CREATING YOUTH EMPLOYMENT THROUGH ENTREPRENEURSHIP FINANCING: The Uganda Youth Venture Capital Fund - RESEARCH SERIES No. 122 - Africa Portal
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RESEARCH SERIES No. 122
CREATING YOUTH EMPLOYMENT THROUGH
ENTREPRENEURSHIP FINANCING:
The Uganda Youth Venture Capital Fund
GEMMA AHAIBWE
IBRAHIM KASIRYE
MAY 2015RESEARCH SERIES No. 122
CREATING YOUTH EMPLOYMENT THROUGH
ENTREPRENEURSHIP FINANCING:
The Uganda Youth Venture Capital Fund
GEMMA AHAIBWE
IBRAHIM KASIRYE
MAY 2015Copyright © Economic Policy Research Centre (EPRC) The Economic Policy Research Centre (EPRC) is an autonomous not-for-profit organization established in 1993 with a mission to foster sustainable growth and development in Uganda through advancement of research – based knowledge and policy analysis. Since its inception, the EPRC has made significant contributions to national and regional policy formulation and implementation in the Republic of Uganda and throughout East Africa. The Centre has also contributed to national and international development processes through intellectual policy discourse and capacity strengthening for policy analysis, design and management. The EPRC envisions itself as a Centre of excellence that is capable of maintaining a competitive edge in providing national leadership in intellectual economic policy discourse, through timely research-based contribution to policy processes. Disclaimer: The views expressed in this publication are those of the authors and do not necessarily represent the views of the Economic Policy Research Centre (EPRC) or its management. Any enquiries can be addressed in writing to the Executive Director on the following address: Economic Policy Research Centre Plot 51, Pool Road, Makerere University Campus P.O. Box 7841, Kampala, Uganda Tel: +256-414-541023/4 Fax: +256-414-541022 Email: eprc@eprc.or.ug Web: www.eprc.or.ug
Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
ABSTRACT
Youth unemployment continues to be a developmental challenge not only in Uganda but in
several sub Saharan countries. At least 64 percent of the total unemployed persons are youth
aged 18-30 years. As the government struggles to look for solutions to the unemployment
challenge, one approach has been the promotion of self-employment through the
establishment of National Youth Funds. Specifically, the Youth Venture Capital Fund (UYVCF)
worth UGX 25bn (about US$ 10 million) was introduced in 2011 and more recently, in
September 2013, government significantly boosted youth schemes by allocating UGX 265
billion (about US$ 100 million) to the Youth Livelihood Programme (YLP) over a five-year
period. The major pillars of these initiatives are: enterprise development, job creation and
business skills training and development. Using the UYVCF as a case study, this study examines
the level and determinants of youth participation in the fund and evaluates the operations
of the fund against the initial guidelines and design as stipulated in the Aide memoire1
between the Ministry of Finance Planning and Economic Development (MFPED) and the
participating banks. The study majorly relied on secondary data provided by Centenary Bank,
the largest commercial bank participating in the fund and was complemented by a survey
of beneficiaries as well as potential beneficiaries. The data sourced from the commercial
bank provides an overview of the fund beneficiaries by basic socio economic characteristics
while the field survey data was used to compare the activities of beneficiaries vis a vis non-
beneficiaries.
Results indicate that participation in the youth fund program is positively and significantly
influenced by the age cohort of the youth entrepreneur (the older youth aged 26-35 years
are more likely to access the fund compared to the younger youth (18-25 years), location of
the business (urban based businesses have a higher chance of accessing the fund), type of
business enterprise (those in services are more likely to access the fund loan) and business
maturity. Although there has been some positive effect of the fund on business expansion,
we do not find significant evidence of the youth fund effect on jobs creation. It was also
discovered that the major role players are not entirely fulfilling their mandates and some
have sidetracked from the initial objectives. On the policy front, we propose that for the
youth fund to have a lasting impact on its intended objectives, the promotion of youth
entrepreneurship should be approached comprehensively (not only the credit component)
and it should target productive sectors with high employment creation potential. A
strong institutional framework and elimination of obstacles to self-employment are other
recommendations arising out of the study.
Key words: Youth, Youth Fund, Employment Creation, and Entrepreneurship
1 http://www.finance.go.ug/index.php?option=com_content&view=article&id=112:the-youth-venture-capital-fund&catid=8:in-the-
press, last accessed on 30th June 2014
ECONOMIC POLICY RESEARCH CENTRE - EPRC iCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
TABLE OF CONTENTS
ABSTRACT I
1 INTRODUCTION 1
2 LITERATURE REVIEW 2
2.1 Why youth funds? 2
2.2 Impact of microfinance programs on economic outcomes of youth 5
2.3 Emerging practices from African countries implementing National Youth Funds 7
3 DATA AND METHODS 9
3.1 Data 9
3.2 Methods 10
4 RESULTS AND DISCUSSION 11
4.1 Scale and Outreach of the Uganda Youth Venture Capital Fund 11
4.2 Factors influencing youth participation in the youth venture capital fund 13
4.3 Is the Uganda Venture Capital Fund operating as designed? 15
5 CONCLUSIONS AND POLICY RECOMMENDATIONS 17
5.1 Conclusions 17
5.2 Recommendations 17
6 REFERENCES 19
APPENDICES 21
Appendix 1: Description of variables used in the Probit model 21
EPRC RESEARCH SERIES 22
ii ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
1 INTRODUCTION growth rate has averaged 6.7 percent
per annum during the 2003-2012 period
Youth unemployment continues to be a (Ministry of Finance Planning and Economic
developmental challenge in several African Development (MFPED), 2013). On the other
countries despite the positive economic hand, the pace of creating new employment
growth rates experienced over the past opportunities has lagged behind labour force
decade. There are indicators that this growth. According to the 2007 World Bank
growth has not generated sufficient and report, the labour force in Uganda grew at
decent employment opportunities for the an annual rate of 3.4 percent resulting in
youth (AfDB et al., 2012; UNECA, 2011). 390,000 new job seekers and yet only 8,120
As a result, unemployment, working jobs were being created each year.
poverty, vulnerable employment and
underemployment are widespread amongst In an effort to create jobs for the
Africa’s youth. Moreover, demographics youth, various measures addressing the
indicate that Africa is going through a demand side and supply side of labour
youth bulge with a large proportion of its have been implemented. Promotion of
population below 25 years of age (Kararach, entrepreneurship financing and overall self-
2011). This demographic shift presents employment through targeted youth funds
opportunities for a growth dividend are increasingly considered as viable options.
if combined with the right capital and Indeed, previous research shows that in
technology – as the case of East Asia - but addition to job creation, entrepreneurship
it can also represent a major threat (Brooks has the potential to improve livelihoods
et al., 2012). Insufficient employment and economic independence of young
opportunities amidst a rapidly growing people (Schoof, 2006). In the recent past,
young labor force can lead to social unrest the Government of Uganda (GoU) has also
and political instability (Ministry of Gender, initiated programmes to support youth
Labour and Social Development (MoGLSD), entrepreneurship and self-employment.
2011; Page, 2012). The difficulties faced by Starting with the 2011/12 national budget,
young people in most developing countries UGX 44.5 billion (about US$ 18 million)
in finding work are attributed to limited was allocated to youth entrepreneurship
expansion of employment opportunities, promotion programmes. An extra UGX 3.5
skills mismatches and limited or no work billion (US$ 1.5 million) was earmarked in
experience (AfDB et al., 2012). As a result, the 2012/13 budget (MFPED, 2012). More
most African youth engage in low quality recently, in September 2013, government
informal sector jobs. The informal sector significantly boosted youth schemes by
accounts for about 90 percent of the jobs allocating UGX 265 billion (about US$ 100
created in the continent (World Bank, 2009). million) over a five-year period.2 The major
Although Uganda has maintained positive pillars of these initiatives are: enterprise
economic growth rates during the past development, job creation and business
decade, the country’s pace of economic skills training and development. The youth
advancement has not been matched with a schemes in Uganda are based on the premise
growth in new employment opportunities.
2 Under the revised scheme, youth can borrow up to UGX 12.5
Uganda’s Gross Domestic Product (GDP) million (US$ 5,000) with the loans capped at UGX 24.4 million
(US$10,000) and there is limited use of commercial banks
ECONOMIC POLICY RESEARCH CENTRE - EPRC 1Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
that micro, small and medium enterprises 2 LITERATURE REVIEW
(MSMEs) are likely to play a leading role
in employment generation given that they
2.1 Why youth funds?
comprise about 90 percent of the private
sector (MFPED, 2012). The growing level of youth unemployment
in different countries has been the major
Despite the Uganda Youth Venture Capital motivation for the setup of youth funds. In
Fund’s (UYVCF) commendable progress, not an environment where economic growth
much is known about the scale and outreach has not greatly reduced unemployment
of the fund in terms of geographical levels, the governments have resorted to
distribution, age, gender and type of business use of targeted short-term job creation
enterprise, among other characteristics. It interventions. Globally, enterprise support
is important that after more than one year and promotion has been identified as
of implementation, a short term process a strong component under the Youth
evaluation is conducted to understand Employment Network (YEN) of the United
whether the fund is functioning /operating Nations, ILO, and World Bank. Through their
as designed or whether the fund is on partnership under the Youth Employment
course as far as attainment of its objectives Network, the above institutions identified
is concerned. entrepreneurship as a key priority in
the promotion of youth livelihoods and
This study reports the results of an analysis employment (Schoof, 2006). This dialogue
conducted on the operations of the Uganda has led to the introduction of entrepreneurial
Youth Venture Capital Fund. The objectives skills development programmes and
of the study included: First, profiling the entrepreneurship development funds in
UYVCF beneficiaries as of January 2013, by many African countries.
social economic characteristics (e.g. gender,
geographical location, portfolio/amounts National youth funds can generally be
and type of business enterprises) to get an defined as financial resources contributed
overall picture of who is accessing the funds. by governments through annual budgets
Second, we assessed the factors influencing – in some cases through public private
youth participation in the youth fund. partnerships, with the private sector and
Thirdly, the study evaluated the operations NGOs- mainly to support the growth of
of the youth fund against the initial design Micro, Small and Medium Enterprises
(guidelines and procedures). (MSMEs). The youth funds may be in form of
loans or grants depending on the objectives
The rest of the paper is organized as follows, for which they were set up in different
section 2 discusses relevant literature, and countries. However, most youth funds
the data and methods used in the study are are geared towards employment creation
presented in section 3. Section 4 discusses through support to MSMEs development,
the study findings prior to conclusions and by using financial instruments, and business
policy recommendations in Section 5. support services among other tools (ILO,
2012).
2 ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
For example the Kenya Youth Enterprise 2015 and the National Youth Policy (2011)
Development Fund and Namibia Credit identify entrepreneurship as a key strategy
Schemes were set up in 2006 to create youth towards solving youth unemployment.
employment opportunities and promote The GoU envisions developing a pool
an entrepreneurship culture through of non-formal employable skills in the
structured and comprehensive support country by promoting non-formal skills
(Kenya Youth Enterprise Development Fund development, promoting institutionalized
status report, (2009); Namibia Youth Credit entrepreneurship, development, training
Scheme Policy, (2008). The objectives of and promoting start-ups and youth
these funds go beyond enterprise financing entrepreneurship products (GoU, 2010). A
to provision of business development four pronged youth employment creation
support services (mentoring, coaching, strategy worth UGX 44.5bn (about US$
incubation). The Umsobomvu Youth Fund 18 million) was introduced in 2011/12.
(UYF)3 in South Africa was a comprehensive The four components were; the Youth
program set up in 2001. It had several Entrepreneurship Venture Capital Fund,
services aimed at making the young people Youth Entrepreneurial Training Programme,
employable through vocational training Business Development Skills Clinics and
and skills acquisition, enterprise finance Market Infrastructure Development.
and promotion of community service
(Umbsombuvu Youth Fund Annual Report, Under the UYVCF, the Government engaged
(2008/9)). In contrast, some youth funds, in partnership with three commercial banks
however, have been set up without largely to provide the youth with access to low
focusing on entrepreneurship development. interest credit (15 percent compared to the
For example, the Tunisia Youth Fund was average market rate of about 23 percent);
developed with the objective of linking either as individuals or as organized entities
unemployed graduates with potential (groups). A set of procedures and eligibility
employers. The major activities of the criteria were defined as pointed out in Box
Tunisia Youth Fund are to create a database 1. About 56.2 percent of the job stimulus
on available job opportunities and linkages funds (UGX 25.0 billion) was allocated
and partnerships with relevant data on to the Youth Entrepreneurship Venture
employment opportunities (ILO, 2012). Capital Fund, undertaken in partnership
with the participating banks. The resources
Cognizant of the fact that the youth under this category were earmarked to
disproportionately comprise about 64 support the growth of business ventures.
percent of the total unemployed persons About 7.8 percent (UGX 3.5 billion) was
in the country, the Government of Uganda allocated to Enterprise Uganda for the
(GoU), has recently embraced youth Youth Entrepreneurial Training Programme
entrepreneurship for jobs creation in addition to train the youth on business management
to other interventions. Indeed, the current skills, enable them to enter the job market
National Development Plan (NDP) 2010- or create their own enterprises. One billion
(UGX) was allocated for the creation of
3 The Umsobomvu Youth Fund was merged with the National business development skills clinics. The
Youth Commission to create the current National Youth Devel-
opment Authority (NYDA), South Africa with a broader man- remaining 37.1 percent of the funds
date beyond youth employment creation.
ECONOMIC POLICY RESEARCH CENTRE - EPRC 3Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
(UGX16.5 billion) was allocated to Kampala City Authority (KCCA) for establishing markets
in Kampala, in which the youth and other small scale manufacturers would undertake
manufacturing and other processing activity (Budget Speech, MFPED, 2011/12). However,
this study is biased towards the UYVCF since by 2012/13, there wasn’t much information/
data on the other components of the Youth Enterprise Scheme.
Box 1: THE UGANDA YOUTH VENTURE CAPITAL FUND
GOVT of Uganda in Partnership with DFCU e. If approved, Eligible beneficiaries should
Bank, Stanbic Bank and Centenary Bank has be willing to receive advice and be ready
made available a venture capital fund of UGX to participate in financial skills training
25 Billion. The Fund will be used to support and mentoring for proper business man-
growth of viable and sustainable SMEs by the agement.
youth in the private sector.
Other requirements:
Objective: 1. Individuals:
To provide venture capital debt finance to vi- a) Proof of age.
able projects proposed by the young entrepre- b) Proof of nationality and residence e.g.
neurs as well as enable the youth benefit from passport, birth certificate, voters’ card,
associated mentoring services from the par- utility bill or parents’ bill, Local Council
ticipating bank. The Fund therefore is aimed at letter or tenancy agreement.
supporting the growth of viable and sustain- c) CRB card. Required from successful ap-
able SMEs in the private sector. plicants only. This is available at all bank
branches at a once-off payment of UGX
Focus Sectors 50,000
The Fund is available to support the business 2. Companies/Partnerships:
Ventures owned by young entrepreneurs. a) Certificate of registration, incorporation
Eligible sectors will include: manufacturing, or partnership deed
agro-processing, primary agriculture, fisher- b) Certified Memorandum and Articles of
ies, livestock, health, transport, education, Association,
ICT, tourism, construction, printing and service c) CRB Card at a once off payment of UGX
contractors among others. 60,000 , Required from successful appli-
cants only, Available at all bank branch-
Eligibility: es.
The eligible youth entrepreneurs should be d) Any other requirements under the rel-
aged between 18 and 35 years. evant laws of Uganda.
Basic Requirements Features:
a. Eligible borrowers shall be expected to 1. Purpose: Business growth/expansion
comply with their local business licensing 2. Currency: Uganda Shillings
requirements. 3. Loan Amount:
b. Eligible enterprises must have been in op- Ten (10) times the existing value of the busi-
eration for a minimum period of three (3) ness including owners cash
months. (a) Range of Minimum of UGX 100,000 and
c. Each business project should be able to Maximum of UGX 5,000,000 (individual).
provide employment to at least four (4) (b) Minimum of UGX 500,000 and Maximum
people by the end of the loan period. of UGX 25,000,000 for a Legal entity
d. Each borrower shall present at least two with at least five partners/shareholders.
guarantors who must be persons of good
repute within the local community. 4. Features: Loan period:
4 ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
Maximum tenure of 4 (four) years inclusive of 7. Origination Fee: A once only fee (1%
a maximum one year grace period. of the approved loan amount) shall be
charged and is payable only on approval
5. Interest Rate: Interest rates under this fa- of the loan.
cility are fixed. In other words, the inter-
est rate quoted for a specific loan will stay 8. Loan Security: Personal guarantees of the
the same over the entire loan period. The eligible borrowers and the assets of the
fixed rate applicable to loans granted be- borrowing enterprise
fore June 30, 2010 is 15%.
9. Borrowing: Each Borrower will benefit
Government and participating banks will re- from the Fund only once.
view and agree by July 1st, 2012, applicable
rate for all loans that will be approved in the 10. Disbursement Method: Loans will be dis-
following 12 months i.e. between July 1, 2012 bursed through bank accounts systems as
– June 30 2013. Thereafter, the rate borrowing required by law.
applicable will be fixed on July 1st of each year
for the next 12 months.
Source: Ministry of Finance, Planning and Economic Development, 2012
2.2 Impact of microfinance programs on 4.1 per cent for the youth aged 18-30 years
economic outcomes of youth (FINSCOPE III, EPRC, 2013). This is because
Emerging literature on the impact of youth are not considered a viable market as
interventions directed at youth start-ups, they often lack collateral, verifiable credit
self-employment and business expansion is history or steady employment, among
still limited. Programs aimed at getting the other requirements required by formal
unemployed youth into the labor market financial service providers. Moreover, the
include those that offer the youth financial FINSCOPE survey findings indicate that
services (loans, unconditional cash grants, the youth are more likely to borrow to
in-kind grants, savings, and insurance), life finance business start-ups and expansion.
skills and vocational/technical training and Increasing access to financial services may
business development services (mentoring, have positive development outcomes like
coaching, advisory services, business starting and expanding business, income
training) or a combination of the above. diversification among other labour market
We provide an overview of evidence on outcomes. Indeed, provision of micro
how microfinance programs can impact on finance has become a common intervention
economic outcomes of the youth. for promoting self-employment and
entrepreneurship in general.
Access to formal financial services remains
limited in Uganda and the situation is worse Recent evidence from a randomised
for the younger people. Findings from the controlled experiment in Uganda indicates
latest 2013 FINSCOPE III survey indicate that that provision of loans complemented by
that only about 5.7 per cent of the adult training is a better intervention compared
population in Uganda had accessed credit to loans only. The provision of unconditional
from formal bank institutions, and about grants yielded no positive results on the
program participants. Fiala et al., (2013)
ECONOMIC POLICY RESEARCH CENTRE - EPRC 5Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
evaluate a youth microfinance intervention micro enterprises in urban Ghana and their
in Uganda that is geared toward micro findings suggest that in kind grants perform
enterprise growth through provision of better than cash grants. The results from the
loans, unconditional cash grants and training evaluations above confirm the importance
or a combination of these programmes. of business/entrepreneurship training.
The intervention provided microenterprise Nascent entrepreneurs who receive
owners from semi-urban locations in Central financial help coupled with training seem
and Northern regions of Uganda with loans to perform better than those that receive
of US$180 to US$220, unconditional cash only the financial intervention. Regarding
grants equal to US$200 and ILO-Start Your the provision of grants, supervised and
Business training (SYB). The authors find in kind grants or those that have a strict
that that men with access to loans and eligibility criteria like approval of business
training report significantly higher profits plan for business use are more likely to
(54% greater profits). This effect increases be successful than unconditional grants.
slightly over time and is driven by men with Compared to males, the female businesses
higher baseline profits and ability. The loan- may be affected by family pressure and thus
only intervention had some initial impact, may need a different model than that of
but this does not persist nine months to their male counterparts. This calls for more
the follow- up. The authors find no impacts support –in form of business mentoring
from the grant intervention and no effects and advisory-to the female entrepreneurs if
on women for any of the interventions. their businesses are to flourish.
Family pressure appears to be detrimental
to the growth of women businesses. The Research has shown that there is a positive
results suggest that highly motivated and relationship between business assistance
skilled male-owned microenterprises can and sustainability of business among the
grow through finance, but the current young people (Schoof (2006). Those who
finance model does not work for female- receive business development services
owned enterprises. Contrary to the above support in terms of mentoring, networks
findings, Blattman et al., (2013) find positive and advisory services are likely to grow
results from the provision of cash grants their business over time. Survey results
to the very poorest and most excluded from a process evaluation of the Enablis
young adults, mainly women in Northern East Africa services highlight the impact of
Uganda. Blattman et al., (2013) investigate a business support and peer-networking
the impacts of giving cash grants (US$ 150), program on young entrepreneurs. The
and business skills training, supervision survey results show that being a member
and business advising. The study shows of Enablis supports business growth and
positive impacts of the cash transfer on development as well as the entrepreneur’s
entrepreneurship, hours worked, individual ability to create wealth for oneself. As at
earnings, and household consumption. 2013, Enablis members were employing an
Regarding the impacts of unconditional and average of 12 employees in the businesses
in-kind cash grants; Fafchamps et al., 2011, they own and operate, up from an average
compare the impact of cash grants and in- of 8 employees in 2012. This represents
kind grants on male and female owned an employment growth rate of 54 per
6 ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
cent. Overall, 74 per cent of members are mentees reported increase in number of
satisfied with Enablis services. About 54 per individual /institutional customers. (v). 30
cent of the mentees grew their turnover by per cent of mentees reported an increase in
more than 25 per cent over the 2012 period business assets. (vi) 37 per cent of mentees
(Enablis East Africa, 2013). Further evidence reported an increase in the level of business
on the importance of provison of business investments other than loans. (vii) 72
development assistance is from the Micro, per cent of mentees reported the overall
Small and Medium Enterprise (MSME) mentorship support as being excellent
in Kenya. The MSME program provides (Youth Employment Inventory website,
business mentoring to young entrepreneurs 2014).
aged 18 to 35 years old with an aim of
2.3 Emerging practices from African
creating sustainable MSME business growth countries implementing National
and jobs by qualifying potential mentors Youth Funds
to advise entrepreneurs from the MSME
sector. The role of the trained business This sub section presents a synthesis of three
mentors is to advise and provide technical case studies from African counties where
support on growth opportunities and national youth funds have been implemented
possibilities of financial and other support for more than five years. We point out the
services on a regular basis to entrepreneurs advantages and disadvantages and of the
– and especially young entrepreneurs. different implementation frameworks. We
By December 2012, over 80 professional present experiences from Kenya, Botswana
business mentors had been trained and the and South Africa. The case studies were
program has impacted over 215 mentee chosen based on; comprehensiveness in
enterprises so far. Evaluation results their responses to employment needs of
show that (i) 87 per cent of the mentee the young people, operation at national
enterprises have been formally registered. scale, working to achieve or have achieved
(ii) 45 per cent of mentees reported a 78 per financial and program sustainability and
cent increase in gross annual turnover. (iii) high levels of effectiveness in meeting their
22 per cent of mentees reported an increase goals, and those that have been in operation
in number of employees by between 1 and for at least five years.
4 full time employees. (iv) 45 per cent of
ECONOMIC POLICY RESEARCH CENTRE - EPRC 7Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
KENYA Advantages
Decentralization - constituency loans
Source of Funds and use of lower level financial interme-
The Government of Kenya provides the main diaries improves outreach to rural and
funding for the Youth Fund with financial remote areas
institutions providing additional funds. Involvement of the private sector un-
locks resources, capacities and taps
Features of the Fund into the diverse capacities that different
Loans are provided to individuals and stakeholders can offer
youth groups either through constitu- Good mix of financial and non-financial
ency loans and through financial inter- services to ensure business sustainabil-
mediaries ity and reduces chances of business fail-
Loans can be accessed for startup and ure
business expansion purposes
Pre funding training program, network- Disadvantages
ing forums and mentoring services M&E of the different activities is a chal-
through selected government service lenge as different programs and services
providers and external consultants are delivered through external partners.
Fund supports youth to market their Without a good M&E framework, it may
products through trade fairs be hard to determine the cost effective-
ness of the program.
BOTSWANA ernment directly pays to the beneficia-
ries
Source of Funds Government ownership reduces the pri-
The Botswana Youth Fund is 100 percent vate sector profit maximization tenden-
funded by the Government and implemented cies that normally exclude marginalized
by the department of Youth under the youth
Ministry of Youth, Sports and Culture. The Payments to successful projects are
Youth Development Fund is 50 percent grant made directly to suppliers who in turn
and 50 percent interest free loan of the total provide assets to the beneficiaries; re-
approved amount ducing the risk of misuse of grants for
the youth.
Features of the Fund
Requisite training is provided prior to Disadvantages
the disbursements of funds. Government’s presence in the imple-
Funding is targeted for unemployed mentation may promote failure of youth
youth, out of school youth, underem- borrowers to service their loans, govern-
ployed youth, youth aged between 18 ment presence creates a culture of en-
and 29 years and companies owned by titlement
youth Grant financing is not sustainable
Youth can access the fund as individuals The fund may not grow in real terms
or as groups since the 50% is a grant and the other
Has a monitoring and evaluation compo- 50% is interest free.
nent undertaken through district struc- Absence of other players limits the di-
tures verse experience from other stakehold-
ers in the provision of business devel-
opment support services and resources
Advantages
Reduced fund management cost as gov- leveraging
8 ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
SOUTH AFRICA Provides enterprise financing
Identification of business opportunities
Source of Funds and employment opportunities for op-
The Government of South Africa initially portunities for young entrepreneurs
funded the Umbsombuvu youth fund at its
inception in 2001. However over time, the Advantages
fund attracted substantial private investment Benefited from both public and private
partnerships. investment in its programs and services
Nationwide presence as a result of a
Features of the Fund good partnership strategy
Training component that focused on de- Comprehensive range of services for
veloping vocational, life and entrepre- youth employment and enterprise de-
neurial skills; this is aimed at solving the velopment
skills mismatch between young people
and the demands of employers in the la- Disadvantages
bor market M&E of the different activities was a
Offers a variety of programs, including challenge as different programs and
entrepreneurship education, business services are delivered through external
development support services and men- partners
torship
3 DATA AND METHODS undertaken in May 2013 to corroborate the
findings and also answer other objectives of
In order to accomplish the objectives the study.
of the study, comprehensive desk
research was combined with a survey of Centenary Bank provided a sampling frame
youth entrepreneurs (both youth fund of youth fund beneficiaries from which a
beneficiaries and non-beneficiaries), and random sample was drawn. The first stage
stakeholder consultations. involved choosing two districts with the
highest number of UYVCF beneficiaries from
each of the four administrative regions of
3.1 Data
the country namely (Northern, Eastern,
Analysis was aided by a number of data Western and Central). The beneficiaries from
sources: Secondary data from Centenary the sampled districts were then randomly
Bank - one of the three implementing banks- selected using random numbers. The non-
was used to provide a situational analysis fund beneficiaries, yet eligible as per the
of the UYVCF beneficiaries. While such stipulated UYVCF accessibility criteria and
data sources are often limited in terms of guidelines were identified with the help of
coverage, data from the Centenary Bank can youth leaders in the selected districts. The
be regarded as largely representative given sample of non-beneficiaries was purposively
that the Bank had loaned out 80 percent sampled from districts that had the least
of the funds by clientele and 67 percent by proportion of UYVCF beneficiaries according
value by December 2012 (MoFPED, 2013). In to the national data provided by MFPED.
addition, a field study was undertaken was The comparison group consisted of youth
ECONOMIC POLICY RESEARCH CENTRE - EPRC 9Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
who had operated businesses for at least use when the dependent variable is a binary
three months. In total we used a sample size choice. Generally, either of the two models
of 168 youth entrepreneurs. can be used, as they tend to generate
more or less similar results (Gujarat 2003,
Qualitative data: The paper complimented Wooldridge 2009). In this paper, we employ
the quantitative data with qualitative data the probit model to examine factors that
through stakeholder consultations and are likely to influence the decision of youth
Youth Focus Group Discussions. The aim was to (or not to) participate in the UYVCF. The
to obtain more insights on the operations model is specified as;
and feasibility of the fund. Key Informant
Interviews (KI’s) were conducted to provide (1)
information on the implementation
modalities of UYVCF. KI’s were drawn from Y = 1 if the youth is a beneficiary of the youth
Enterprise Uganda, DFCU bank, Centenary fund and zero otherwise. is the probability
bank, the Youth desk at MFPED, and the that the youth participates in the youth
Youth council officials at MGLSD. fund. The explanatory variables that include
individual youth characteristics, firm level
3.2 Methods
and community factors are represented
Descriptive approach: Using a descriptive by The parameters to be estimated in
approach, we analyse the scale and outreach equation (1) are α and β. The error term
of the fund, and profile the beneficiaries is included in the equation to take care of
according to specified social economic any other factors that might have not been
characteristics (e.g. gender, geographical included in the model but may influence
location, type of business enterprise). youth participation in the youth fund
program.
Econometric approach: ILO (2012) stipulates
that the youth are not a homogenous group The explanatory variables in equation (1)
and variables like age, gender, geographical are individual characteristics, which include
location, schooling status and business age, education level and marital status. Firm
ownership may influence participation, and level characteristics include age of business,
should be considered in the design of youth type of enterprise and value of business.
funds. Based on this background, using field Other variables include geographical
survey data, the paper employs a probit location (rural or urban).
model to analyse a set of individual, firm
level and community factors that determine Qualitative approach: To evaluate the
youth participation in the UYVCF. The survey design and functionality of the youth fund,
data captures the individual level variables we critically studied its operations against
(e.g. age, sex, marital status, education the initial objectives, procedures and
levels) and firm level variables like age of criteria as outlined in the Memorandum
business and value of business. of Understanding (MOU) between the
participating banks and MFPED. Key
Probit Model: Discrete regression models questions answered ranged from whether
e.g. the Probit and Logit models are ideal to the youth fund is operating as designed
10 ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
institutionally; whether the designed set of 20124. In terms of value/money, just about
procedures were followed and whether the UGX 16 billion, had been disbursed by the
role players were fulfilling their mandates three participating banks. Centenary Bank
as set out in the design. We majorly relied disbursed about 81 percent of the total
on FGDs and Key Informant Interviews to amount of released funds- this translates
answer these questions. to about to 67 percent –about 11bn- of
the total value lent out by Dec 2012. From
the field discussions held, the beneficiaries
4 RESULTS AND
indicated that Centenary Bank was their
DISCUSSION bank of choice because most were already
running accounts with it. Other beneficiaries
4.1 Scale and Outreach of the Uganda pointed out the rather lengthy and stringent
Youth Venture Capital Fund lending procedures at other participating
banks while some lacked the knowledge
This section presents a snapshot of the
that other two banks (DFCU and STANBIC)
fund beneficiaries in terms of location, sex,
were implementers of the UYVCF.
age, and bank where loan was sourced. As
evidenced in Table 1, an estimated 3,984 4 Although the Minister of Finance, in her 2013/14 budget
business enterprises had borrowed money speech put the amount at 21 billion, we could not use this
figure since we did not have its disaggregation according to
from the youth fund by close of December different characteristics that we are interested in.
Table 1: Access of youth funds by number of clientele and value of portfolio (UGX)
National disbursements by implementing banks as of December, 2012
Clientele Clientele (%) Value (000’) Value (%)
Bank
Centenary 3,207 81.0 11,185,390 67
DFCU 604 15.0 4,249,548 26
Stanbic 173 4.0 1,214,260 7
Total 3,984 100 16,649,198 100
Centenary Bank disbursements as of February, 2013
Clientele Clientele (%) Value (000’) Value(%)
Region
Central 1,100 31.1 3,927,450 31.8
Kampala 903 25.6 3,765,600 30.4
Eastern 476 13.5 1,326,500 10.7
Northern 223 6.3 650,100 5.3
Western 819 23.3 2,700,090 21.8
Sex
Female 1,035 29.4 3,727,800 30.1
Male 2,480 70.4 8,622,440 69.7
Male and Female owned 6 0.2 19,500 0.2
Total 3,521 100.0 12,369,740 100
Source: Based on data provided by MFPED (all banks data) and Centenary Bank, 2012
ECONOMIC POLICY RESEARCH CENTRE - EPRC 11Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
The above results indicate skewed youth leaders were cited as the commonest
partnerships since only one bank had sources of youth fund related information.
invested a substantial amount of resources. There is, however, a need to put in place
In order to leverage private sector into a clear communication strategy so that
contributing to the fund, there is need for information from the government and the
inclusion of a risk management strategy from implementers (banks) is harmonized. While
the government’s side. The Tanzania youth it may not be profitable for the commercial
development fund is a good example where banks to reach out to the remotest of areas,
risk management is catered for through a it is important that a public policy like the
government credit guarantee fund. UYVCF serves the marginalized and excluded
youth irrespective of their geographical
Although the fund was expected to have location. Government could explore ways of
a national outreach, it is highly dominated working with lower financial intermediaries
by the youth in the central region, urban like microfinance institutions and SACCOs
areas and males. Table 1, above reveals an to achieve a greater outreach to the rural
uneven regional access to funds. The central youth.
region, Kampala inclusive, had utilized
about 61 percent by value while the youth Although the fund was not set up with
enterprises in Kampala had accessed about a special gender consideration, gender
30 percent of the loan portfolio by February disaggregated analysis is important given
2013. This is not surprising given the high the prevailing evidence of women exclusion
concentration of commercial banks in the in credit markets. Indeed male owned
central region. Another finding from the field enterprises were more likely to access
survey reveals that the fund procedures are funs from the UYVCF by value and clientele
not applied in a consistent manner. While (about 70 percent). This is not surprising
some youth in Kampala were able to access given that fact that females are less likely
the fund loan based on presentation of only to own property/assets that are required by
two guarantors (as per the initial guidelines/ banks as collateral for loan acquisition5.
design), bank officials in more remote areas
insist on securities in form of land titles, Furthermore, majority of the female youth
houses and other assets. are largely involved in primary agricultural
production, yet, from the field discussions
Furthermore, 78 percent of the beneficiaries and as figure 2 shows, the banks are less
are urban based. This could be attributed to likely to fund primary agricultural production
the fact that a number of banks are located enterprises as they render them risky and
in the urban district centres with no or not credit worthy. In addition, more males
little coverage in rural areas. Information (61 percent) reported to have information
asymmetry also came out as a strong factor. on how to access the youth fund compared
Although most (95 percent) of the youth from to only 30 percent for females. This calls for
the control group knew about the existence tailor made programs to support female
of the UYVCF, only 63 percent reported to youth in setting up and running businesses
have information on how to access it. The
5 Banks require applicants to present collateral although the
media (TV, radio and newspapers) and design as presented by the MFPED did not have a provision for
this.
12 ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
under entrepreneurship programmes like (Ahaibwe et al., 2012). An example of sector
UYVCF. specific support is the Young Farmers Fund in
Botswana which provides access to finance
Eligible sectors for youth fund loan include; and entrepreneur training to youth farmers
manufacturing, agro processing, primary in order to equip them with the requisite
agriculture, fisheries, livestock, health, skills for running sustainable agricultural
transport, education, tourism, Information activities and farming businesses.
and Communication technology (ICT), Alternatively existing government policies
construction, printing and service like the Agricultural Credit Facility should
contractors (MFPED, 2012). However, as have a component targeting the youth.
Figure 1 shows, more than 50 percent of the
4.2 Factors influencing youth
funded youth enterprises were classified participation in the youth venture
under retail trade, which is not employment capital fund
intensive. This finding raises concern as
to whether the youth fund will meet its The results in Table 2 indicate that
number one objective of jobs creation when participation in the youth fund program is
a large number of funded enterprises have positively and significantly influenced by
less potential to create jobs. The youth who the age cohort of the youth entrepreneur,
earn their livelihood from agriculture are location of the business, business maturity
less likely to be funded citing the seasonality as measured by the squared age of the
nature of the sector. business and type of business.
A specific agricultural loan could be thought There is a positive and significant relationship
about to rectify this situation since more between youth fund participation and
than 65 percent of the youth are engaged age cohort of the youth entrepreneur.
in agriculture-mainly crop production Compared to the younger youth cohort
Figure 1: Type of businesses funded under the UYVCF (%)
Source: Author’s calculations based on Centenary data, 2012
ECONOMIC POLICY RESEARCH CENTRE - EPRC 13Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
aged 18-26 years, the older youth aged 27- entrepreneurs compared to their rural
35 years are more likely to participate in the counterparts. Indeed close to 80 percent
youth fund. This finding could be attributed of the UYVCF beneficiaries were urban
to the fact that as the youth grow from based. This finding is not surprising given
budding to established entrepreneurs, they that the participating banks are largely
tend to be more mature and more likely urban based and thus the urban youth have
to run more viable businesses compared more accessibility to the banks. On another
to the younger budding entrepreneurs in note, the rural youth are largely engaged in
the formative and growth stages. Indeed, agricultural activities that are less likely to
Chigunta (2002) clearly states the youth be funded under the youth venture fund.
entrepreneurs cannot be clumped into one Indeed results from table 2 further confirm
group and believes that entrepreneurship this finding. Compared to the youth with
characteristics vary according to age. business enterprises that are classified
under the services sector, those involved in
Like the descriptive results, the probit agricultural related enterprises are less likely
model results confirm a higher probability to participate in the youth fund (significant
of youth fund participation for the urban at 1 percent level of significance).
Table 2: Factors influencing youth participation in the youth venture capital Fund
Dependent variable: Participation in the Youth Fund = 1
Explanatory variable Coef. Std. Err. P>z
Age cohort (cf: 18-26 years) 0.988 0.327 0.002***
Location (cf: rural) 0.620 0.293 0.034**
Value of business (ln) 0.088 0.153 0.566
Age of business -0.525 0.214 0.014***
Age of business (square) 0.041 0.017 0.017***
Marital status (cf: married) -0.616 0.263 0.019***
Type of business enterprise (cf: services)
Agriculture -0.917 0.283 0.001***
Industry -0.112 0.452 0.805
Education attainment dummy (cf: secondary)
Primary school 0.404 0.379 0.286
Technical/Vocational -0.429 0.331 0.195
University 0.096 0.316 0.761
Intercept -0.649 2.019 0.748
Number of observations = 146
Pseudo R2 =0.21
Author’s calculations based on field survey: ***, ** and * represent 1%, 5% and 10% level of significance respectively
14 ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
Maturity of the business seems to be Labour and Social Development (MGLSD),
an important factor too as far as youth the implementing banks (Centenary
participation in the fund is concerned. Bank, Stanbic Bank and DFCU Bank) and
Although the variable ‘age of business ‘ Enterprise Uganda. MFPED was responsible
is negatively correlated with youth fund for providing 50% of the funds as well as
participation, the variable ‘age of business the overall policy framework and guidance
squared’ is significant and positively of the program. Although MFPED was
correlated with youth fund participation. mandated to monitor the program, there
This implies that there is a certain threshold is no evidence of a strong monitoring and
of business maturity after which it becomes evaluation framework (M&E) to measure the
highly likely to be a youth fund participant. success of the fund beyond credit provision
Indeed the mean age of businesses that to number of jobs created, type and quality
were funded under the youth venture fund of jobs created to mention but a few.
had been in existence for about 4.3 years. As
per the funds objectives, support is meant In addition to resource contribution, the
for business expansion not start ups, and implementing banks were mandated to
indeed the results indicate that the fund is conduct youth tailored money/business
indeed bent towards helping those who have management clinics to increase chances
already gained experience, skills and capital of business management success. Beyond
to enable them run their own businesses. credit provision, there is limited evidence to
Although the funded businesses are support the participating banks’ mentoring
meant to create jobs for their unemployed role as per the fund design. Only about 37.0
counterparts, this is unlikely to happen in percent of the youth fund beneficiaries
the short run. As such the government could surveyed reported to have had training/
think of funding start-ups as well, with a view mentoring/coaching before or after starting
to directly create jobs for the enterprising their businesses. Yet, access to business
youth with viable business ideas. And as support services such as mentoring, support
pointed out in literature business training networks, business clubs and incubators
and business development support should by young people, increases the chances of
be complemented with finance provision. sustaining their enterprises beyond start
up stage. Yet, as alluded to earlier, given
4.3 Is the Uganda Venture Capital Fund
operating as designed? the limited experience of youth and high
business failure rates in Uganda, mentoring
For this objective, our measure of success is a useful tool if youth entrepreneurship is
refers to the way the youth fund mechanism to thrive. For every business started, nearly
is working, with a set of procedures, applied one other closed (Global Entrepreneurship
in a transparent and fair manner, reaching Monitor, 2004).
out to the youth as defined in its mandate,
and providing the services that correspond At the inception of the UYVCF, Enterprise
to the needs of the beneficiaries. At its Uganda was vested with the mandate for
inception, the Youth Fund had three main conducting youth entrepreneurship training.
players namely the Government of Uganda Although pre-funding entrepreneurship
through the MFPED and Ministry of Gender, training was a requirement at the start of
ECONOMIC POLICY RESEARCH CENTRE - EPRC 15Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
the intervention, it was later scraped. While grace period is given to firms to grow
the MGLSD in partnership with Enterprise before they can start to repay their loans.
Uganda and ILO-SIYB program normally However, from field discussions, the UYVCF
conduct entrepreneurship trainings, beneficiaries are rarely given the one-year
the trainings are rather random and not grace period. Yet short payment periods
necessarily attached to accessibility of the constrain youths’ ability to use a bigger
fund. We propose that the entrepreneurship- percentage of the loan on investment and
training component be reinstated as a may use part of the loan to meet the lenders’
prerequisite for accessing the UYVCF or any repayment obligations. On a positive
funds provided by the government including note, other procedures like the 15 percent
the recently introduced Youth Livelihood interest rate, age category (18-35 years) are
Programme (YLP). being followed.
Are the procedures being adhered to by Have jobs been created for the youth?
the implementing agencies? The fund was The rationale for the creation of the
set up with a list of procedures to guide youth venture fund was premised on
the implementation. One of the salient two objectives namely; job creation and
features was the recognition that the youth business expansion. Using 2011 as the base
as nascent entrepreneurs may not be in year (i.e. before the fund was introduced)
possession of security or collateral to hedge and 2013 (one year after the introduction
against risk associated with borrowing. of the UYVCF), we tried to compare the
Borrowers were only required to present average increase in the number of people
at least two guarantors –persons with good employed by the UYVCF participating and
repute within the community, in addition to non-participating businesses as a proxy for
the business assets. However, the condition job creation. Although we did not undertake
has been bypassed and collateral is required a rigorous evaluation, the descriptive
in most instances. While banks request comparisons provide useful insights. The
for these securities to avoid financial risks employment creation results based on
associated with borrowing, the youth years 2011 and 2013 indicate that the base
are less likely to be in possession of such year average number of employees was just
requisite collateral. It is thus imperative about the same (not significantly different)
that government thinks about a credit for both the youth fund beneficiaries and
guarantee scheme to mitigate the fears of non- youth fund beneficiaries at an average
the commercial banks. of three employees per enterprise. The
results are not surprising given the fact
Loan period: The youth fund guidelines that more than 50 percent of the youth
indicated a maximum tenure of four years fund beneficiaries are under the trade and
repayment period inclusive of a maximum commerce category -mainly of retail nature-
one year grace period. The extended loan and small loans to such enterprises are less
repayment and grace period were designed likely to have significant impact on new jobs
to give the young nascent entrepreneurs creation. Although benefiting businesses
enough time to invest and reinvest the were required to create employment for
borrowed money. In normal circumstances, at least four people by the end of the loan
16 ECONOMIC POLICY RESEARCH CENTRE - EPRCCreating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund
period, there is no framework to monitor Compared to the older youth cohort aged
the jobs created because no baseline study (26 -35 years), the younger youth (18-25
was undertaken by the lead agency or years) are less likely to access the fund.
implementing agencies. It is highly unlikely This could be attributed to the fact that the
that this condition has been/ or will be met older youth are likely to have more viable
by the funded youth enterprises as most businesses that are likely to attract funding.
surveyed enterprises had completed their Compared to those owning service-based
loan payments and others were in their enterprises, the youth in agricultural based
second and last year of loan repayment. enterprises are less likely to participate in
the fund. Business maturity is yet another
We further analyzed business expansion as factor that influences fund participation. On
measured by the monetary value of business average youth enterprises that were funded
stock in 2011 and 2013. The mean value of under the youth venture loan had been in
the businesses (in nominal terms) for the existence for at least four years.
fund beneficiaries and non- beneficiaries
in 2011 was UGX 2.7m and UGX 3.5m, Regarding the operation of the fund, our
respectively (no significant difference). It is synthesis found that the implementing
interesting to note that youth businesses agencies are generally not following the initial
have been growing over time and in 2013, set of procedures as stipulated in the Aide
the mean value of businesses for the control memoire between the Ministry of Finance
and treated groups were UGX 5.1m and Planning and Economic Development
UGX 7.4m (significantly different, P=0). The (MFPED) and the participating banks. This
results above may imply that the UYVCF is deviation is likely to make the fund miss the
likely to improve productive employment / targeted population. The major objectives
reduce under employment as opposed to of youth fund creation were employment
new employment generation. creation for the unemployed youth, business
expansion and business skills development.
The results indicate the youth fund has
5 CONCLUSIONS
not yet had significant positive effects on
AND POLICY jobs creation, although there seems to
RECOMMENDATIONS be increased investment among the fund
beneficiaries. This is not surprising given the
5.1 Conclusions fact that the beneficiaries are mainly retail
traders who may not necessarily employ
The youth fund was anticipated to have extra people because they have invested
a national outreach and impact at its an extra amount (on average UGX 3 million)
inception. However, fund usage continues into their businesses.
to be dominated by the central region
5.2 Lessons for Future Youth Funds
in general, and Kampala in particular.
Businesses that are urban based are likely Although the youth fund and youth
to access the fund compared to those entrepreneurship should not be looked at
situated in rural areas yet more than 75 as a panacea to unemployment, it is part of
percent of the youth reside in rural areas. the solution. Below are the recommended
ECONOMIC POLICY RESEARCH CENTRE - EPRC 17You can also read
