Disrupting Systems: Financing Africa’s Youth Entrepreneurs

On May 15-16, in the heart of Nairobi, Kenya, 300 plus individuals from more than 175 institutions and 50 countries gathered at the Africa SME Finance Forum to discuss innovative solutions to promote access to finance for small and medium enterprises (SMEs) in Africa. As a key supporter of the Forum, the Mastercard Foundation hosted a panel titled “Disrupting Systems: Financing Africa’s Youth Entrepreneurs.”

At the Mastercard Foundation, youth — defined as those between 15 and 35 years of age — have always been central to the Foundation’s work. Based on learning over the past decade, the Foundation recently launched its new strategy, Young Africa Works. This strategy outlines how, over the next decade, the Foundation will work to ensure 30 million young people in Africa secure dignified and fulfilling work.

Many see SMEs, especially youth-owned SMEs, as “the donkey amongst the horses.” However, at the Mastercard Foundation, SMEs are seen as a driver for employment, a profitable segment to finance, and the backbone to numerous African economies. According to the International Finance Corporation (IFC), SMEs account for 90 percent of all businesses and 80 percent of employment in Sub-Saharan Africa. However, SMEs in this region are also experiencing a $331 billion financing gap. When small firms and entrepreneurs have access to financial services, they have the resources to grow and create job opportunities for others in the community.

The “Disrupting Systems: Financing Africa’s Youth Entrepreneurs” panel at the Africa SME Finance Forum placed a critical spotlight on these SME finance issues from the youth entrepreneur perspective. Panelists from financial technology companies (fintechs) to investors to NGOs provided their insight and expertise on the massive potential in financing youth-owned enterprises.

The panel included:

• Parminder Vir, CEO, Tony Elumelu Foundation
• George Bakka, CEO and Co-Founder, Patasente and Angels Initiative
• Buhle Goslar, Director of Customer Intelligence, JUMO
• Lubna Shaban, Co-Director, Child and Youth Finance International

These individuals shared their experiences and practical examples on salient topics, covering:

• how to fill the SME finance gap;
• the use of technology to reach SME customers;
• how the entire financing system can work for youth entrepreneurs in Africa;
• the importance of business development services;
• and how we can all “disrupt the system.”

Some key takeaways from the panel discussions include:

There is a business opportunity in financing Africa’s youth entrepreneurs.

Africa is a young continent and youth are often early adopters of new technology and drive the start-up space. Buhle Goslar shared that 65 percent of JUMO’s SME digital financial services clients are under the age of 35. JUMO has recognized it is a business imperative to further segment the young entrepreneur group, not just by age but also by sector, in order to appropriately tailor financial services. The panelists also discussed how they are working together with banks to develop tailored financial products that enable repayment by youth entrepreneurs.

Youth entrepreneurs don’t necessarily need grants.

Parminder Vir, OBE, indicated that, in addition to financing, youth entrepreneurs need networks, champions, and mentors. The Tony Elumelu Foundation’s entrepreneurship program has committed $100 million to investing in youth entrepreneurs across all 54 African countries. This program takes a holistic approach which includes training, networking, and seed funding. They conducted a study on the usefulness of the program and found many entrepreneurs identified mentorship as key to their journey, even after they have graduated from the program.

They want more than just advice.

They also need financing. George Bakka spoke about how many people want to offer advice to youth entrepreneurs. However, he indicated, it can be frustrating to get advice from people who don’t have “skin in the game.” Young entrepreneurs are also driving solutions to their own problems. George Bakka was a youth entrepreneur when he started Patasente in an effort to circumvent some of the traditional financial challenges for SMEs. There are now angel networks growing across the continent, such as the World Business Angels Investment Forum recently being set up in Niger.

Youth entrepreneurs need support from the overall ecosystem.

Lubna Shaban outlined how Child and Youth Finance International works with governments, incubators, private sector, and others to create a conducive environment for youth entrepreneurs to excel. Support is needed from the overall ecosystem. She compared it to a car and driver to explain. Access to finance is the car that the driver, the entrepreneur, uses to get from Point A to Point B. However, there are important additional factors that enable the driver to successfully get to their destination. There need to be roads, traffic lights, signs, and a working environment to ensure that the driver is successful. It’s not only important for key players to contribute to the ecosystem, but to also partner with one another to ensure the system works together as a whole. Lubna encouraged those in the audience to take risks and develop partnerships that may seem unconventional but are necessary to ensuring the overall ecosystem supports youth entrepreneurs.

Lastly, disruption is imperative.

As Parminder Vir noted, disruption is not new to Africa. What young people want is the institutionalization of luck and the democratization of opportunity. As Buhle Goslar also noted, disruption is necessary as it is the other side of the coin to inclusion.

Disruption is shifting the system — to make it work for Africa’s youth entrepreneurs.