The best gift for start-ups is easy access to capital: Ernst & Young

Kenya Commercial Bank (KCB) Director Catherine Kola, KCB chairman Ngeny Biwott, US Ambassador to Kenya Robert Godec and KCB CEO Joshua Oigara launch Youth Empowerment Program by Kenya Commercial Bank (KCB) at Kasarani Safaricom Gymnasium on March 9, 2016. PHOTO | JEFF ANGOTE

What you need to know:

  • He says young entrepreneurs should be accorded a conducive environment for their start-ups to grow. This, he says is the only way to curb the high rate of unemployment.
  • Ernst&Young sheds light on the type of help such entrepreneurs need to boost their performance in businesses and hence contribute fully to the country’s wealth creation.
  • “We now have provisions for SME and can lend up to Sh16 million to SME without security, we do not ask for audited financial accounts, we want to help grow innovation,” said Barclays Bank managing Director Mr Jeremy Awori. 

Mr Lesley Mwakio is an entrepreneur bubbling with huge dreams. But like any other businessman running a start-up, his biggest hurdle is capital to scale up his operations.

Mr Mwakio runs an agri-business venture which he started in 2013 but is yet to take a firm root owing to financial challenges.  However, the firm has proved resilient in turbulent moments, remaining fiercely focused on its goals.

Mr Mwakio is not the only one going through a rough financial terrain. A report by Ernst &Young states that nine in every 10 start-ups locally have high aspirations that are held back by the lack of funds. 

 Having browsed the Internet in search of funds or partnerships and tried government youth fund in vain, Mr Mwakio is now compelled to use creative ways to move his business forward. He only works when he receives orders and training sessions for farming structures. 

“As further testament to how grounded our young people’s entrepreneurial aspirations are — nine out of 10 of our respondents have taken further action. They say they have also started to explore the idea or ambition by researching, talking to others or seeking advice in some way,” Ernst &Young states in its Job Creation and Youth Entrepreneurship Survey conducted in 2015.  

Mr Mwakio says banks turned their backs on him and he is yet to find generous private lenders.

Conducive environment

He says young entrepreneurs should be accorded a conducive environment for their start-ups to grow. This, he says is the only way to curb the high rate of unemployment.

The World Bank in its report on the state of youth unemployment ranks the country among those with the highest rates of jobless citizens in the prime of their youth. The report states that unemployment at the age group below 35 years stands at 17 per cent. This is almost three times the rates in Uganda or Tanzania.

The trend manifests a worrying socio-economic status of Kenyan youths even though the country stands above its neighbours in terms of experience and growth.

“As part of the youth who have experienced the trends in unemployment in Kenya, I believe that all hope is not lost and this status (of unemployment) has brought to light unique talents that I did not know I could thrive in to build myself as a brand,” said Mr Mwakio.

“We have the ability to change the world as start-ups; we only need support especially from government and private sector.”
Economist Karithi Murimi says it has remained a decade long challenge to absorb all the skilled manpower in the country.

“Employers are also widening the skills needed to access employment, while some feel that absorbing graduates who are over-learned but under-experienced is not quite a good move for their companies,” said Mr Murimi.

Ernst&Young sheds light on the type of help such entrepreneurs need to boost their performance in businesses and hence contribute fully to the country’s wealth creation.

“When asked what would be the biggest boon in fulfilling their dream, two factors shone through above all others. Hands-on internship opportunities in their line of business come first,” says the report.

The survey also cites lack of access to funding with 43 per cent of start-ups interviewed falling victims. Another 43 per cent start well but are later affected by negative economic factors.

 EY states that investors looking into forging partnerships, helping with start-up support or holding award competitions in the specific lines could address the areas mostly mentioned by start-ups as posing great challenges to their businesses.

Other factors hampering growth in start-up businesses are competition at 25 per cent, lack of access to good advice also at 25 per cent, and the lack of self-believe at 18 per cent.

“Despite an often harsh climate for young people in many global markets, optimism and determination are still their defining characteristics,” EY states urging investors to pile their money on start-ups for this sole reason. 

The start-ups if well supported spring into fully-fledged Small and Medium Enterprises (SMEs) which contribute up to 45 per cent of total employment and up to 33 per cent of Gross Domestic Product (GDP) in emerging economies.

Mentorship
“These numbers are significantly higher when informal SMEs are included,” said the World Bank in a statement. “Good financial support and mentorship provide good base for SME to play a major role in developing countries (Kenya is among these countries) and policies should be formulated to support their growth.”

 Further, the global financial services firm urges the government to support upcoming start-ups because 600 million jobs will be needed in the next 15 years to absorb the growing global workforce, mainly in Sub-Saharan Africa.

“A positive factor that governments should consider is that most formal jobs spring up from the SME sector which also creates 4 out of 5 new positions,” states the World Bank in a statement. 

The World Bank also urges the government to integrate SMEs and start-ups in developing sector policies so that their views can be taken into consideration for a better playing field.

Mr Karithi calls on the government to act fast to counter the challenges faced by the greatest contributor to the GDP growth (SME).
 “It is important for policies to be put in place to encourage growth of local technologies and innovations, this will reduce reliance on imports and decrease Kenya’s debt burden with time,” said Mr Murimi.

Market forces such as undeveloped capital market policies for start-ups compel them to rely on self-financing or borrowing from friends and relatives. They are also affected by lack of access to long-term credit, compelling them to rely on high cost short term finance.

Lenders such as Kenya Commercial Bank, Barclays Bank, Chase Bank and Equity Bank have come up with programmes to support start-ups and SMEs. However, some of the programmes are rigorous and include major competitions that could see only a few start-ups awarded the seed fund.

“We now have provisions for SME and can lend up to Sh16 million to SME without security, we do not ask for audited financial accounts, we want to help grow innovation,” said Barclays Bank managing Director Mr Jeremy Awori. 

Reduce poverty
Enablis, a firm that develops entrepreneurs to reduce poverty, Kenya Association of Women Business Owners (KAWBO), and Africa Youth Trust Kenya are among organisations that have concentrated on increased support to the sector.

Experts have for a long time pointed out that the informal sector is the biggest solution to Kenya’s unemployment surge, but only if it goes through a complete overhaul.

 Ms Diarietou Gaye, Country Director for World Bank Kenya, in a statement said that even as the government works on policies to lift start-ups, the innovators must ensure that their ideas are economically viable.  “From my point of view, it is not only sufficient to know how to produce a high quality product. The producer must sell it effectively and control financial flow in the business,” said Ms Gaye.