Groups call for tighter control of youth fund

Political leaders and lobby groups are pushing for tighter controls on lending to youth and women groups to reduce default rates.

Borrowers have stopped servicing their loans, reporting default rates of about 40 per cent, Youth and Women Enterprise Development Fund managers say.

Analysts say cash will soon run out since the kitty is a revolving fund— in which the repaid instalments are used to advance more loans to new borrowers.

Ikolomani MP Bonny Khalwale said new methods should be devised that will include lower instalments to cut the rate of defaults.

“The defaults are disturbing. It’s now upon the officials of both the youth and women’s funds to review the terms of repayment. They for instance should spread the repayment of loans over a longer period of time,” he said.

Youth empowerment organisations say there is a need to train the youths before doling out the cash for start-up businesses.

Nahum Okwiya, the chairman of youth sector board at the Kenya Private Sector Alliance, says the way forward to mitigate the risk of default is to put more emphasis on technical training at polytechnics across the country to ensure the youth are equipped with the skills of running own businesses.

“If you invest heavily in disbursement and emphasise less on building the capacity of the youth through entrepreneurship training then your chances of default could be high because you are advancing cash to people whose capacity is yet to be developed to be able to run businesses,” said Mr Okwiya, who is also the executive director of the Africa Youth Trust, a non governmental organisation that facilitates training of youth in business development.

The Youth Enterprise Development Fund has allocated Sh2.5 billion to about 8,500 youth groups and 71,000 individual youth enterprises since 2007, but its director ,Mr Evans Gor, says it is experiencing difficulties because of defaulting youth groups.

Mr Richard Muteti, the chief executive of the micro and small enterprises federation, said the youth fund was a political move and that there was no due diligence done to evaluate the sustainability of the fund.

He says the fund must devise ways of mapping youths across the country to ensure that the fund reaches genuine groups that could use it to start businesses and repay their loans.

“The business proposals the youth fund receives may not be genuine because some of those youths consult professional proposals writers who give them the documents. Some of the proposals are appealing but are not implemented easily” says Mr Muteti.

Some analysts also say that the youth fund will continue experiencing defaults because it does not have proper structures on how to deal with default .

Mr Kimathi Mutua, a director at Krep Bank that concentrates in loan disbursement to small and medium businesses says most financial institutions declined to participate in the distribution of the youth fund because interest rates were not commercially viable.

“Most banks did not accept to disburse the money because the government insisted that the interest be charged at lower than market rate; this provided little incentive to the financial institutions” says Mr Mutua.