[column] Marlene Mutimawase: are banking systems in Africa youth friendly?

Lisez cet article ici en Français

Young people, regardless of their socioeconomic, demographic or geographical situations, face some degree of difficulty or uncertainty as they transition to adulthood.

However, the situation that youth experience in developing countries, some 87 percent of the global youth population is one of the most difficult in many respects, and the picture is particularly grave for adolescent girls and young women. Youth are disproportionately affected by high unemployment rates.

According to report released by UN on youth financial inclusion revelaled that Saving-account penetration rates for youth vary by geographical region, ranging from 12% in Africa to 50% in East Asia and the Pacific.

The existing banking system is not designed to efficiently support young entrepreneurs, business experts have noted, highlighting the need for a new financing ecosystem for start-ups that are blooming on the continent.

Youth are often excluded from access to formal financial services. Reasons include legal restrictions, high transaction costs and negative stereotypes about youth. Regulatory frameworks and inclusive policies that are both youth friendly and protective of youth rights are needed to increase youth financial inclusion.

Tapera Muzira, Coordinator of Jobs for Youth in Africa at the African Development Bank, speaking at YouthKonnect 2022 in Kigali noted that youth entrepreneurs are an asset for investment. In a continent of more than 500 start-ups, 81 per cent of them are bound to fail after kicking off the first phase of development, he said.

“The traditional financing system is not developed for financing start-ups...they would prefer to take the easier route of lending to the government rather than to a million start-ups...we need a new model that is able to provide lifecycle support at scale and sustainably.” We don’t need another youth programme to finance another project, he pointed out, adding that “the failure is systemic.”

Youth still face many barriers in accessing financial services, including restrictions in the legal and regulatory environment, inappropriate and inaccessible products and services, and low financial capabilities. Overcoming these barriers and achieving successful youth financial inclusion requires a multi-stakeholder approach that engages government (including policymakers, regulators and line ministries), FSPs, youth serving organizations and other youth stakeholders. Youth, of course, need to be at the centre of this dialogue. Below are some recommendations to overcome barriers for policymakers, regulators and other key stakeholders.

There is a need to reshap the policy! Policymakers should develop legislation that is consistent with the principles of The Smart Campaign and the Child Friendly Banking Principles of Child and Youth Finance International (e.g., provide maximum control to youth within the legal and regulatory framework, minimize age and identity restrictions).

These policies, which are both youth friendly and protective of youth rights, should be the outcome of a coordinated effort amongst different policy and line ministries, such as the Ministry of Finance, the Central Bank, the Ministry of Youth and the Ministry of Education. Multilateral and bi-lateral organizations should support such coordinated efforts.

During a panel discussion on Delivering Innovative Financing for Youth Enterprises in Africa the main discussions at YouthKonnect Africa 2022, many spekers made a call to financing systems and bank in Africa to give a room to young entrepreneurs.

Fadillah Tchoumba, Secretary General of Africa Business Angels Network (ABAN), said that by looking at how the entrepreneurship ecosystem evolved over time, “you will see that angel investors are playing an important role in providing initial capital that is required for a new idea to be tested.”

''There are new kinds of ideas that are emerging on the continent and the value that is being created by these start-ups will be enlarged at scale, therefore, solving one of the most important issues, job creation. In 2021, start-ups on the continent attracted $5billion investment, of which $400million was a contribution from angel investors'': She added

As more youth enter the workforce, they are known to face increasing difficulties in obtaining employment. The traditional sources of opportunity in many developing countries governments and large corporations — are generally not hiring at the same levels, if at all. As such, small and medium enterprise (SME) entrepreneurship is seen as an important option for creating sustainable livelihoods for this segment of the population.

Youth entrepreneurs are more likely to be constrained by access to finance in starting and growing their businesses. Youth are perceived to be riskier clients by financial institutions because of a lack of business experience, credit histories, savings and other assets to offer as collateral. Such shortcomings often contribute to this perception.

Youth entrepreneurs may also be restricted by access to business networks. Consequently, youth are more reliant on family savings, informal lenders or other similarly suboptimal means of financing businesses that yield limited funds and/or are exploitative in nature.

As a matter of fact, creating inclusive financial ecosystem which is not biased and not considering youth population as risk to financial institutions will be the main ways to create youth friendly banking system for African startups and entrepereneurs. There is also a need in policy making reform so that young people are protected in banking system world.

 Marlene Mutimawase is the Editor at Africa Business Communities