Why existing banking system is not tailored for young entrepreneurs

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. This was noted during a side event of the recently concluded fifth edition of the Youth Connekt Africa summit, which focused on “Delivering innovative financing for Youth Enterprises in Africa.” Pitchette Kampeta Sayinzoga, CEO of the Development Bank of Rwanda (BRD), said: “Bankers think about banking and it is a solution best for growth, and I will be honest, it’s not the best for start-ups.” “Somebody will give you bad advice and you come to a bank to grow, usually that kills your business because interests and collateral requirements are high. This is the part where we need to collaborate with precede equity funds, and angel networks because they are much more suited than we are, as bankers, to actually hold your hand,” she told entrepreneurs. Kampeta emphasized that to change the way young entrepreneurs are financed, “we need to stop listening to bureaucrats and start speaking more with angel networks and business development services and entrepreneurs themselves.” Tapera Muzira, Coordinator of Jobs for Youth in Africa at the African Development Bank, 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.” 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.” She added that 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, Tchoumba noted.

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Why existing banking system is not tailored for young entrepreneurs