Our Learnings
Financial health for young entrepreneurs means that they are aware of and able to access appropriate resources required to start and grow their enterprises, can manage their business finances, and have confidence in their financial future.
Youth Business International and its members as part of the Futuremakers global youth economic empowerment initiative, funded by Standard Chartered Foundation, have developed an evidence-informed approach that can systematically improve how young entrepreneurs can be supported to access appropriate financial services and products.
1. Why Financial Health?
Young entrepreneurs often lack resources, but they rarely lack ambition. Throughout Youth Business International’s (YBI) 20+ year history, access to finance has been a consistent constraint for young people wanting to start and grow their business.
While government policies have sought to increase youth financial inclusion, and the digitisation of financial services has made them more accessible, young entrepreneurs are still systematically excluded. This lack of financial services and capital limits the ability of young entrepreneurs to succeed, improve their lives, shape markets, and support their communities.
Evidence shows that financial access alone is not sufficient for young entrepreneurs to succeed and that they need support beyond just securing grants or loans. A holistic approach that links the personal and business skills of young entrepreneurs with the right resources is therefore necessary. YBI and our global member network of Enterprise Support Organisations (ESOs) have developed a Financial Health approach that defines and describes the skills, forms of support, connections, and resources that young people need to finance their businesses, with specific emphasis on inclusion and equal opportunity.
The YBI Financial Health approach was developed as part of the Futuremakers project led by YBI and funded by Standard Chartered Foundation. YBI formed a Community of Practice consisting of ten of our members from Asia, Africa and Europe which identified a model for financial inclusion, aggregated experiences and key learnings in the area, and developed shared tools to support disadvantaged young people. This Financial Health Learning Product shares the resulting model and demonstrates how it has been applied via a series of member case studies. This digital product provides a foundation for YBI’s future financial health work and supports additional investment in improving the quality, inclusivity, and relevance of our members’ financial health support activities.
What is Financial Health?
Based on our experience leading our global network of members, YBI has developed the following definition of financial health:
This definition integrates financial literacy and financial access. Young people need to be confident in managing their own money and applying business skills. Young entrepreneurs also need to have access to appropriate financial products and services that meet their specific needs. Combining both, financial literacy and financial access, is a critical concept for financial health.
The two complementary paths to financial health:
Adapted from CGAP (Consultative Group to Assist the Poor)
A financial health approach supports a more comprehensive set of activities to support young entrepreneurs, ranging from skill development at the individual level to advocacy with the financial sector at the policy level.
Why Does Financial Health Matter for Young People?
Access to finance for young entrepreneurs in the early stages results in better entrepreneurial outcomes. However, young people are only half as likely to have accessed financial credit as their older counterparts. Even in markets with well-developed financial systems, like Europe, only 33% of young entrepreneurs received funding from banks. Financial health challenges for young people are also intersectional with young women, young people living with disabilities, and other disadvantaged groups facing additional barriers. Financial products and services, when they are available, may not be suitable for the needs of young people, often lacking flexibility in terms of credit history, collateral, and risk requirements. Young people are also less likely to have the product awareness, banking and credit history to have the necessary savings and collateral, and lack the necessary business skills to access finance.
According to our Futuremakers Community of Practice members, the four elements of financially healthy young entrepreneurs are:
Knowledgeable
Young people are aware of the products and services available to them and can manage their day-to-day finances to meet their business needs.
Resilient
Young people have the capacity to absorb financial shocks.
Capable
Young people have the skills and capacities needed to reach their business goals.
Confident
Young people feel secure and in control of their business finances.
2. YBI’s Approach
The YBI Financial Health Model
YBI’s Financial Health model is a Theory of Change (ToC), which draws on our members’ experiences advancing the financial health of young entrepreneurs. It visualises how young entrepreneurs can be supported via different pathways as well as the types of changes that are needed at the individual, business, and ecosystem levels. The financial health model also identifies how different entrepreneurship ecosystem actors – such as ESOs, financial institutions/service providers, policymakers, private sector leaders, mentors, and investors – can work together to support young entrepreneurs to achieve impact – i.e., financial health for young entrepreneurs.
The YBI financial health ToC identifies three pathways that organisations should consider when supporting young people to increase their financial health.
This support involves:
Partnerships and engagement with policymakers
(Pathway 1)
Partnerships and engagement with financial institutions
(Pathway 2)
Direct development of young entrepreneurs’ skills
(Pathway 3)
Financial health is also shaped by contextual norms, structural inequalities, and vulnerabilities which will differ across contexts and between individual entrepreneurs. The model may need to be adapted contextually to address the specific barriers that different groups of young entrepreneurs face.
Pathway 1: Engage Government and Private Sector to Foster an Entrepreneurial Ecosystem that Enables Young Entrepreneurs
The entrepreneurial ecosystem is critical to support young people to establish and grow their businesses. This voice of young entrepreneurs needs to be included, considered, and responded to in decisions taken by governments and financial institutions. Without supporting institutions and regulators, young people will struggle to sustain and grow their business. As noted at the start of this paper, multiple access to finance barriers persist for young entrepreneurs globally. These barriers include administrative requirements, regulatory hurdles, and social norms that disadvantage women, people with disabilities, and rural entrepreneurs and restrict market entry. YBI members identified regulatory barriers in 40% of contexts, as well as issues with the cost of credit and inflation. Key stakeholders include ESOs, government and policy makers, and financial institutions.
FATE Foundation, YBI member in Nigeria, is working through their research, policy, and advocacy arm, The FATE Institute, on advocacy and awareness raising of issues facing entrepreneurs. Through this work, the FATE Institute aims to provide information about entrepreneurs and pressing issues across the entrepreneurial ecosystem. They run an annual State of Entrepreneurship (SoE) survey, which serves as a barometer for entrepreneurship nationally and provides insights on access to finance barriers for entrepreneurs. FATE publishes their SoE findings in their annual SoE report, which is one of many publications, including those specifically on access to finance. The FATE Institute also runs a policy dialogue series to engage entrepreneurial ecosystem stakeholders in discussing and addressing challenges for entrepreneurs, such as access to finance.
Pathway 2: Partnering with Financial Sector Actors
For the financial health of young entrepreneurs to improve, they need to have financial products that are available, appropriate, and known to them. This includes formal financial products as well as alternative forms of financing such as grants, revolving funds, savings groups, crowd funding, pitching competitions, or accessing finance via family, friends and/or communities. Young entrepreneurs supported by ESOs gain awareness of their options, understand how to access them, and supported in their applications and engagement. Members identified financial institutions (80%) as the most important financing stakeholder, followed by government (70%), and alternative lenders/equity providers (60%). Other key stakeholders include professional services providers, regulators, and ESOs.
Somo, YBI member in Kenya, operates their Revolving Loan Fund through Futuremakers funded by Standard Chartered Foundation. This fund provides loans of $1,000 to $20,000 to women led businesses at 5% interest rate per annum, with a repayment period of up to three years. Recipients of loans through the fund also benefit from mentorship and advisory support. The organization is working to build out community and peer credit scoring to ensure greater access. Somo has also developed DigiKua app, a WhatsApp based record keeping application, that improves financial record keeping through recording sales and tracking cashflows.
Pathway 3: Developing Young Entrepreneurs’ Business and Financial Management Skills
Global evidence shows that when young entrepreneurs have more developed financial and business skills, they are better equipped to tackle challenges such as access to finance, navigating markets, and developing business networks. Personal, business, and digital skills are necessary for young entrepreneurs to be better equipped to succeed in their business ventures. YBI members identified business skills as the greatest challenge for entrepreneurs looking to access finance, specifically a lack of financial management and record keeping (90%) and lack of knowledge and confidence around financing options (50%). Most commonly, members addressed this challenge via mentoring (80%), financial management training (70%), and supporting on business strategy development (50%). Key stakeholders were entrepreneur support organisations, trainers, coaches, and mentors.
Startup Vietnam Foundation (SVF), YBI member in Vietnam, fosters linkages with funding bodies like the State Bank of Vietnam. Through these partnerships, SVF paired their entrepreneurs with mentors from banks. These mentors engage with the business, provide financing advice, and support them to broker appropriate financing, allowing them to access special interest rates, payment fee waivers, and free accounts.
3. YBI’s Commitment
YBI and our members believe that the right mix of financial health activities can address the readiness of young entrepreneurs as well as the availability of financing.
ESOs are the pivotal agents that support young entrepreneurs to gain access to the skills, the information, and the services that they need to finance their business start-up or expansion. These organisations understand the context and are best able to identify the most promising and inclusive approaches to supporting financial health. YBI is committed to promoting more comprehensive financial health strategies with our members via capacity development, partnership building, and supporting the digitisation of financial health support.
Going forward, YBI and our members will continue to work together to improve and scale our work on financial health.
Key activities include:
Improving Financial Health Strategies
YBI will develop a diagnostic toolkit to help our members assess their financial health services and strategies. This will be be shareable via individual or cohort-based training or via self-directed institutional assessments. YBI members will use this to determine what additional activities they might introduce and to improve the activities they are currently implementing to support the financial health of young entrepreneurs.
Supporting Digital Integration
Digitisation will be key to greater financial inclusion and access. Digital skills and products can increase financial knowledge and business practices as well as make financial products more accessible and cost-effective. YBI will work with members to map available products and services, and to understand how to integrate these new approaches into their financial health activities.
Being more inclusive
Young women, people living with disabilities, and refugees and migrants all face intersecting challenges to accessing financial services. YBI will work with our members to continue to adapt their financial health strategies to support a wider variety of groups, with a particular focus on financial health training and mentoring approaches.
Ensuring Social and Green
Businesses Can Succeed
Young entrepreneurs who seek to have a social or green impact face additional challenges when starting or scaling a business. By prioritising societal goals, these businesses may be less likely to be able to access certain commercial financial service products. YBI and our members will aim to link these young entrepreneurs with the patient capital and non-financial support that they may need to build their social and green businesses.
Share learning for better
financial health practice
Many organisations feel like they are working alone in addressing the financial health challenges of young entrepreneurs. By creating a community around financial health, YBI will continue to facilitate critical discussions and build shared understanding of promising approaches to promote financial health.
Strengthen entrepreneurial ecosystems and youth-friendly policy
Financial inclusion for young entrepreneurs is most often a policy challenge. YBI and our members will support the necessary policy and regulatory changes to create a more youth-inclusive financial services regulatory framework.
4. Acknowledgements
The YBI Financial Health approach is both a continuation and an advancement of our global network’s youth entrepreneurship support.
The lessons and learning from YBI members illustrate the model’s applicability and provides a foundation for future work to improve the quality and relevance of their financial health work to support young entrepreneurs.
YBI would like to thank our 10 Futuremakers Community of Practice members who contributed to the development of the Financial Health Theory of Change:
We would also like to acknowledge Standard Chartered Foundation for their funding of the Futuremakers Community of Practice.
Funded by Standard Chartered Foundation
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