Youth Development Fund: Way forward
Apart from ensuring that lending institutions would have something to fall back on in the event of a default by a beneficiary, the inclusion of collateral security among the lending requirements for future funds forces the beneficiaries to be serious about their businesses and weeds out chancers.
THE Youth Development Fund (YDF) has been a topical issue in the past few weeks following tours by the Mayor Justice Wadyajena-chaired Parliamentary Portfolio Committee on Youth and Indigenisation, which unearthed a number of alleged irregularities.
The fund is a $40 million revolving micro-loan facility which was established in 2006 by Government to support youth entrepreneur development under the National Youth Policy.
The YDF, which was funded by financial institutions such as CABS, CBZ Bank, the Infrastructure Development Bank of Zimbabwe (IDBZ) and Stanbic Bank, targeted youths aged 18 to 35 years.
During the Parliamentary Portfolio Committee’s tour, it was established that the fund was plagued by a default rate of 85 percent, which was caused by borrowers who gave false identity and residential address details, making debt collection difficult.
The fact that most of the fund’s beneficiaries were first-time and inexperienced entrepreneurs, who did not possess the requisite knowledge and experience on how to run businesses, worsened the situation.
This resulted in the high default rate among beneficiaries, which defeated the revolving aspect of the fund.
Another contributory factor is the fact that the funds so borrowed were viewed as Government funds, which many people regard as free funds which should not be repaid.
This notion of free Government funds is not new in Zimbabwe.
Back in the 1990s, some people who were retrenched as part of the implementation of the Economic Structural Adjustment Programme (ESAP) were advanced loans by Government under the Social Dimension Fund (SDF) to start businesses to sustain themselves.
The funds met the same fate as the YDF as most beneficiaries failed in business for various reasons and never worried about the debts they accrued as they felt the SDF was funded by Government and that there was no need to repay them.
YDF participating banks did not help matters much by treating the loans as political lending.
They were more prepared to make provisions for the anticipated YDF non-performing loans, instead of pursuing defaulters in the same way they chase other normal bad debts.
This could have been because some of the financial institutions participated in the fund as part of their indigenisation policy compliance and, therefore, feared that pursuing defaulting beneficiaries could be interpreted by Government as fighting its indigenisation and economic empowerment thrust.
There, however, was no harm in engaging Government over their default concerns. Given that funds accessed under the YDF were unsecured, this means about $34 million of the $40 million fund is yet to be recovered.
The idea of the fund was noble and remains so. This is a case of a great idea whose execution was poor.
For other young people to benefit from such ideas in future, Government needs to rethink the disbursement of the funds to ensure they revolve and help more people, especially now that Zimbabwe’s economy is largely informal.
First and foremost, funds which were advanced to various beneficiaries should be recovered. Not every beneficiary provided false details.
Those who gave correct details need to be pursued so that they can agree on repayment plans with the disbursing banks until every cent is recovered.
This will ensure that whatever is recoverable is recovered. The money so recovered can be used to advance new loans to new and serious young entrepreneurs.
The recovery will also serve to send a clear and strong message to future beneficiaries of such funds that they should be prepared to repay every cent they borrow for the good of the economy.
It will also inculcate in young Zimbabweans and other entrepreneurs a sense of responsibility and disabuse them of the undesirable and misguided culture of free Government funds.
Going forward, beneficiaries of funds such as the YDF should be subjected to National Credit Bureau (NCB) checks, when it is operational, to ensure those of the free Government funds mentality do not hop from one fund to another obtaining money which they do not repay, depriving serious entrepreneurs.
In future, participating banks need to treat beneficiaries just like any other bank customers.
This means helping them to make the most of the borrowed funds to build their businesses through providing business counsel and whipping them into line when they default in their repayments.
Banks should view advising their customers as an investment in their own businesses rather than a perfunctory corporate social responsibility activity.
Most of the beneficiaries of the YDF were first-time entrepreneurs who did not understand the mechanics of business.
They, therefore, badly needed hand-holding by all stakeholders such as the banks, and the Ministries of Small and Medium Enterprises and Co-operative Development and Youth Development, Indigenisation and Empowerment.
With the benefit of hindsight, the stakeholders can still play this very key role with similar funds in future.
One major reason why it was easy to access loans under the YDF fund was that no collateral security was required.
Apart from ensuring that lending institutions would have something to fall back on in the event of a default by a beneficiary, the inclusion of collateral security among the lending requirements for future funds forces the beneficiaries to be serious about their businesses and weeds out chancers.
The advent of the anticipated Moveable Property Security Interest Act, whose Bill went through second reading in the Senate last week, is set to assist borrowers and assure financial institutions as it would allow the former to use moveable assets as collateral security.
This means that under the envisaged law, even banks participating in schemes such as the YDF or its equivalent can bolster chances of lower default rates by asking for collateral security.
The YDF was a learning experience. Improving upon and closely monitoring the way the funds are disbursed and used is likely to turn it into a powerful empowerment tool, which would go a long way in reducing unemployment and growing the economy.