10.06.24

YBI and Somo launch policy paper calling for alternative financing for informal youth-led businesses in sub-Saharan Africa

Youth Business International (YBI) today launched a policy paper, co-authored with our member in Kenya, Somo. Together we are calling for alternative financing schemes for informal youth-led businesses in sub-Saharan Africa. 

Informal businesses form a substantial part of the economy and in Sub-Saharan Africa 85% of employment is informal, according to the International Labour Organization (ILO). These businesses, despite being unregistered and lacking formal structure, provide vital income-generating opportunities for marginalized groups, particularly women and youth. However, their growth potential is regularly hampered by a lack of access to finance due preventing them from scaling up, creating jobs and contributing to economies. 

Women entrepreneurs in particular face severe financial exclusion. The African Development Bank estimates a $42 billion gender financing gap. Women-led businesses constitute over a quarter of all businesses in Africa but receive only 7% of venture capital funding. As a result, m​any women entrepreneurs are forced to operate in the informal sector with limited access to finance and growth opportunities. More investment in female entrepreneurs will not only drive economic empowerment and inclusion but also enhance gender parity and societal well-being, as women typically reinvest a substantial portion of their income into their families and communities. 

To address these challenges YBI and Somo launched a Revolving Loan Fund in 2023 as part of the Futuremakers global youth economic empowerment initiative, funded by Standard Chartered Foundation. The fund offers low-interest loans to low-income female entrepreneurs aged 18 to 35, complemented by financial literacy and management training and services. This model allows these entrepreneurs to access capital and grow their businesses into commercially viable and investable models. They then​ replenish the loan fund through repayments for investment in further informal businesses. In its first year, the fund supported 77 women-led businesses with $177,154 in loans, leading to 28% monthly revenue growth and the creation of 326 new jobs. These outcomes demonstrate the ​power of ​financial support ​and ​financial management​ training to enable women-led informal businesses to grow and thrive. ​   

To increase access to finance for informal businesses in sub-Saharan Africa, YBI and Somo call for governments, financial institutions, and development agencies to: 

  • Offer alternative financing models and partner with community-based organisations specifically targeted at informal businesses and provide microloans, alternative credit scores ​and​ guarantor arrangements, complemented by a holistic package of financial literacy support.  
  • Partner with local organisations to provide financial literacy initiatives tailored and accessible to marginalised groups who are more likely to operate in the informal sector.  
  • ​​Support marginalised groups, including young people, women, people with disabilities, refugees and migrants, and ethnic or religious minority groups, ​to​ navigate regulations and harmful stereotypes that ​prevent them from building an enterprise.​​  
  • Tailor all support services and financing models to the marginalised groups mentioned above, addressing their specific needs and challenges.   
  • Simplify policy frameworks for formal business registration and access​ to​ finance. 

Read our full policy paper Alternative financing for informal businesses to propel youth entrepreneurship in Sub-Saharan Africa here.

Other Resources

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YBI launches global Community of Practice to support ‘high flying’ young entrepreneurs to grow their business

01.12.22
Learning papers

Identifying and Supporting High Flying Businesses – An Exploratory Analysis of Enterprise and Entrepreneur Data

08.11.23

Those who make it possible

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Standard Chartered Foundation

Standard Chartered Foundation

Google.org

Google.org

Argidius Foundation

Argidius Foundation

JPMorgan Chase & Co

JPMorgan Chase & Co