Access to finance remains a thorny and complex issue for many young people seeking to venture into entrepreneurship, especially for the first time. The minefield of finance is one that is difficult to navigate for a demographic that is more often than not perceived to be “high risk” and uncreditworthy, and therefore find themselves largely excluded by the formal financial services sector. In informal settings, young people are sometimes taken advantage of, and are subjected to high interest rates when forced to borrow money from loan sharks and non-traditional lenders because they lack options in that regard, especially if family or friends cannot step in to assist them financially.
Overcoming the difficulties of accessing finance
This has equally been a challenge for youth under the Opportunities for Youth Employment (OYE) program who set out to start their own enterprises in Zambia. Fortunately, many of them are finding ways to work around these limitations through the creation of savings and lending groups.
Savings and lending activities play a key role in promoting access to finance as well as financial discipline and accountability. Participation in Youth Savings and Lending (YSL) groups provides an opportunity for members to save and borrow money which is then invested into various businesses at a rate which is generally lower and more affordable than that of traditional financial institutions. In Zambia, lending rates can be as high as 20% - 45% per annum amongst banks and other financial institutions, while those of YSL groups can start as low as between 5% to 19%.
'Patience Pays' Savings Group conducting their regular meeting in Katete, Eastern Zambia while members of the community look on.
Establishing youth savings and lending groups
As of 2022, more than 3,600 youth who were trained under OYE had formed 180 YSL groups. These groups, of whom around 61% are women, are currently active in Eastern, Southern, Central and Northern provinces of Zambia.
With an average of 30 members per group (almost equally comprised of both men and women), ‘Tikondane’ and ‘Patience Pays’ are two groups among many who have been successful in raising capital and enabling youth to invest in their own small businesses.
Seed funding of a special kind
Twenty-three-year-old William Phiri is one of the participants in the ‘Tikondane’ Savings Group. After a share-out amongst group members in 2020, he was proud to have accumulated savings of around K3000 (176 USD). He used half of these savings as start-up capital to purchase sunflower seeds from local growers within his rural community and rented a small machine to process sunflower seeds into cooking oil. The first batch of sunflower seeds yielded five 20-litre containers which he sold at K520 each, some 15 USD. He further grew his capital and acquired two head of cattle which are now helping in cultivating the land that belongs to his family. His total investment now stands at K25,000 (1,471 USD). His business has enabled his family to achieve a sustainable livelihood while also raising their basic income, giving him great hope for the future as the breadwinner in his family.
By providing employment for those who are working with him on these economic ventures as well, William is witnessing first-hand the win-win situation that can be created through YSL groups. He became an advocate for these groups, encouraging other young people in his village to work hard and be proactive in saving for a better future. The OYE approach continues to empower young people using this simple methodology in 10 countries across Africa, which has proved to be a means for giving young entrepreneurs self-managed tools to independently begin generating capital for their entrepreneurial ventures within a challenging financial environment.
Written by: Sharon Wekwete, Regional Project Manager, and Alex Mwila, Business and Financial Services Advisor