A new fund set to guarantee youth’s borrowings from commercial banks in Africa has been launched to help curb unemployment in the continent.
The fund which is a joint equity venture of the Danish and Spanish governments as well as the African Development Bank (ADB), will allow the youth pursue loans that will enable them establish Small and Middle Scale Businesses (SMEs), according to Africa Guarantee Fund (AGF) chief executive Felix Bikpo.
“This fund is a result of the meeting by the African Heads of States meeting in 2009 that focused on how the leadership can help the youth. The leaders settled on helping the youth increase participation in small and medium scale enterprises because the model has been successful in other continents,” said Bikpo, in an interview on Tuesday.
With commercial banks across the continent reluctant to lend to the youth and more so for starting a business, where the rate of failure for businesses is up to 67 per cent in the first three years, the fund will act as security to pursue loans.
“So what the fund is meant to do it to make it comfortable for the commercial banks to lend to the youth for starting business,” said Bikpo.
The U.S.$500 million African Guarantee Fund was officially launched this month and has started off with 50 million dollars. The fund is now involved in raising the remainder 450 million dollars up to 2016 when that target is set to be achieved.
“The demand from commercial banks has been very high, we are already processing our first guarantees,” Bikpo said at the fund’s headquarters in Nairobi.
The fund operates by guaranteeing 50 per cent of all the funds that the bank has lent to the youth to start small businesses. For all the money that may not be repaid by the borrower, the fund funds half of it.
Enabling wealth creation opportunities for African youth is seen as important because various research show Africa has the fastest-growing and most youthful population in the world. Over 20 percent of Africa’s population is between the ages of 15 to 24 and, since over 40 percent of Africa’s population is under 15 years of age, that number is expected to grow significantly in the coming years.
According to the International Labour Office, youth make up as much as 36 percent of the total working-age population and three in five of Africa’s unemployed are youth. The initial capital has been invested by the African Development Bank, the government of Spain through the Spanish Agency for International development Cooperation (AECID) and the government of Denmark through the Danish International Development Agency (DANIDA).
World Bank reports indicate that there is funding gap of $80-$100 billion in sub-Saharan Africa and this affects 40-59 per cent of formal SMEs in Africa. The fund, according to Bikpo is seeking to help cover this gap.
The World Bank Enterprise Survey notes that small and medium scale enterprises make up approximately 81 per cent of Africa’s private sector firms and contributed over 50 per cent of new jobs in Sub Saharan Africa in 2009.
But these businesses only contributed 20 per cent to the gross value of economic production in Africa compared to 40-60 per cent contribution in Europe and the United States.
