ACCESSIBILITY OF AFFORDABLE SOURCES OF FINANCE BY THE YOUTH FOR ENTREPRENEURIAL DEVELOPMENT IN MUKONO MUNICIPALITY COUNCIL

CHAPTER ONE 1.1 Introduction

In this chapter the researcher will provide the background of the study such as the statement of problem of the research, the objectives of the study, and then the scope of the study

1.2

Background

Information from the Ugandan Investment Authority and the Ugandan Bureau of Statistics puts it that only 113,000 out of 400,000 graduates are absorbed into formal employment each year. More and more graduates continue to feed off their aging parents; a general discontent pervades the mood among many graduates. This is because with just 9,000 jobs available, more than 40 candidates will be competing for a single job. This means a lot for the new graduates. It means going out into some sort of wilderness, characterized by vigorous search for scarce jobs.(new vision, March 19, 2012), and on the other hand according to the World Savings Banks Institute (2004), only 20% of the population in most developing economies has access to formal financial services. In a typical developing economy in the Asia and Pacific region, the formal financial system at best serves no more than 2030% of the population, and excludes 7080%, and its well-known that the youth contribute 55% of Uganda's population according to the Uganda bureau of statistics. If these youth can access affordable sources of finance to enable them engage in entrepreneurship especially small enterprises, simply because Small and medium-sized enterprises (SMEs) are the backbone of all economies and are a key source of economic growth, dynamism and flexibility in advanced industrialized countries, as well as in emerging and developing economies. SMEs constitute the dominant form of business organization, accounting for over 95% and up to 99% of enterprises depending on the country. They are responsible for between 60-70% net job creations in developing countries. Small businesses are particularly important for bringing innovative products or techniques to the market (Steel 2004). For example Microsoft may be a software giant today, but it started off in typical SME fashion, as a dream developed by a young student with the help of family and friends. Only when Bill Gates and his colleagues had a sale-able product were they able to take it to the market place and look for investment from more traditional sources.

These are some of the challenges entrepreneurs face in accessing the above sources of finance. The high transition costs and absence of collateral which is must if you are to acquire a loan from any financial institution (Steel 2004) leading to inadequate working capital and funds for investment. Another challenge is that acquiring a lease can expensive. (Steel 2003) and since lease is done for only assets, these assets depreciate. The challenge associated with trade credit is that it requires a full payment of the invoice in a limited period of time possible. The challenge associated with hire purchase is that it requires a lot of documentation such as agreements of which can be manipulated (Njoroge 2000) The impacts as a result of accessing affordable sources of finance include the following; The major one being creation of employment since if people can access affordable sources of finance they can venture into entrepreneurship through starting small businesses such as shops, small restaurants, bakeries and other business opportunities which may also employ other people hence leading to development. On the other hand it should be noted that if many people access these sources of finance, there are negative impact such as dependence were individuals depend on financial institutions for loans, there will also be a problem of inflation since there will be too much money in circulation

1.3

Statement of the problem

Many graduates leave universities each year for example 1500 students graduated from Uganda Christian University in October 2011and many more from different universities in the country. However not every graduate is going to get a white collar job, this means that in order to fight unemployment, some of the graduates must take on entrepreneurship especially in small scale businesses but they face a challenge of accessing affordable sources of funds . The government therefore can make this a priority to see that these youth can access the most affordable sources of finance so as they can start up small scale businesses to fight the rate of unemployment.

1.4 General objective of the study 1. To find out the challenges of accessing affordable sources of finance by the youth of Mukono district

1.5 Specific objectives 1. 2. To find out the challenges the youth face in affordable accessing sources finance To find out the impact of entrepreneurial development on the livelihood of the youth

3. To find out the relationship between the youth accessing affordable source finance and entrepreneurial development

1.6

Research questions What are the challenges the youth face in accessing affordable sources of finance? What is the impact of entrepreneurial development on the livelihood of the youth? What is the relationship between the youth accessing affordable sources of finance and entrepreneurial development? To Significance of the study enable the government to create more channels were new entrepreneurs can access affordable

1.7 1. funds 2.

To enable the entrepreneurs to know the various kinds of sources of funds

3. To attract many graduates and other people into entrepreneurship so as to reduce the level of unemployment and underemployment

1.8

Geographical scope of the study

The geographical scope of the study is the Mukono town council. This is simply because Mukono district is one of the most populated districts in Uganda. According to the 2002 nation census figures, Mukono district had 423100 people and its population projections were at 4.1%.(Mukono district web portal) This means that since there are many people, there are many business opportunities and many would-be entrepreneurs fail to use this advantage because of lack or limited access of affordable sources of finance

1.9

Subject scope

The subject scope is the people who are engaged in the micro enterprise business and the fresh graduates who have many business ideas and proposals but lack the proper funding to engage or continue business.

CHAPTER TWO 1.0 introduction The researcher in this chapter defines the key words of the research topic and also uses the different literature that has been used by different scholars so as to justify support his work

1.1 Definition of key terms; Entrepreneurship is the act of being an entrepreneur who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods or services (Reynolds 1999) Entrepreneurship has been long recognized as performing a central role in the process of development. It is now widely accepted that economic development is not only, or mainly, a matter of physical resources and capital, or even of technically trained personnel (Harper, 1996; Mardsen, 1992; Marris and Sommerset, 1971). As Harper notes, without entrepreneurship, the indefinable and often transient quality that leads people to assemble and manage resources productively, nothing much can be achieved. Yet this role of entrepreneurship has largely been ignored in the main body of economic theory and has received surprisingly little attention in the general literature on development Finance is the set of activities dealing with the management of funds; more especially its the decision of collection and use of funds Youth is defined by the United Nations as young people between 15 and 24 years and believed that 87% of the youth live in developing countries

1.2 Why the youth fail to access sources of finance Nearly half of the worlds population is under 25 years (ILO, 2004). The international labor

organization indicates that children under the age of 18 are economically active. UNFPA research estimates that 1.2 billion young people, as effective as MF has become as a development tool for poor women, while unmarried working people have been left out of the adult focused formal and informal lending sectors. Unmarried young people of legal age have been relegated to the sidelines accessing MF services due to perceived risk, age, status in society. Many young people work long hours and accept low wages in the informal sector (Carothers, 2003). Some young people who work combine education(school, vocational training or apprenticeship) with paid work and while this allows children and youth to continue with their education, their ability to perform can be compromised. The ability of the children and the youth to control the scheduling of their work can allow them to improve their educational performance and controlling work schedules can be done when the children and youth operate their own businesses. Unfortunately, one of the biggest constraints to young people in business is access to financial services (credit services) From the literature above, the researcher points out that the youth being neglected by the MF limits the youth source of finance since the MF financial services are aimed at the poor women. Also the youth involvement in education gives them limited time to look for appropriate sources of funds since most the funds may be used to facilitate the education such as paying for school fees accommodation and feeding which take a lot of money hence preventing the youth to invest in business to fight the unemployment problem A major constraint to the growth of YREs is lack of access to finance. While potential youth entrepreneurs and existing YREs generally lack access to credit in both DCs and LDCs, the problem is particularly acute in the latter. Not only are there few micro-finance institutions in many countries, but those specifically targeted at youth are even fewer. A review of 902 organizations in 96 countries listed under the Microcredit Summits Council of Practitioners revealed only 21 organizations with youth in their title (Curtain 2000). Admittedly, there are credit schemes directed at young people in the mainstream microcredit organizations, but surveys reveal that youth are an underrepresented group. Lack of sufficient collateral, experience and biases further disadvantage young people. It is also important to note that many micro-credit schemes, especially youth credit schemes, have failed in many countries. The overall message from the failure of these schemes suggests that success or failure in terms of financial viability and servicing the poor, in this case young people largely depends on the design of the programme (Curtain, 2000). From the literature above we see that despite the presence of the micro finance organizations especially in the LDCs they do not cater for the youth because they do not have the collateral security and other micro finance organizations do not even pay attention to the youth at all. This this therefore makes the youth to be in a position where they cannot access finances to do entrepreneurship

1.3 Why the youth should access sources of finances to engage in entrepreneurship It is now widely accepted that there are many good reasons to promote entrepreneurship among young people. While caution should be exercised so that entrepreneurship is not seen as a mass or wideranging solution which can cure all societys social ills, as many experts such as Curtain (2000) warn, it has a number of potential benefits. An obvious, and perhaps significant one, is that it creates employment for the young person who owns the business. This is especially the case in an economy subject to rationalization, change and restructuring. Many experts believe that this could bring back the alienated and marginalized youth into the economic mainstream (Curtain, 2000; White and Kenyon, 2000). There may also be a direct effect on employment if new young entrepreneurs hire fellow youths from the dole queues (Curtain, 2000). In this way, entrepreneurship could help address some of the socio-psychological problems and delinquency that arise from joblessness. Youth-run enterprises (YREs) also provide valuable goods and services to society, especially the local community (OECD, 2001; Stone, et al., u.d). This results in the revitalization of the local community. It has also been observed that new small firms tend to raise the degree of competition in the product market, thereby bringing gains to consumers (Curtain, 2000). In addition, the enterprises may create linkages between youth entrepreneurs and other economic actors, such as through sub-contracting, franchising, and so on (White and Kenyon, 2000). Youth entrepreneurship also promotes innovation and resilience as it encourages young people to find new solutions, ideas and ways of doing things through experience-based learning (OECD, 2001; White and Kenyon, 2000). In certain circumstances, young entrepreneurs may be particularly responsive to new economic opportunities and trends. This is especially important given the on-going globalization process. It is increasingly accepted that youth entrepreneurs can present alternatives to the organization of work, the transfer of technology, and a new perspective to the market (White and Kenyon, 2000). White and Kenyon further note that social and cultural identity is promoted through youth enterprises, as is a stronger sense of community where young women and men are valued and better connected to society. They note that youth enterprises give young people, especially marginalized youth, a sense of meaning and belonging. This can shape the identity of youth and encourage others to treat them as equal members of society. A popularization and democratization of entrepreneurship can allow the disadvantaged in society to succeed regardless of social or family background (OECD, 2001). In a broader sense, entrepreneurship, when treated as enterprise, helps young women and men develop new skills and experiences that can be applied to many other challenges in life. In the Oxford

Thesaurus, enterprise is defined as resourcefulness, initiative, drive, imagination, enthusiasm, zest, dash, ambition, energy, vitality, boldness, daring, audacity, courage, get up and go It is worth noting that these attributes are generally associated with youth. In that sense, youth have the qualities of resourcefulness, initiative, drive, imagination, enthusiasm, zest, dash, ambition, energy, boldness, audacity, courage (Schnurr and Newing, 1997:2). Ghai (1988:21) also notes: youth are known to possess qualities of enthusiasm, motivation, enterprise, risktaking, flexibility, energy, resourcefulness and willingness to try new approaches. Bennell (2000) in this regard argues that the challenge for governments, NGOs and international bodies seeking to improve youth livelihoods is to tap into the dynamism of young people and build on their strong spirit of risk-taking. It follows, therefore, that policies to promote youth entrepreneurship need not be seen as a departure from the broad policy orientation needed in any case. As the OECD report (2000) observes, programmes to train young men and women for self-employment and help them to achieve it can enhance what must be done to attack youth unemployment in general. This is based on the recognition that not all young people can become entrepreneurs in a business sense. Enterprise skills can, therefore, help youth adapt well to other non-entrepreneurial careers. Moreover, the success of the new economy-however defined-is dependent on the promotion of a culture of entrepreneurship. It has been observed that youth have the capacity to understand it and be its pioneers. This is reflected in high youth participation in internet business start-ups (OECD, 2001; Curtain, 2000). Given this situation, the promotion of youth enterprise in general and youth entrepreneurship in particular is vital. The importance of this promotion should also be seen in the context of improving social attitudes towards entrepreneurship. Collectively, these influences are referred to as an enterprise culture. The improving social attitudes towards entrepreneurship are also evident among young people. Recent survey data suggest that more and more young people in both developed countries (hereafter DCs) and developing countries (hereafter LDCs) increasingly view entrepreneurship as a viable career option The importance of promoting entrepreneurship is also reflected in the increasing role that self employment plays in job creation across the world. In DCs, and especially in LDCs, self-employment is emerging as an important source of employment; livelihoods and economic dynamism. In DCs and more industrially advanced developing countries, there has been increasing flexibilisation and informalization of production and employment relationships (casualization) which involve subcontracting production to small enterprises. This is largely in response to increasing global competition and information technology. In LDCs and transition economies, the bulk of new employment in recent years has been in the informal sector Given the growing importance of entrepreneurship and self-

employment as a source of new jobs and economic dynamism in developed countries, and livelihoods in developing countries, there is need to promote youth entrepreneurship as a source of improved youth livelihoods and economic independence. Within the framework of potential efforts and strategies to boost employment and job creation for young people, entrepreneurship is increasingly accepted as an important means and a useful alternative for income generation in young people. As traditional job-for-life career paths become rarer, youth entrepreneurship is regarded as an additional way of integrating youth into the labor market and overcoming poverty. Supporting this shift in policy is the fact that in the last decade, most new formal employment has been created in small enterprises or as self-employment. Given global demographic trends, it is important that the social and economic contributions of young entrepreneurs are recognized. Entrepreneurship can unleash the economic potential of young people. Chigunta (2002) sums up a number of reasons for the importance of promoting youth entrepreneurship: Creating employment opportunities for self-employed youth as well as the other young people they employ; Bringing alienated and marginalized youth back into the economic mainstream and giving them a sense of meaning and belonging; Helping address some of the socio-psychological problems and delinquency that arises from joblessness; Helping youth develop other challenges in life new skills and experiences that can then be applied

Promoting innovation and resilience in youth; Promoting the revitalization of the local community by providing valuable goods and services; Capitalizing on the fact that young entrepreneurs may be particularly responsive to new economic opportunities and trend

Entrepreneurship and self-employment can be a source of new jobs and economic dynamism in developed countries, and can improve youth livelihoods and economic independence in developing countries. For young people in the informal economy, micro-entrepreneurism is a bottomup method for generating an income, self-reliance and a new innovative path to earning a living and caring for oneself. Below is graph showing that if young enterprises are properly financed can grow with time

Source: Chigunta (2001).