Youth entrepreneurs have called for more access to capital, but these investments are inherently risky. How can we reduce the risks associated with investing in youth entrepreneurs? Fiona Whitefield poses two solutions.
Every year, the World Bank brings together youth entrepreneurs to share their projects and ideas at the World Bank Youth Summit. At this year’s gathering, one critical question was repeatedly discussed: What is the most important thing the World Bank Group should do to support young people? The youth entrepreneurs responded with a resounding consensus that, in comparison to their older counterparts, they lack access to the capital and investment opportunities that would help them scale their businesses.
While there are a variety of social and cultural factors at play, startups are inherently uncertain and therefore make for risky investments. Young entrepreneurs present an even greater risk to investors than their older counterparts, because young entrepreneurs often do not have the same experience, industry connections, or major assets to provide as loan collateral — even if they possess the skills and motivation. However, entrepreneurs, and youth entrepreneurs in particular, drive economic progress through job creation, competition, and innovation. As a development community, we need to continue to improve on how we engage youth entrepreneurs by building an inclusive system that supports them through both financial and non-financial means.
Youth Entrepreneurs Need Stepping Stones to Traditional Finance
An effective solution to bridge the gap between youth entrepreneurs and capital will need to reduce the risks associated with financing younger entrepreneurs and ensure that they have fair access to the capital and resources they need. To gain access to large amounts of capital, youth entrepreneurs must demonstrate that they can manage their businesses and generate returns on investments. Not every form of capital can be effective in supporting young borrowers, and it is important to provide options that don’t impose unnecessary financial burdens on youth. Instead of jumping to large sources of funding, entrepreneurs can work with small amounts of capital, which can come in various forms, to develop a track record of success.