly young entrepreneurs – turned to family, friends or their extended community to raise capital to fund their ideas.6 For some fortunate young entrepreneurs with networks, knowledge and sponsorship, access to venture capital or impact investment is happening. The opportunity is to enable all young entrepreneurs to have the access to this finance. To break through the norms and develop new funding coalitions, new mechanisms and approaches are needed.7
THE COVID-19 EFFECT
Central to the thinking on this topic are the new challenges to economies, jobs and livelihoods that have rapidly been brought to the fore by the COVID-19 pandemic. As stated by the International Labour Organisation (ILO), the world of work is being profoundly affected by the global virus pandemic.8 In addition to the threat to public health, the economic and social disruption jeopardises the long-term livelihoods and wellbeing of millions. Thousands of small enterprises around the world, particularly where people can’t get access to healthcare, are especially vulnerable and cannot afford even a short-term cash flow disruption. The ILO estimates that the global working hours in the second quarter of 2020 are expected to be 10.5 per cent lower than in the last pre-crisis quarter. This is equivalent to 305 million full-time jobs.9
While this crisis has a profound impact on the availability of financial resources to fund new ventures of any kind, it may also present a catalyst to create new innovative means of engagement between entrepreneurs and investors, and to place young people at the forefront of rebuilding from this crisis. As the pandemic evolves, questions arise: What new models need to be created to ensure young people can thrive in spite of this crisis and beyond? Where will new quality jobs come from? And how can this positively change the access to finance for young entrepreneurs in the future?
It is only by bringing together the key stakeholders that affect, and are affected by, financing of ideas and ventures that we can begin to make shifts in this area. Frank conversations about needs, unseen obstacles and bold solutions, backed up by commitments to action, could create the kind of sustainable change that is urgently needed in this area. The webinar discussion will look to identify partnering opportunities and explore how we can co-create new dynamic models that incentivise youth-focused investments and ultimately create positive outcomes for young people.
To read the other papers in this series and find out more about the Futuremakers program, please visit: https://www.sc.com/en/sustainability/investing-in-communities/futuremakers-forum/
1 Standard Chartered. Here come the Futuremakers. https:// www.sc.com/en/explore-our-world/here-come-the-futuremakers/
2 Africa Development Bank. Jobs for Youth in Africa. https:// www.afdb.org/fileadmin/uploads/afdb/Images/high_5s/Job_ youth_Africa_Job_youth_Africa.pdf
3 International Finance Corporation (2017). MSME Finance Gap. https://www.ifc.org/wps/wcm/con- nect/03522e90-a13d-4a02-87cd-9ee9a297b311/121264-WP-PUB- LIC-MSMEReportFINAL.pdf?MOD=AJPERES&CVID=m5SwAQA
4 World Economic Forum. To improve women’s access to fi- nance, stop asking them for collateral. https://www.weforum.org/ agenda/2019/06/women-finance-least-developed-countries-col- lateral/
5 Centre for Financial Inclusion. How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines. https://www.centerforfinancialinclusion.org/how-fi- nancial-institutions-and-fintechs-are-partnering-for-inclusion-les- sons-from-the-frontlines-2
6 World Bank Group. 2014. Global Financial Development Report 2014. Global financial development report. Washington, DC : World Bank Group. http://documents.worldbank.org/curat- ed/en/225251468330270218/Global-financial-development-re- port-2014-financial-inclusion
7 Entrepreneurial finance: new frontiers of research and prac- tice https://www.tandfonline.com/doi/full/10.1080/13691066.2016. 1259733
8 International Labor Organization. COVID-19 and the world of work. https://www.ilo.org/global/topics/coronavirus/lang–en/ index.htm
9 International Labour Organization. 2020. COVID-19 and labour stats. Date of viewing: 8th May 2020. https://ilostat.ilo.org/ topics/covid-19/