“In a country where a large portion of the population is financially excluded it is ridiculous to expect entrepreneurship to flourish without intervention by the government,” said an economist requesting anonymity. - File photo

The lack of access to funding business ideas is a major barrier to the emergence and growth of the new, young entrepreneurs in Pakistan.

“In many other countries like the United States you just have to have a good business idea and you will find many eager to hold your hand for turning it into an opportunity. They have venture capitals, angel funds and investment banks eager to invest in the young entrepreneurs and their business ideas,” Shahban Khalid, chairman of the Islamabad-based Young Entrepreneurs Forum, told this scribe.

“Here in Pakistan, we don’t have angel funds or venture capitals or investment banks to support the young entrepreneurs, no matter however practical and profitable business ideas they may have. What we have here is commercial banks that demand collateral or security if a prospective entrepreneur wants to borrow money from them. If he does not have anything to give them as security, he will not get a loan. At the end of the day he will be forced to fall back on his family, relatives and friends – or look for informal, expensive sources – for money to start a business.”

The YEF is organising a national entrepreneurship conference in Islamabad in the last week of the next month to bring policy-makers, officials, donors, banks and financial institutions, corporates, academia and students together for creating an enabling environment for fostering entrepreneurship in the country.

“We want to make a change through this event and bring the underprivileged and marginalised into the mainstream,” Ayla Majid, a member of the YEF, told a digital video conference arranged by the United States embassy early this month to help create linkages between the young entrepreneurs from Karachi, Lahore, Islamabad and the rest of the country with the Pakistanis businessmen living in America.

She said there were many young graduates who had robust business plans and ideas but lacked money to implement them.

“The YEF wants to use the conference to identify venture capital and angel funds in the United States that were ready to come to Pakistan and hold the hands of the young entrepreneurs to help them turn their business ideas into real companies.

Shaban said the conference would try to bring home to the country’s policy-makers the crucial importance of entrepreneurship for the economy and convince them to set up a small fund to support the next generation of entrepreneurs having ideas but no money as long as “we do not have venture capital or angel funds to hold the hands of the marginalised.”

The fund, he said, could be managed by people from the private sector who can judge business plans to ensure that the money goes into the right hands and is invested in profitable ventures.

The YEF leader, who identified poor educational facilities and red-tapism as other major obstacles in the way of growth of entrepreneurship, pointed out that the government would actually be pushing economic growth, reducing poverty and generating new jobs by supporting the initiatives for the promotion of entrepreneurship and establishing the fund to meet the requirements of young entrepreneurs. “Now is the time to create an enabling environment where young entrepreneurs, including those whose access to finance is constrained due to their poor economic background, can thrive.”

The lack of young entrepreneurs’ access to funding is part of a larger problem facing a very big portion of the country’s population: financial exclusion. In spite of a rapid expansion in the financial sector during the mid 2000s and steps taken by the central bank to remove supply side constrains, according to several reports released by multilateral agencies from time to time in the past three years, most people cannot access the banks for funds unless they have property to mortgage with the banks.

The level of financial exclusion from the formal sector can be gauged from the fact that the outreach of financial sector remains very low in spite of expansion in its size. The financial crunch and deteriorating macroeconomic conditions since 2008 have further restricted the access of many to the funds from the banking sector. The Pakistan Access to Finance Survey says only 12 per cent of the population has access to formal financial services. Whereas of the remaining 88 per cent, only 32 per cent are informally served.

“In a country where a large portion of the population is financially excluded it is ridiculous to expect entrepreneurship to flourish without intervention by the government,” said an economist requesting anonymity.

“The government can intervene by setting up a fund in the public-private partnership mode and run by the businessmen to encourage new entrepreneurs who do not have access to any kind of funds for implementing their business plans.”