ADA to provide holistic support to young entrepreneurs
Fostering youth entrepreneurship in developing countries is key for reducing unemployment and for encouraging local economic growth. However, young people face significant challenges in launching a business as few financial service providers understand and adequately serve their needs.
Credit providers often see young entrepreneurs as high-risk clients because of their limited credit history, high mobility and lack of assets to offer as collateral. As a result, young people often tend to resort to their savings or money from friends and family to start and grow their businesses instead of using professional financial services.
Another challenge is a general lack of business skills as there is too little business development support and professional training in most countries. Nevertheless, financial and accounting skills are essential for growing a business and for obtaining and managing a bank loan. Young people also need appropriate support and training to access new markets and to take advantage of new opportunities, for example in renewable energy, agroecology and the circular economy.
Financing alone is not enough
Supporting young entrepreneurs in launching and growing a business has always been a strategic priority for ADA. However, under its current strategic plan 2022-2025, ADA will place more emphasis on complementing access to funding with professional business management training and mentoring.
While ADA mainly relied on microfinance institutions to deliver both financial and non-financial support to young entrepreneurs in the past, ADA will now collaborate with a broader variety of actors such as incubators and business accelerators to ensure young people in developing countries are holistically supported in the best possible way.
Under its current strategy, ADA is therefore extending its range of partnerships: in addition to its traditional partnerships with financial institutions, ADA will collaborate with support structures for entrepreneurs such as incubators and accelerators. All projects aim to provide young people both with support in business management and with access to tailored financial services.
New financial services and business management tools
To this end, ADA is identifying new financial products and providers of business management and market access support. Over the next year, ADA will implement several pilot projects which will focus on:
- developing innovative financial services such as revenue-based funding, guarantees and medium-term loans tailored to the needs of young entrepreneurs
- support for young entrepreneurs in formal and informal sectors in the form of training and coaching as well as introductions to business management and market access tools
- when necessary, ADA will contribute to the development of digital solutions to promote youth entrepreneurship such as training courses, business management tools as well as platforms to access markets and financing.
These measures all reduce the risk of non-repayment of loans as the entrepreneurs are granted more flexibility and more time while the lenders are reassured thanks to local, state-backed repayment guarantees. Financial institutions are also more willing to grant loans as they are reassured that the entrepreneur is well supported and supervised by the local incubators and business accelerators. As a result, all parties gain from this setup.
The ultimate aim of ADA’s support is to help young people in developing countries and their families to improve their quality of life and to play an active role in their communities.