Business Daily (Nairobi)
Githua Kihara
19 March 2008
March Gaotisia and Fridah Onsongo are twin sisters. They are also business partners at Sky West Production, a media company that benefited from a Sh500,000 loan from the Government-run Youth Enterprise Fund. To them, this kitty was a noble idea whose time had come and they hope to build a business empire from it.
Theirs was a case of personal sacrifice. When the fund came in 2006, they had carved a niche in a competitive TV and radio production business. In a case of striking the iron when still hot, the two sisters started the company four years ago just after completing training in media production at a Nairobi college. They set up the business at home armed only with basic equipment.
Boasting prowess in marketing and production skills, they set off looking for clients, a task they say they went through with considerable ease. Once off the starting blocks, the duo set focus on product quality, a marketing strength that earned them a reputable client base that has made them attractive to lenders.
They shifted the business to a three-roomed office in 2005 in the upmarket Westlands area in Nairobi.
Then came the tragedy that would make them sharper. Their father, the only bread winner in the family, died and the burden of supporting the family of six shifted immediately to their shoulders. Result? They became more aggressive in running the start-up. When the Government created the kitty for the youth, the keen sisters had for long toyed with the idea of expanding their business through a loan.
They had maintained an impressive cash flow in their bank account, which could easily convince any financial lender. Therefore, when the idea of the fund was mooted, they diverted attention to the progress in which it was making.
"The loan charges an interest rate of eight per cent which is quite impressive for a small business like ours," said Fridah.
"In fact, we have a very understanding financial partner," her sister says of the Kenya Industrial Estates (KIE), which gave them the loan.
They used the loan to purchase a modern video camera, a tool that hitherto could only be hired at between Sh5,000 and Sh10,000 a day if they had an assignment.
The item cost them Sh480,000. They got smart and used the rest of the cash on insuring the machine against damage or loss. 'The bank didn't give us this money. They instead wrote a cheque to the company that supplied us with the camera," Fridah said.
With the cost of hiring a camera now out of the way, the two sisters were able to concentrate on the other areas such as marketing, which has seen their business grow by over 90 per cent.
'We first identify a company's need," says Fridah, "then we do a proposal of how we can fill in the gap and discuss this with CEOs."
They use a marketing strategy they consider unique. "Rather than relying on the marketing departments to get an entry point to the company's top level managers, we go it the other way round," March said. "First go to the CEO who will help you identify the people you will work with," she added.
"In certain cases, unscrupulous staff may sell the idea presented as their own and once it is approved, they get somebody to do the job at the expense of the person who conceived the idea," Fridah observed.
This is the strategy that has worked magic for the two sisters and made them acquire a good profile due to the reputable client base. "We did a documentary that was aired in all local television stations and boosted our presence in the market," Fridah said.
According to them, a good client base was a strong persuasion that convinced the KIE to give them a loan. Just before the last elections, they increased their staff by three, and Fridah says: "The business can now feed three other households."
But the two sisters admit that getting the loan was not easy, considering that they were starting from the scratch. "It was not like any other ordinary application we do to the bank as it required business knowledge and understanding," said Fridah.
The two did not have a lot of problems in convincing the financial intermediary into buying their business idea. Their cash-flow indicated good signs of growth in the business.
Radiating with youthful energy, they persistently followed up their loan application "almost daily and when the Fund became available, we were among the first groups to benefit," Fridah observed.
The company is repaying the loan at a monthly rate of Sh22,000. However, due to the post-election violence, the business has gone down and they have not managed to pay any money this year.
Nonetheless, just like other businesses, Sky West Production hopes to benefit from the calm returning in the country after political parties signed a peace accord and laws put in place to build the foundation of peace.
In order to ensure sustainability and growth in the next five years, a serious review of the fund's implementation strategy is under way to make sure that good business ideas that were locked out in the last disbursement do not suffer the same fate again.
The new approach according to the new CEO of the Fund, Mr Umuro Wario, will reflect the needs of the clients and the environment informing its operations. The Fund is presenting its first budget since it was transformed into a parastatal May last year.
The idea of establishing a Youth Enterprise Fund was mooted in 2006 as one of the interventions to address the youth's unemployment problems in the country.
This commitment was reflected in the national budget of June 2006 when Sh1 billion was set aside for the kitty. However, there were no operational and legal frameworks for allocations.
According to Wario, financial intermediaries were arguably the best placed option to handle the money due to their infrastructural support.
The seed money allocated in 2006 got a boost last year when a further Sh750 million was injected into the Fund. Over Sh475 million has already been released, the CEO said.
Banks handle a very small portion of the Fund. It is only three banks, namely Equity, Family and K-Rep who administer it. The rest is channelled through micro finance institutions, non-governmental organisations, foundations and cooperatives chosen on their ability to reach young people at the grass roots.
Kenya Women Finance Trust took the largest share of Sh200 million. To date, 35,000 youth enterprises have been financed. Due to the high risk factors associated with the borrowers, the financial intermediaries disbursing loans were strict in vetting business plans and this could perhaps explain the impressive repayment record.
However, the Fund does not have a monitoring and evaluation mechanism on the repayment and it is hard to tell whether it is becoming a revolving fund as initially anticipated.
It has also opened a good opportunity for the banks to be able to market their products and for the enterprises to benefit from the banks' products, according to an official in one of the three banks.
The loan is borrowed at eight per cent interest rate, seven per cent of which is taken by the bank.
The bank officer says his bank has released more money than was allocated because of the success of the fund. One is required to repay the loan in two years and according to the banker, various enterprises have repaid the entire loan and are now in a second phase.
The fund came at a turbulent political time, which made it to be received with mixed reactions. Youth and the public, observes Wario, felt the Fund was free money. As a result, more emphasis was put on lending. Many deserving cases were locked out.
With a potential client base of 13 million people as defined in the legal mandate, due to the high unemployment among the youth Sh1.75 billion was just a drop in the ocean, which may have made many further dissatisfied on how the whole idea of the Fund was conceptualised.
Because of the financial arrangement between the intermediaries and the Fund, the draft budget proposal report says a number of viable business ideas were turned away by strict financing criteria that included provision of collateral against the loan.
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