Youth Fund woos banks to loan start-ups

The Youth Enterprise Development Fund will start guaranteeing loans borrowed by its members from commercial banks as it seeks to interest more institutions to support the ventures.

The government agency whose mandate is to help the youth set up profitable businesses said it had Sh200 million for the comfort fund which will enter a pilot phase in April.

“The Fund is able to share risks with banks and other financial institutions. The Youth Fund will act as a guarantee to lenders for the credit extended to the youth,” said the Fund’s chief executive Mwatata Juma.

He said the pilot will involve Family, Co-op and Consolidated banks and would be expanded if the first steps bear fruits.

Focus will initially be on short-term financing, including trade financing, invoice discounting, performance bonds, letters of credit and local purchase order financing.

High-risk ventures

The scheme comes at a time lending to start-ups is almost non-existent and small and micro businesses pay higher interest and fees because they are perceived high-risk.

Mr Henry Mwenda, the Fund’s lending and investment manager, said the scheme will target incorporated companies run by the youth.
The credit guarantee scheme will also help to open up credit avenues for start-ups, especially those that have come from the Fund’s business plan competition and those which have been through the incubation process.

“The youth are trying to target government projects but they do not have the money. The scheme will help the intermediary to take care of the issue of collateral and the lender will be able to recover in case the loan goes bad,” said Mr Mwenda.

Henry Karugu, Family Bank marketing manager, confirmed that the bank was involved in the guarantee scheme. Once the consultant finishes with the details, then we will say how it is supposed to work,” he said.

However, Mr Mwenda said that the commercial banks will also be matching the amount that the Fund will have contributed.

Constituency level

The Youth Fund has advanced loans worth Sh5.2 billion to 144,000 youth enterprises since the it was established.

Out of the amount, Sh543.3 million was given to 12,407 group projects, Sh54.2 million to 2,111 individual enterprises at the constituency level while the balance of Sh4.6 billion had been disbursed through financial institutions.