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Vol No Youth Entrepreneurship_Timothy Mahea

Vol No Youth Entrepreneurship_Timothy Mahea

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Youth Entrepreneurship
Measures to overcome the barriers acing youth
1
 Volume II, Number 6June 2008
Today’s youth (15–24) constitute the largest cohort ever to enter the transition to adulthood. Nearly 90% live in developingcountries and the challenges they ace—low quality education, lack o marketable skills, high rates o unemployment, crime,early pregnancy, social exclusion, and the highest rates o new HIV/AIDS inections—are costly to themselves and to societyat large. Client demand or policy advice on how to tap the enormous potential o youth is large and growing. This seriesaims to share research fndings and lessons rom the feld to address these important cross-sectoral topics.www.worldbank.org/childrenandyouth
N o t e s
 Y 
outh
D
evelopment
As traditional job-or-lie career paths become scarce, youth entrepreneurship provides an additional way o integrating youth into today’s changing labor markets and improving their economic independence.For some young people around the world, sel-employment provides income, sel-reliance and a dynamicpath or growth and the development o human capital. In addition, young entrepreneurs may be moreresponsive to new economic opportunities and trends. However, entrepreneurship is not a panacea: it isnot or everyone, and those young people who wish to enter sel-employment ace obstacles to startingand running a successul business. Tis note highlights some o the barriers to and opportunities or youthentrepreneurship and suggests policies that may help to overcome these barriers.
 
Youth Development Notes | June 008
Youth entrepreneurship –an avenue of opportunity
Entrepreneurship can unleash the economic potential o youngpeople and be a source o new jobs and growth, while improvingtheir economic independence. Young people can no longerexpect to nd ‘job-or-lie’ careers but rather ‘portolio careers’(contract employment, reelancing, periods o sel-employment,etc.). Entrepreneurial experience and/or education help youthdevelop new skills that can be applied to other challenges inlie. Non-cognitive skills, such as opportunity recognition,innovation, critical thinking, resilience, decision making,teamwork, and leadership will benet all youth whether or notthey intend to become or continue as entrepreneurs.However, youth entrepreneurship is not by itsel a solution tothe problem o youth unemployment; it should be seen as animportant complement
within
broader youth employment andinvestment climate policies. Markets in developing countries areoen weak and volatile, and while inormal activities especially present relatively ew barriers to entry, urther research is requiredto understand the specic needs o young entrepreneurs.
Crucial factors forentrepreneurial engagement
Factor 1: Promoting an entrepreneurial cultureamong young people
Promoting an entrepreneurial culture is one o the mostessential and neglected components o entrepreneurshipdevelopment.
2
Changing cultural practices and belies aroundentrepreneurship is a long-term process. Tese eorts generally ocus on our issues: 
Understanding cultural inuences on entrepreneurship and assessing the attitude o young people.
Beore launchingpolicy measures and initiatives or youth entrepreneurship,it is essential to know more about the attitudes, awarenessand aspirations towards entrepreneurship among youngpeople. Attitude surveys such as the Youth EntrepreneurshipBarometer (Bertelsmann Stiung) have become a useulresearch tool in this regard. 
Promoting role models.
 Successul entrepreneurs are excellentambassadors or promoting entrepreneurship. Againstthis backdrop, various initiatives ocus on establishing andstrengthening direct contacts between young people and“role-modelentrepreneurs. 
Youth business airs, expositions and competitions. 
Tese areuseul initiatives or introducing entrepreneurship to youthwhilst simultaneously tapping into youth culture. 
Public relations campaigns, internet and media coverage. 
Te internet is an ideal medium or the transmission o entrepreneurial values and technical skills.
Factor 2: Improving entrepreneurial education
Entrepreneurship education equips youth “to be innovative andto identiy, create, initiate and successully manage personal,community, business and work opportunities, includingworking or themselves.”
3
Entrepreneurial education can alsooster greater personal responsibility, exibility and creativity necessary to cope with today’s uncertain employment paths.Entrepreneurship education has expanded dramatically over thepast ve years. In 2004, the European Commission proposedthat all EU member states introduce entrepreneurship educationinto the national curriculum, rom primary school to university.
4
 Organizations such as Aatoun promote the integration o nancial and business education in school curricula aroundthe world to children as young as six years old.
5
Yet even incountries that do have active enterprise education programs, thetopic still aces numerous constraints:
6
 
Inadequate and poorly integrated curricula.
eachingentrepreneurial skills and behaviors is oen not properly integrated into school curricula and may not teach students tothink and act independently, to be sel-reliant and take risks. 
Outdated learning methods.
Most education systems still lack practical, experiential and teamwork learning. 
Inadequately trained teachers
.
 
 
Insucient career inormation and assistance.
  
Weak links between schools and businesses.
  
Inadequate ICT inrastructure/capability
.
 
Factor 3: Improving access to fnancing 
Lack o adequate start-up capital is a dilemma that acesentrepreneurs o all ages, but it is particularly difcult or youngpeople due to their lack o security (substantive credit history,sufcient collateral or guarantees) and o credibility (lack o experience). Beore targeting youth with particular creditstrategies and initiatives, it is important to understand the natureo the problem. Do young people present a higher risk to lenders?Is there a price at which lenders are willing to provide nancingto young entrepreneurs (in which case the dierence betweenthat price and the “market” price can be thought o as the risk premium)? I young people are no more likely to deault thanolder borrowers, but still cannot nd nancing, then the marketis ailing or other, nontransparent reasons. It is also importantto understand and
 
evaluate the need or start-up nance amongyoung entrepreneurs. Te nancing requirements can be ullledby various types o unding mechanisms, which may present someadvantages over relatively short-run credit. Tese are explainedbelow:
Grant fnancing 
Grant-based schemes are a common approach to stimulateentrepreneurship and start-up activity. It can be an importantsource o nance or people who lack access to bank loans.It has been argued that programs should deal with theconstraints to access to commercial nance rather thanproviding ree money, and these programs may be raught with“moral hazard”: that is, when the recipient is not entirely liableor the money or or the ull consequences o her actions.
7
Debt fnancing 
 
So loans
involve the provision o credit at no or very low-interest terms. Tere are
 
generally no collateral requirements,although there may be eligibility criteria such as having abusiness plan,
 
demonstrating commitment, ability to repay the loan and having reasonable equity participation. Some
 
Youth Development Notes | June 008
programs may include business training or assistance as parto their lending to young entrepreneurs.
8
 
 Micro loans
are small loans, mostly oered by micro nanceinstitutions such as credit unions and NGOs. Te demand ormicro-credit still vastly exceeds supply, especially or youngentrepreneurs in developing countries. 
Loan guarantee schemes.
Te government assumes some or allo the credit risk involved in lending to young entrepreneurs.Tis is potentially an efcient means to acilitate youngpeople’s access to conventional nancing, however, loanguarantee schemes must be designed careully to minimizethe likelihood o “moral hazard”.
Equity fnancing 
 
Own and amily resources.
Most emerging small businesses o young people are launched with personal savings or nancingprovided by riends and amily. Tis kind o unding canbe urther strengthened through tax incentives or a generalreduction o administrative and regulatory costs. 
 Angels and venture-capital investors’ networks.
Private sourcesare more common in developed countries where considerableresearch is conducted beore choosing a start-up with high-growth potential. Tis will probably not become the main
 
source o nancing or youth enterprises in developingcountries, but may grow in importance in the globalizingworld, as investors begin to search more widely or high-return opportunities.
Improving the regulatory environment or start-up fnance
 
Rating procedures, risk assessments and credit scoring systems
 should be as transparent as possible. 
Shortening and simplifcation o documentation procedures.
 Financial institutions could streamline their administrativeprocedures, which would also reduce the processing time o loan applications. 
Tax relie.
Complex tax codes and regulations can presentobstacles to investment among all entrepreneurs. Teremay be an “inant industry” argument or providing youngentrepreneurs with tax incentives. High tax rates can deterlenders, and tax relie 
 
or incentives can encourage the useo personal savings and strengthen young entrepreneurscapacity or sel-nancing. 
Inormation and mentoring.
A mentor can assist youngentrepreneurs in preparing business plans, understandingcomplex regulations, calculating the amount o capital they will need, and in securing nancing.
Factor 4: Improving the administrative and regulatory ramework 
Administrative burdens are particularly time-consuming andexpensive or young entrepreneurs with little or no experience.Administrative costs and high tax levels can become aninsuperable barrier to setting up a business. Policy initiativesand instruments can eectively reduce these barriers: 
Supportive taxation regulations.
Simpler tax ling andaccounting requirements and the provision o assistance orsmall micro-enterprises (SMEs) in general and or youngentrepreneurs in particular. 
Reorm o bankruptcy laws.
 
Wider dissemination o inormation about changes to businessregulations.
 
Factor 5: Improving business assistance and development services
Te more assistance an entrepreneur obtains during the start-up the better are her chances o creating a successul andsustainable business. However, young entrepreneurs oenlack the support services that are key to transorming ragileone-person start-ups into successul small- and medium-sizedbusinesses. Support services can take many orms:
Business skills training, guidance and counseling services
 
One-stop shops.
Physical or electronic online portals toassist with registrations, nancing applications etc. Somegovernments and NGOs have set up websites and portalsproviding online inormation, advice and even onlinetraining or young entrepreneurs. 
On-the-job training and workshops.
Enterprise supportagencies and NGOs can provide accessible on-the-jobtraining ocusing on start-up issues as well as businessexpansion support. 
 Mentor support and business coaching.
Formal mentoringinvolves assigned relationships designed to provide youngentrepreneurs with advice and guidance rom experiencedproessionals. Governments, NGOs and trade associations inmany countries have launched ormal mentoring programs.
Box 1:
 
A few critical questions
 
There will always be creative young people who do become entre-preneurs—out o necessity, or out o interest. However, ar rom allsucceed. In designing or recommending policies to assist young entre-preneurs, we must try to answer a number o important questions:Very ew youth entrepreneurship programs have been rigorouslytested. More research and evaluations are required. How manybusinesses have been started through these programs? At whatcost? How many o these businesses survive? What distinguishessuccessul training programs?How eective are school-based entrepreneurship programs? Shouldthey begin in primary school, or ocus on secondary school?How do the conditions acing young entrepreneurs dier acrosscountries? What is the link between the overall investmentclimate and the likelihood o young entrepreneurial success?How do successul young entrepreneurs dier rom unsuccessulones? Is this something that can be inuenced by policy?Evidence shows that those with high growth potential are morelikely to succeed. But how can we support the many poor anddisadvantaged young people who are driven by necessity intosel-employment in low-return activities?Should we address the obstacles acing young people that aredue to their limited lie and work experience? Presumably, thesebarriers will be overcome by time.All entrepreneurs–regardless o age–ace obstacles in startinga business. Why should we intervene specifcally on behal o younger entrepreneurs?Do young entrepreneurs dier rom older ones in the processes o starting up and the probability that their enterprises will survive?
Source:
Semlali, A. (008).

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