[PANEL SESSION] Financial inclusion of young entrepreneurs: A long road covered and innovations still possible

  • Dominique OWEKISA, ADA
    • Fatoumata Niang NIOX, Jokkolabs Senegal
    • Mama KOUENTA, Swisscontact Mali

    PRESENTATIONS (Session held in French)

    The speakers introduced themselves for this session on key challenges that young entrepreneurs are facing today when trying to access finance. The session aimed to discuss new ways to improve access to finance for young entrepreneurs, through collaboration between financial institutions and business support organisations, and through the development of innovative financial products.

    Niang NIOX discussed how the credibility of young entrepreneurs is linked to poverty and lack of training of young entrepreneurs.  As such, Jokkolabs Senegal interventions are targeted at training young entrepreneurs in the professional area of their performance, but also including basic entrepreneurial competencies, including ideation, development of business models, building networks and partnerships, and accessing capital and finances through financial partner institutions. 

    The objective is to provide a full circle of support to young entrepreneurs so they can be successful, including that they pay back their loans appropriately. Some of the Jokkolabs’ programmes are supported by ADA, and increasingly by the Senegalese State. It is important to bear in mind that 80% of the young entrepreneurs are facing a first credit experience, and as such require support and training to ensure they understand that revenues are not all profit but also need to be oriented to reimbursing loans received. She highlighted that more needs to be done, particularly by governments, to ensure enough coverage of appropriate business development services, as well as finance to address the needs of young entrepreneurs in Africa. Only thus will it be possible to ensure the funds defined to funding young entrepreneurs can follow a circular path and be used to finance new investment projects.

    Dominique OWEKISA briefly highlighted that ADA is an active partner in the development of new financial products to facilitate the process of supporting first financing to young entrepreneurs in various countries, including Senegal.

    Mama KOUENTA subsequently discussed the differences in the needs of young entrepreneurs receiving their first loan vis-à-vis the needs of more established enterprises. He shared their experience with a project funded by the Danish Embassy in Mali, and implemented by Swisscontact. It was built on local conditions, and provided business support to 1,300 enterprises that requested loans. Some 1,000 loans have been disbursed with very good reimbursement rates.

    The key innovation is the support of young entrepreneurs using facilitators from local consultancy firms, paid by the project. The facilitators guide the implementation of the young entrepreneurs’ businesses, and train and support these young entrepreneurs in the financial and operational management of their projects. The facilitators approve the disbursement and use of the loan funds, and ensure that business revenues are deposited in the entrepreneur’s accounts with financial partner institutions so as to repay their loans. This ensures that the young entrepreneurs understand that the revenues are not all disposable profits, but that these are revenues to cover operational and financial costs.

    Owekisa articulated the need of some young entrepreneurs to open savings accounts, to gradually build up their capital to invest in their projects. Nevertheless, some financial institutions charge very high fees to open these accounts. In addition, a number of microfinance institutions have been rather slow to offer digital (mobile banking) services, which typically enhance the interaction and loyalty of young entrepreneurs with the financial institutions. So there are still frictions in the relationship between financial institutions and entrepreneurs.

    Niox added that there are innovative financial products including Young Agricultural Loans in Senegal, where interest rates are lower than market rates and provide reimbursement conditions that are more flexible and adapted to the operational conditions of the agricultural practices. And these types of products are being adapted to different types of industries, with the understanding by financial institutions that these young entrepreneurs are their future clients and therefore worth efforts and investment by these financial institutions to attract young entrepreneurs. Other innovations include the break-down of the initial fees for bank account opening in several instalments up to one year.

    Another model being explored is the development of reimbursement systems based on the entrepreneurs’ revenues, including schemes such as charging a fixed percentage of the monthly revenue. This mechanism is being tested to better adapt to the needs and capacity of businesses, thus providing the appropriate support to young entrepreneurs.

    Owekisa underlined the importance of these innovative schemes for young entrepreneurs with small and growing businesses, since a good number of entrepreneurs are in this situation: beyond the (micro finance) initial funding stage but not yet at the point where they can access traditional bank products. This is an innovative product in Senegal and other countries (Mali, Burkina Faso), which is being introduced by ADA in an experimental manner, with great interest of stakeholders, entrepreneurs, financial institutions and business support providers.

    Niox, whose organisation is also involved in this pilot, added how the needs of young entrepreneurs in the growth phase are very specific. Her organisation has developed incubation modules and services that fit those needs, and provide close follow up to help youngsters manage their financial and operational processes effectively. The innovative component of this product is the reimbursement structure that relies on the specific enterprise revenue to adapt to the seasonality of each enterprise’s peculiarities. Owekisa added that the reimbursement structure also includes a small component, around 2-3% of the entire reimbursement, that covers the cost of the business development organisations that guide and support young entrepreneurs for investment readiness, and provide post-investment support. Niox highlighted the fact that these products (agriculture finance and revenue-based repayment), coupled with programmes to train and support young entrepreneurs, do lead to a better managed growth for the businesses and an improvement in reimbursement rates.

    Kouenta remarked that in their project most financial support targeting young entrepreneurs in Mali goes currently to the agricultural sector (around 40% of all funding). This is important because the country has a major need to improve and renew its agricultural sector to increase production and address food insecurity and satisfy export market opportunities. Kouenta also responded to a question, stating that every single one of the 1,000 youngsters getting support from the programme is supported by a facilitator from a consultancy firm for a certain period. Once that period is over, the project itself takes over the support and orientation to ensure that the young entrepreneurs continue to develop their capacities to manage and grow their business.

    One of the participants asked about the management of risks linked to climate change, with the emphasis on agricultural project financing. Niox responded that their products indeed take this into account in two dimensions:  the first one is the training of the entrepreneurs so they can understand the risks involved in climate change and agricultural production. The second dimension is the inclusion of an insurance component of each loan that covers reimbursement in case of a natural calamity. An additional dimension is the fact that the training provided to agricultural entrepreneurs is focussed on sustainable production and management of the environmental impact of their activities through agro-ecological principles. Niox highlighted the importance of follow-up and support to young entrepreneurs to ensure they develop the managerial competencies required to sustain their initiatives.

    KOUENTA concluded by emphasising the importance of empowering young entrepreneurs to manage their initiatives directly, with support from facilitators and external advisors, to ensure their capacity to manage and grow their companies are effectively developed.