ENTREPRENEURSHIP IMPACT ASSESSMENT REPORT

Transcription

1 ENTREPRENEURSHIP IMPACT ASSESSMENT REPORT April 2014

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3 Entrepreneurship Impact Assessment Report April

4 CONTENTS LIST OF TABLES...iii LIST OF FIGURES...iv ACKNOWLEGEMENTS...v EXECUTIVE SUMMARY...vi 1.0 INTRODUCTION Overview Objectives Design and methodology Report structure FINDINGS Description of the population Business plan trainings Startups Project preparation Project conversion Triggers and motivations of startups Capital invested and jobs created Districts, Sectors, BDC and financial institution contribution to entrepreneurship Other institutions participating in entrepreneurship and their contribution Challenges to the creation and management of businesses Suggestions from respondents to improve entrepreneurship program THE DETERMINANTS OF ENTREPRENEURSHIP The determinants of project preparation The determinants of project conversion The determinants of bankruptcy CONCLUSION AND RECOMMENDATIONS APPENDICES A.PROFESSIONS B. OCCUPATIONS C. ECONOMIC SECTORS D. LIST OF ACRONYMS BIBLIOGARPH ii

5 LIST OF TABLES Table 1: Sampling table Table 2: Trainees by last occupation (%)... 4 Table 3: Prepared projects by economic activity (%)... 9 Table 4: Reasons for not preparing a project (%)... 9 Table 5: Prepared projects by level of education (%) Table 6: Businesses created by economic activity (%) Table 7: Stage of prepared projects by province (%) Table 8: Created businesses by economic activity and province (%) Table 9: Failure for project conversion (%) Table 10: Capital invested (in thousands Rwf) Table 11: Jobs created Table 12: Loan applications received Table 13: Loan applications funded Table 14: Institutions that participated in entrepreneurship (%) Table 15: Assistance obtained from institutions (%) Table 16: Challenges in business management (%) Table 17: Challenges to loan depreciation (%) Table 18: Suggestions to improve entrepreneurship (%) iii

6 LIST OF FIGURES Figure 1: Trainees by age group (%)... 3 Figure 2: Trainees by education level (%)... 3 Figure 3: Trainees by profession (%)... 4 Figure 4: Changes occurred after trainings (%)... 5 Figure 5: Prepared projects by sex (%)... 8 Figure 6: Prepared projects by province (%)... 8 Figure 7: Prepared projects by age group (%) Figure 8: Trainees by stage in business (%) Figure 9: Prepared projects by stage of implementation (%) Figure 10: Stage of prepared projects by sex (%) Figure 11: Converted projects by economic activity (%) Figure 12: Conversion by age group (%) Figure 13: Conversion by province (%) Figure 14: Stage of prepared projects by marital status (%) Figure 15: Stage of prepared projects by level of education (%) Figure 16: Triggers of starting a business (%) Figure 17: Motivation of running a business (%) Figure 18: Origin of capital (%) Figure 19: Attractions of youth in business (%) Figure 20: Services offered by Districts and Sectors (%) Figure 21: Constraints to business implementation (%) Figure 22: Reasons for loan denial (%) iv

7 ACKNOWLEDGMENT This study was commissioned by the Rwanda Development Board through its Human Capital and Institutional Development (HCID) Department. Special thanks go to the M&E team of HCID for its contribution in the designing of the methodology and the questionnaire, as well as their invaluable inputs to the process. To the respondents who were willing to provide the information from which this report was produced. The team of enumerators and data entry must also be thanked for efficient and professionalism in conducting the interviews. We would not, of course, have had the data on which the report is based without the local government authorities, public and private institutions, throughout Rwanda, which took their time to participate in this process. 7v

8 EXECUTIVE SUMMARY This study aimed at assessing the impact of RDB s entrepreneurship trainings in increasing start-ups, growth and job creation from 2009 to The findings demonstrated a positive contribution to awareness and new start-ups. Before trainings, people did not know they could commence a business, however small it may be, grow it and reach a business of their dream. They were not aware that it is possible to have a business as well as a wage employment. They thought to be an entrepreneur one must have a lot of money and live in urban areas. The entrepreneurship trainings shifted the mindset towards more aggressive initiatives. The trainees not only were no longer afraid of entrepreneurship, but also prepared and converted their projects. It is in that context, 65.2% of trainees created their businesses and 25,100 jobs although those jobs were mainly temporary. Most of the businesses are related to livestock (26.7%), crop production (19.4%), trading of crop products (17.5%) and services (10.5%). Male (74.4%) are more dynamic than female (66.7%) in creating a business. In addition, the age is regarded as an important explanatory variable of business creation. As age increases, the rate of converted projects also increases. This phenomenon could be explained by the obstacles encountered by youth in starting a business such as lack of capital and collateral as well. Furthermore, the financial institutions are reluctant to trust unmarried person; which is the status of the bulk of youth. Nevertheless, the microfinance institution managers, mainly SACCOs, declared 73.4% of them funded at least 70.0% of the loan requests. Among the reasons to reject a loan application include the lack of collateral (38.7%), insufficient repayment capacity (30.6%), loan repayment (17.7%), insufficient saving (17.7%) and insufficient bank liquidity (14.5%). However, some financial institutions encountered some challenges such as deviation of loan purpose (41.9%), incapacity of repayment (35.5%), poorly prepared projects (32.3%) and delays in repayment (30.6%), even though the number of cases for each bank is low. 8vi

9 Eastern (80.3%) and northern (79.2%) provinces converted more prepared projects than others, especially Kigali City which converted only 48.9% of its prepared projects. This is due to the fact that most of the businesses are created in livestock and crop production while those activities are often impassable in towns. However, the created businesses are mainly small. The average of the invested capital exceeds hardly 420,000 Rwf. 90% of them have been created with a capital less than 1 million Rwf. The source of funds is mainly personal saving (61.9%), property sale (20.6%), family assistance (20.3%). Only 24.0% of the entrepreneurs benefited from the bank loan. The main triggers for creating a business were unemployment (32.9%), new idea (31.5%) and overall satisfaction (27.2%). Moreover, the motivations of keeping running a business are earning much money (33.7%), overall satisfaction (25.1%) and the market opportunities (22.4%). The main hindrances to new start-ups are related to lack of capital (58.8%), insufficient skills (58.8%) and lack of collateral (29.4%). These barriers are, most of the time, encountered by young people, and particularly those from secondary education and Kigali City. In relation to above, the respondents issued a number of suggestions to promote entrepreneurship. Among them, they mentioned the establishment of a regular monitoring especially at the start-up stage (30.0%), regular trainings at annual basis (18.5%), advocacy to the financial institutions to facilitate obtaining loan (13.6%) and financial assistance to start a business (13.5%). 9vii

10 1.0 INTRODUCTION 1.1 Overview Since 2009, Rwanda Development Board (RDB), through Human Capital and Institutional Development (HCID) Department has been providing entrepreneurship trainings to the targeted group composed of youth, women and potential entrepreneurs. The trainings are organized in the whole country to enable the recipients not only to acquire the entrepreneurship skills, but also to encourage them to be entrepreneurs and to uplift their living conditions. This survey therefore aims at monitoring the outcome of these trainings. 1.2 Objectives The activity aims at monitoring and evaluating the impact of entrepreneurship trainings conducted by RDB through HCID Department from 2009 to 2011 for future planning. However, the following specific objectives should be achieved: a. Examine the trainings contribution to the increase of entrepreneurship skills; b. Examine the trainings contribution to the increase of SMEs start-ups, growth and job creation; c. Identify the existing constraints and gaps in terms of business startups and management; d. Formulate the recommendations. 1.3 Design and methodology The survey was national and carried out on appropriately selected sectors in all the 4 provinces of the country and City of Kigali. To enable the potential entrepreneurs to have the necessary time to think, start and run their business, the survey covered the beneficiaries of entrepreneurship program of The simple random sampling method, with two levels, was used. At the first level, 12 districts were selected. At the second level, 67 sectors were selected. Then, all trainees of the selected sector were included in the sample. 10 1

11 Based on a population of 4,000 trainees in 2011, with a margin of error of 5%, a confidence level of 99% and a response distribution of 0.5; the Raosoft Sample Size Calculator, the sample size for this baseline survey is 570. However, 808 trainees were sampled to take into consideration the no-respondents (see table 1). Table 1: Sampling Table Province District Number of sectors selected Number of trainees Kigali city Gasabo 7 45 Kicukiro 5 53 Gisagara Southern Huye 6 56 Muhanga 5 56 Karongi Western Rutsiro 2 80 Rubavu 5 70 Northern Gakenke 4 45 Gicumbi Eastern Nyagatare Rwamagana 6 51 Total Report structure This report was done by the HCID team under the supervision of Head of Department. It presents the findings of entrepreneurship training impact assessment in 3 main modules. The first module is related to the description of the population and the contribution of trainings to the increase of entrepreneurship skills. It reviews the age, the last occupation before trainings, the education level and the profession of a trainee. The second module covers the start-ups issues. It describes the project preparation and project conversion. It tries not only to identify the triggers and motivations of start-ups, but also to assess the amount of invested capital and job creation. It ends by an overview of institutions participating in entrepreneurship. The third module explores the determinants of business preparation and business conversion. 11 2

12 2.0 FINDINGS 2.1 Description of the population The majority of trainees are male (65.5%), between 20 and 35 years old (88.5%) and single (58.4%). Figure 1: Trainees by age group (%) Most of them attended second level of secondary school (42.5%), primary school (26.0%) or O level (13.7%). According to the European Commission, Education should play a key role in this process. Investing in entrepreneurship education is one of the highest return investments that could be made. Surveys conducted suggest that between 15% and 20% of students who participate in a minicompany program in secondary school will later start their own company, a figure that is about three to five times that for the general population. However, Stakeholders generally agree that the education system, in sub-saharan African, tends to focus on theoretical education and harnessing skills most useful in corporate firms, failing to offer more practical curricula that can adequately prepare youth to work in entrepreneurial enterprises. While 86% of colleges and universities in Sub-Saharan Africa offer a course in entrepreneurship, Afro-entrepreneurs overwhelmingly respond that there is an inadequate focus within schools and tertiary institutions on the practical skills required to start, manage or work in entrepreneurial ventures. Figure 2: Trainees by education level (%) 12 3

13 Only 14% of Afro-entrepreneurs believe that primary and secondary schools devote enough time to teaching entrepreneurship. Colleges and universities fare better, but they still could offer more practical aspects of entrepreneurship in the curricula. In addition, just 25% of Afro-entrepreneurs agree that colleges and universities devote enough time to teaching entrepreneurship. Formal education, including attitudes and behaviors, plays a role in entrepreneurship. The lack of a basic business culture in most SMEs, - evidenced by traits such as procrastination, poor client management and failing to meet deadlines - may be attributed to the fact that few formally educated employees have worked at entrepreneurial ventures. Such employee challenges in most small businesses reduce their ability to retain long-term clients or acquire new ones. In terms of profession, the trainees described themselves as having skills in business (31.5%), agriculture (22.5%), technical activities (16.7%) or in education (12.7%). Figure 3: Trainees by profession (%) Before attending the trainings, the trainees were in agriculture (36.3%), business (24.8%), studying (16.2%) or in teaching (13.0%). Table 2: Trainees by last occupation (%) Occupation Percentage Technical 2.6 Employees 7.1 Social work 13.0 Student 16.2 Business 24.8 Agriculture 36.3 Total

14 2.2 Business plan trainings The trainees acquired various knowledge related to business plan development. The trainees were asked to rate different chapters out of 100 according to the understanding they got. The average for various chapters ranges from 67.0 to All chapters were well understood, except financial study, probably because of a certain mathematical level it requires. Most of the trainees appreciated how the trainings were organized. They stated to have acquired a lot, especially those who had basics in accounting. Some of them helped others in business plan and there were even those who earned money by helping others. After trainings, there was a shift in mindsets favorable to entrepreneurship. The most important change was the removal of fear for starting a business (68.6%) and the business procedural understanding (53.4%). Figure 4: Changes occurred after trainings (%) Other changes have occurred. Here are some declarations of the trainees: Before entrepreneurship trainings, I thought: I could only be a farmer; I had to be an employee all my life and wait for the salary pay at the end of the month; An entrepreneur is a tycoon who lives in big city; I was simly afraid by hearing the term entrepreneurship. 14 5

15 After the trainings, I understand it is possible to restart after failure; I campaign for entrepreneurship and help others in business plan; I encourage other not to be afraid of starting; I understand it s possible to start with a small capital, progress and gain a lot of money; I m confident to be rich and striving for self-reliance; I started to work with financial institutions, to apply for a loan and to invest; I m no longer waiting for the Government employment; I m no longer afraid of recruiting an employee; The trainings opened my eyes; I am open minded and objective oriented; I m no longer afraid of getting supplied with expensive goods; I m aware of cooperative role and interacting with them; I know how to learn from competitors and mistakes; I am able to differentiate incomplete from complete projects; I improved in customer care, saving and money management; I know every business is possible; I highly value my job of entrepreneurship; I started my business; It s more profitable to be entrepreneur than an employee. These kind of trainings raised awareness of applying for a loan, even though the financial institutions remained a mystery for the majority of the trainees. The saving culture is indeed recent for many Rwandans. The financial institutions have begun a campaign for the saving culture, but some applicants are still denied a loan because their bank account movements are not active. One of the objectives of the trainings is to sensitize and encourage the beneficiaries to join cooperatives. Before the trainings, 45.2% of trainees were members of cooperatives. They were 69.6% after trainings. However, some cooperatives failed either because their members went to pursue studies, found employment far from the original place or because of embezzlement. 15 6

16 2.3 Startups The main objective of these trainings is to contribute to the increase of SMEs start-ups, growth and job creation. The impact assessment will then focus not only on the prepared and converted projects, but also on the jobs created. According to the US Department of State report (Principles of enterpreneurship, 2000), most economists today agree that entrepreneurship is a necessary ingredient for stimulating economic growth and employment opportunities in all societies. In the developing world, successful small businesses are the primary engines of job creation, income growth, and poverty reduction. There is no one definitive profile of an entrepreneur. Successful en trepreneurs come in various ages, income levels, gender, and race. They differ in education and experience. But research indicates that most successful entrepreneurs share certain personal attributes, including: creativity, dedication, determination, flexibility, leadership, passion, self-confidence, and smarts (common sense joined to knowledge and experience). The same report states that entrepreneurship is vital for developed and developing economies. Small business creates jobs (75% of new jobs in USA), generates social welfare, decentralizes economic power, gives people stake in the future, innovates and produces special goods and services. More so, small technologies produce nearly 13 times more patents per employee than large firms in USA. The following pages assess the impact of different initiatives that have been undertaken since There is an emphasis on the prepared projects, their conversion, the jobs created and the capital invested. 16 7

17 2.3.1 Project preparation The Government of Rwanda is striving to create an environment conducive for entrepreneurship and to change the citizen mindsets from being job seekers to job creators. It is in this context that RDB has initiated entrepreneurship trainings. That initiative is now bearing fruits. For the beneficiaries of RDB trainings, 90.8% prepared at least one project, 10.5% two and 1.0% three projects. Male (94.8%) are more likely to try starting a business than female (84.1%). Figure 5: Prepared projects by sex (%) Kigali City lags behind other provinces in startups because many businesses are prepared in livestock and crop production, which are often less practiced in towns. (see figure 6) Figure 6: Prepared projects by province (%) 17 8

18 Most of businesses are prepared in rearing domestic animals (27.7%) and trade of crop products (15.6%). In addition, 47.8% of projects are related to livestock and crop production (see table 3). This creates confusion between an activity aiming at consumption and a real business. Table 3: Prepared projects by economic activity (%) Economic activity Percentage Crop production 9.7 Agriculture products oriented to business 10.4 Rearing Cows 10.6 Other domestic animals 17.1 Trade of crop products 15.6 Commercial of domestic animals 1.3 Bar and restaurant 7.4 Haircut 3.2 Transformation 2.8 Technical 8.3 Services 11.2 Transport 2.3 Total Those who did not prepare a project declared to lack the enough capital (38.3%), to still think of doing it (31.9%), to pursue their studies (17.0%), to have another occupation (12.8%) or to lack collateral to secure a loan (10.6%). Table 4: Reasons for not preparing a project (%) Reason Percentage Lack of capital 38.3 Not ready 31.9 Studying 17.0 Other occupation 12.8 Lack of collateral 10.6 Fear of failure 8.5 Don t like 4.3 No idea of valuable project

19 As age increases, the percentage of prepared projects also increases. This confirms the difficulties stated by youth in business creation. Many have indeed lacked capital (especially those who just completed secondary school), don t have access to loan because of the problem of lack of collateral and some haven t yet inherited from their parents. Moreover, only 88.3% of unmarried persons managed to prepare a project against 94.4% for married ones. Figure 7: Prepared projects by age group (%) Furthermore, those who had a Diploma Degree or attended scientific studies were less interested in preparing a project. Some of them are pursuing their studies or have found another occupation. The proactiveness, in terms of project preparation, are the S4 S6 (37.9%) but they also represent 42.4% of the trainees (see table 5 and figure 2)). Table 5: Prepared projects by level of education (%) Level of education Percentage P1 - P S1 - S3 + TVET 12.7 S4 - S Diploma 8.6 Bachelor 7.0 Total

20 In general, 65.2% of the trainees prepared and implemented their projects, 18.9% did not implement their projects, 9.2% did not prepare any project, and 5.7% implemented them but failed while 1.0% suspended it. Figure 8: Trainees by stage in business (%) In addition, some of the projects were submitted to the banks (3.9%) for loan or to the District office in charge of youth (1.4%) for financial assistance. The problem is that the applicants did not receive any responses to their requests. More communication should remedy this situation. Figure 9: Prepared projects by stage of implementation (%) 20 11

21 2.3.2 Project conversion The conversion of the projects is a key issue. Some prepared projects, indeed, are not converted to businesses essentially because of the lack of capital. This drives the entrepreneurs to submit their projects to financial institutions for loan, to the District or Donors for financial assistance. Because of the limited capacity to satisfy all requests, some projects have not been implemented. Despite the above hindrances, 71.7% of the prepared projects have been converted. In other words, 65.2% of trainees created a business. Male (74.4%) are more likely to implement their projects than female (66.7%). These figures are consistent with the financial institution statements where male represent about three - quarters of the loan applicants. Textile trading in Gisagara district 21 12

22 All projects prepared in commercial domestic animals were implemented, but their number is too small to be generalized. Other domains with high conversion rates are transport (83.3%), crop production (80.5%) or trading of crop products (79.3%). Figure 10: Stage of prepared projects by sex (%) However, only 40.0% of the projects prepared in transformation have been converted. Those projects require a huge amount of capital which entrepreneurs don t always have; neither do the financial institutions want to take such risk by funding such businesses at start-up stage. Other domains with low conversion rates are bar and restaurants (64.1%), rearing domestic animals (65.6%) and services (66.1%). Even though failure rate is averagely rare (6.4%), it is high for bar and restaurants (12.8%), crop production (9.8%), agribusiness (9.3%) and rearing domestic animals (8.9%). Figure 11: Converted projects by economic activity (%) 22 13

23 Table 6: Businesses created by economic activity (%) Economic activity Percentage Crop production 8.9 Agribusiness 10.5 Breeding cows 10.8 Other domestic animals 15.9 Trading of crop products 17.5 Commercial of domestic animals 1.9 Bar and Restaurant 6.7 Hair cut 3.8 Transformation 1.6 Technical 9.2 Services 10.5 Transport 2.7 Total % of the created businesses are related to agriculture (see table 6). This is consistent with their proportion (47.8%) in prepared projects. Services and trading crop products also have a good share in new start-ups. Female respectively represent 34.5% and 30.6% of trainees and new entrepreneurs. Small and Medium Enterprise in Rwamagana District For the businesses that failed, the causes are various. However, the main causes were insufficient capital (20.0%), bad weather (17.1%), robbery (17.1%), poor management (17.1%), disease which killed the animal (14.3%) and the pursuit of studies (8.6%)

24 Age is an important explanatory variable of converting projects. As the age increases, the rate of conversion also increases to reach its climax at years old with a conversion rate of 91.2%. At this age group, people have already saved sufficient capital to start a business or collateral to secure the loan requested. Figure 12: Conversion by age group (%) Eastern province outperformed other provinces in converting projects. Eastern province converted 80.3% of its projects while Kigali City only implemented 48.9% of its projects. The rate of non implemented projects (42.6%) in Kigali City is also alarming as well as rate of failed projects (10.9%) in Southern province (see table 6). Table 7: Stage of prepared projects by province (%) Province Implemented Not implemented Failed Suspended Kigali city Southern Western Northern Eastern Total

25 Small and Medium Enterprise in Huye District. Figure 13: Conversion by province (%) 25 16

26 According to the table 8, some businesses are often encountered in specific provinces than in others. Rearing cows, trading of crop products and services in Kigali City; rearing domestic animals, agribusiness and services in Southern province; rearing domestic animals, trading and production of crop products in Western province; trading of crop products and rearing domestic animals in Northern province; trading of crop products, agribusiness, bar and restaurant in Eastern province. Table 8: Created businesses by economic activity and province (%) Economic activity Kigali City Southern Western Northern Eastern Total Crop production Agribusiness Breeding cows Other domestic animals Trading of crop products Commercial of domestic 1.9 animals Bar and Restaurant Hair cut Transformation Technical Services Transport Total

27 In general, trading of crop products (17.5%) and rearing of domestic animals (15.9%) are encountered in most of provinces. The once married converted more projects (81.1%) than the single ones (64.8%) even though, they faced almost the same failure rate. Figure 14: Stage of prepared projects by marital status (%) It seems that as the level of education increases, the rate of implementation decreases. Many reasons could explain this. Firstly because most of the graduates are young and don t have either capital or collateral. Secondly, some of the graduates preferred to pursue their studies rather creating a business or had another occupation. Last but not least, most of the graduates are still seeking for an employment or a job to build up capital. Figure 15: Stage of prepared projects by level of education (%) 27 18

28 The trainees who already had a business (83.3%) converted more projects than others. Those who had social (48.6%) and education (64.7%) as profession are less likely to implement their projects. The social profession also has a high rate of failure (18.9%). The projects were not converted into businesses either because the trainee lacked the capital (38.8%), was at the preparation stage (36.9%) or did not have collateral to secure the loan application (12.6%). Table 9: Failure for project conversion (%) Reason of no conversion Percentage Lack of capital 38.8 Projects in preparation 36.9 Lack of collateral 12.6 Needs of a lot of money 3.9 Submitted to the bank 2.9 Submitted to the District

29 2.3.3 Triggers and motivations for startups Most of entrepreneurs started their businesses because they were unable to find a wage employment (38.6%). This demonstrates that entrepreneurship is a new concept for Rwandans. After studies, the first choice is seeking for a wage employment. Even some trainees who did not attend school declared to have started their own business because they could not find salaried employment. In addition, only 3.9% of the entrepreneurs took over their parent s businesses. The respondents stated other various triggers. They started a business due to the need of uplifting the living conditions (7.5%),implementing the entrepreneurship trainings (6.4%), implementing theoretical lessons (1.7%), fructifying available capital (0.9%), preparing better future, self-reliance, providing jobs to the family, gaining independence from employers. Others declared the trigger was the loss of employment (2.1%), availability of the market (1.5%), the profitability of a business compared to crop production (1.1%), insufficient salary (0.9%), encouragement from other enterprenuers and friends, observing a neighbouring thriving business, support from BDF. It is important to highlight the role played by other entrepreneurs and family in supporting the new entrepreneurs. Some businessmen expressed gratitude to their peers who encouraged them not to be afraid of business and incited them just to try. Family and relatives invited the future entrepreneurs to think how to uplift their living conditions and to prepare the future. They even sometimes provided financial assistance. Figure 16: Triggers of starting a business (%) 29 20

30 Likewise, the respondents were asked their motivations in everyday running business. Most of them were interested in earning much money (45.7%). Others stated they had an overall satisfaction in running the business (32.2%) or the fact that their business is thriving because of availability of the market (30.4%). Figure 17: Motivations of running a business (%) There are other various interesting motivations such as having a profitable business (5.7%), uplifting the living conditions (5.1%), self-reliance (5.1%), always having money (4.5%), helping others in finding jobs (3.6%) or catering for the family (2.7%). Each entrepreneur met was proud of having an employment, solving his own small problems, paying school fees, regaining self-esteem, being with others,contributing to the national development or avoiding begging. A cooperative of literate people in Karongi District started various businesses such as coffee plantation, bee keeping and handcraft to serve as an example to the youth and to demonstrate to them the availability of opportunities to uplift their living conditions. That cooperative benefited from various incentive measures of the local authorities such as land and handcraft showroom

31 Bee keeping in Karongi District. Handcraft showroom in Karongi District

32 In Rubavu District, an entrepreneur is thriving in quarrying and selling sand. He can load 70 trucks a week. One truck worths 20,000 Rwf in summer (sun season) and 8,000 Rwf in winter (rain season). He employs 40 people (many of them are women) earning 3,000 Rwf from 7h to 12h or 5,000 Rwf from 7h to 17h. Most of the employees bought cows, goats or pigs from their wages. Some employees also saved capital to start their own business in the near future. Beneficiary of entereprenuership training in Gicumbi District Quarrying and selling sand in Rubavu District

33 2.4 Capital invested and jobs created The respondents of this study received entrepreneurship trainings in As forementioned, 65.2% of them created a business. However, the amount of invested capital revealed that the businesses created are very small (44.5% of them were created with a capital less than one hundred thousands Rwf). The quartiles indicate that 25% of the businesses cover capital less than 44,500 Rwf, half of them a capital less than 104,000 Rwf while three fourths were created with less than 401,000 Rwf. Only about 10.0% of the businesses were started with more than 1 million Rwf (see table 10). Most of the businesses with higher capital value are cooperatives. Table 10: Capital invested (in thousands Rwf) Capital (in thousands Rwf) Percentage and more 0.4 Total

34 The first source of the capital is personal saving (61.9%). The startups were also financed by property sale (20.6%) as well as family assistance (20.3%). Only 24.0% of businesses benefited from the bank loans. Figure 18: Origin of capital (%) Other sources of capital are the sale of crop products (2.5%), the share of cooperative/tontine members (1.7%), the salary (1.7%). Some used training allowance (0.6%) or competition award (0.6%) to start a business. According to the respndents, 93.9% of businesses are thriving, only 6.1% of them are stagnating. The soar of businesses is demonstrated by the fact that the present worth of businesses is about three times of the starting capital. The current average worth of business is now 1,606,675 Rwf from 421,283 Rwf, the first quartile is 157,875 Rwf while the second and third quartiles are respectively 500,000 Rwf and 1,282,500 Rwf. At starting, 90% of businesses worthed less than 1 million Rwf, that percentage corresponds now to 3 million Rwf

35 Decoration business in Rwamagana District. It is evident that such entrepreneurs are very optimistic. According to their vision, their capital, for the next five years, would be about four times of the present worth. The mean would be 4,756,345 Rwf, the first quartile would amount 800,000 Rwf, the second and the third quartiles respectively 2,500,000 Rwf and 5,000,000 Rwf. On top of that, the capital value of 10% of the businesses would be more than 10 million Rwf. In the next five years, most of the entrepreneurs expect to expand their businesses. Some of them would have recruited more employees, built their own shop, added new products, increased capital, shifted from informal to formal sector. Others would need however more financial support and training to achieve their objectives. Even though there is a reasonable growth, only 57.5% of entrepreneurs declared that their businesses have increased according to their plan. 42.5% others stated various hurdles that hindered the achievement of their objectives. Among them, they cited insufficient capital, clients and skills, the use of the capital for other purposes, bad weather, electricity problem, high costs of supplying resulting in high prices that clients can t afford, paying high interests and the fact that the employee did not care enough about the business as the owner would have

36 Enterprenuership beneficiary in Huye District In terms of employment, the entrepreneurs were asked if, during the survey period, they had employees. 252 out of 335 existing businesses created jobs. Most of them (68.7%) created less than 4 jobs. In total, 1073 jobs were created (see table 10). The cooperatives played a key role in this process. 19 cooperatives identified had 296 members/jobs. Nevertheless, it is very difficult to assess the sustainability of these jobs because many of them did not last more than one day. Handcraft showroom in Karongi District

37 In relation to the above, about jobs were created by the entrepreneurship program during the period 2009/2011, because at least 4,000 people received trainings every year. As from 513 trainees sampled, 1073 jobs were created, the total number of jobs created is estimated at (1073/513)*12000 = jobs. Table 11: Jobs created Number of jobs created Frequency Total jobs created Percentage Total

38 2.5 Districts, sectors, BDC and financial institution contribution to entrepreneurship Districts and Sectors play a key role in entrepreneurship. They liaise between the RDB services and the beneficiaries of the trainings. They indeed select them for trainings, ensure their follow-up and provide other necessary support to ensure the implementation of the trainings a reality. The District and Sector Youth Officers were asked which activities attract more Youth when they decide to create a business. Breeding of domestic animals (73.5%), crop production (52.9%) and retail (44.1%) are the main attractions for youth businesses (see figure 20). Those activities are spread in the whole country with predominance of crop production in Gasabo, Huye, Rubavu, Nyagatare and breeding of pets in Huye. Figure 19: Attractions of youth in business (%) 38 29

39 Districts and Sectors also participated in orgainizing trainings (50.0%), sensitization for creating and joining cooperatives (32.4%), advocating to the financial institutions and donors to obtain funds (17.6%), sensitization for creating a small businesses as it is (8.8%), searching for successful businesses to serve as an example (8.8%), meeting and discussing with youth (8.8%) and providing advice in business plan (5.9%). When people indeed join a cooperative, it is more easier to reach and advocate for them. Figure 20: Services offered by Districts and Sectors (%) The Business Development Centers (BDCs) enable the potential entrepreneurs to have access of various services provided by RDB. They are located in each of the Districts of the country. They operate on the Private-Public-Partnership (PPP) model in which the Government retains ownership of BDC s assets and the operator assumes responsibility of all services. However, the Government participates in 30% of the cost of provided services. They provided services related to entrepreneurship development, business registration, facilitation to access to finance, export development, IT services, tax advisory services, training and business advice and counseling

40 The financial institutions are one of the most important stakeholders in entrepreneurship program by funding the projects. It is in that context, 62 banks and micro finances were asked their opinion about the access to finance. SACCOs and Banque Populaire du Rwanda respectively represent 77.3% and 11.3% of the respondents. Last year, 42.6% of financial institutions received between 150 and 700 loan applications related to small businesses (with a capital less than 2 million). Most of the financial institutions (29.8%) received between 51 and 100 loan applications (see table 12). Table 12: Loan applications received Number of loan applications Percentage of the banks Total SACCOs are more likely to receive and fund more loan applications related to small projects than other financial institutions, which is consistent with their mission. 28.9% of the financial institutions funded between 80 and 90% of the loan applications received (see table 13). Some of them (22.2%) even declared to fund all loan requests. Table 13: Loan applications funded Percentage funded Percentage of the banks Total

41 2.6 Other institutions participating in entrepreneurship and their contribution The Government of Rwanda is doing everything possible not only to upgrade and strengthen entrepreneurship, but also to enable all institutions and to mobilize Non Governmental Organizations (NGOs) operating in Rwanda to participate in this great initiative. It is in this context that, The Rwanda Development Board (RDB), at the top, and various other organizations started to organize a lot of activities ranging from entrepreneurship awareness campaign to financial support and entrepreneurship trainings (see table 14). Table 14: Institutions that participated in entrepreneurship (%) Institution Percentage RDB 28.3 Sectors 12.9 Financial institutions 9.9 Districts 6.4 National Youth Council 4.7 Local authorities 4.5 Friends 3.7 Ministries 3.3 Cooperative 1.6 BDF 1.4 Family support 1.4 PSF 1.4 RCA 1.2 Family 1.2 Hanga umurimo 1.0 World Vision 0.8 The financial institutions, mainly SACCOs, play a key role in this process by granting loans to entrepreneurs. However, some of them are facing liquidity problem because of the high number of the applications. Districts have been of great importance by assisting RDB on the field. They indeed selected the trainees and ensured their follow-up. They also provide advice, agronomist and veterinary services to entrepreneurs. Sectors are more close to the population than Districts. That s why they are considered by trainees as the most active on the field. Moreover, they ensured security of property and sometimes issued land to enable youth cooperatives to start and operate. Many other institutions namely the National Youth Council, different Ministries, the cells, the Business Development Fund (BDF), Private Sector Federation (PSF), Rwanda Cooperative Agency (RCA), Hanga Umurimo and National Women Council participated, at different levels, to ensure the success of this great initiative

42 Some NGOs such as World Vision, International Fertilizer Development Center (IFDC), Adventist Development Relief Agency (ADRA), Rwanda Agro-Dealer Development (RADD), IREX (USAID), DUHOZANYE Association delivered various support to young entrepreneurs. Some of them rewarded the winners of the competition which enabled them to start a business. Others issued carpentry materials and helped in the creation of small income generating projects (see table 15). Table 15: Assistance obtained from institutions (%) Type of assistance Percentage Training 39.0 Advice 15.6 Loan 9.4 Veterinary service 2.3 Financial support 1.9 Documents 1.8 Security 1.8 Collateral 1.4 Land 1.2 Advocacy 1.0 Modern seeds 1.0 Study tour 1.0 Material 0.8 Fertilizer 0.8 Follow-up 0.6 Agronomist service 0.6 It is worth highlighting that the role played by the cooperative, friends, the family and other entrepreneurs in advising, encouraging and supporting financially and morally the new entrepreneurs to achieve their dreams. This is consistent with the OMIDYAR NETWORK report about which the entrepreneurs are best assisted either by other entrepreneurs or by established functional or industry experts who possess appropriate and relevant expertise 42 33

43 Exercise session in groups during trainings 43 34

44 2.7 Challenges to the creation and management of businesses The financial institutions as well as the potential entrepreneurs face a certain number of challenges related to the financing and the implementation of business projects. In relation to business preparation, the potential entrepreneurs cited not to be ready for starting (51.9%) or to have found another occupation (22.2%) to justify the absence of any reactions to trainings. The trainees who prepared a project but did not implement it mentioned that it was due to lack of capital (58.8%), insufficient skills (58.8%) as well as lack of collateral to secure the loan application (38.7%). Either the applicant doesn t have it at all, either it is insufficient or when BDF is ready to provide 75% of collateral, the applicant is unable to find the remaining 25%. Apart from lack of capital and collateral, the youth, in Kigali City, can t proceed to livestock or crop production as their counterparts in rural areas. Figure 21: Constraints to business implementation (%) Moreover, financial institutions are reluctant to trust unmarried people and some SACCOs haven t yet signed an agreement with BDF. So far, 340 SACCOs have done it

45 According to managers of financial institutions, some loan applications were rejected because of the lack of collateral (38.7%), insufficient capacity of repayment (30.6%), loan records (17.7%), insufficient savings of the applicant (17.7%) or insufficient liquidity of the bank (14.5%). Figure 22: Reasons for loan denial (%) To overcome this challenge of lack of collateral, some banks ask the loan applicants to modify their projects accordingly or to seek help of friends. Only 4.8% of SACCOs declared they didn t encounter a collateral problem, either because the applicants had it, or due to the help of BDF. Other banks (BPR) stated that those who have no collateral don t dare to apply for loan. There were also cases where one collateral had been issued to several banks, which arises a lot of problems in case of aunction

46 In addition, the projects were poorly prepared. That s why SACCOs drafted a form to be filled in by loan applicants instead of financial study document. The help of Proximity Business Advisors (Proba) was also playing a great role. Also, some financial institutions are reluctant to fund new start-ups. They urge the applicant first to start a business and seek for loan later when his business is proven operating. However, according to SACCOs managers, the biggest challenge in business management was the loan deviation (41.9%) at different levels. It occurred when a loan was used differently from its initial purpose. It usually happens when the applicant operates one withdraw. The consequences are often failure and no repayment of the loan (see table 16). Table 16: Challenges in business management (%) Challenge Percentage Project deviation 41.9 Insufficient skills 6.5 Poor management 4.8 The applicants argued that they deviated from the loan purpose when the amount delivered by the bank was less than their requests. So, they found themselves in the situation where they were unable to implement the proposed project and imagined another one according to the amount obtained. Other challenges are insufficient skills in business management, the confusion between a loan and a financial assistance and the mixture of personal and business activities. The confusion between loan and Government support or VUP occurred especially when the loan was delivered to a group of people or without documents. However, 11.3% of SACCOs declared the management was good and 1.6% stated there was an improvement in dealing with loan applicants and enterprenuers. The financial institutions overcome these challenges by frequent visits, discussions, advice and by delivering the loan in installments according to the business plan issued by the applicant. They also seized different opportunitiesopportunities to meet their clients (meetings organized by the local authorities, communal works, at the markets). In addition, all financial institutions pledged to regularly conduct awareness campaign for their activities

47 In terms of loan depreciation, the financial institutions adopt two different behaviors in case of no payment: counseling and discussion for SACCOs and auction for other banks. Table 17: Challenges to loan depreciation (%) Challenges Percentage No repayment 35.5 Delays 30.6 Confusion 6.5 Deviation 4.8 Repayment difficult in crop production % of the banks faced indeed the problem of loan payment and 30.6% of them encountered delays in payment (see table 17). However, the percentage of applicants who did not repay their loan was estimated less than 5% in average. There were delays, but finally the loan applicants paid after discussions and counselingcounselingcounseling of the SACCOs managers. The loan deviation, bad weather in crop production, mismanagement and bankruptcy were also cited as the origin of no payment of the loan

48 2.8 Suggestions from respondents to improve entrepreneurship program The entrepreneurship program was launched by Government of Rwanda to help especially Youth and Women to be job creators, not job seekers. Creating venture demands to be a risk taker, because failure is possible. It fortunately provides immense joy when success occurs not only for the entrepreneur by generating income and uplifting the living conditions, but also for the country economy by creating new jobs and wealth. Likewise, to see their dreams becoming realities, the recipients of entrepreneurship trainings emitted valuable suggestions aiming at improving the program. Four top of them are related to the increase of follow-up (30.0%), the consideration of revision and regular trainings (18.5%), the advocacy to the financial institutions (13.6%) and the financial support (13.5%) at start-up stage (see table 18). Table 18: Suggestions to improve entrepreneurship (%) Suggestion Percentage Follow-up 30.0 Regular trainings 18.5 Advocacy to the financial institutions 13.6 Financial support 13.5 Increase training duration 7.2 Help in obtaining collateral 4.3 Comprehensive business plan 2.7 Increase advisory service 1.8 Consider proximity for trainee venues 1.6 Issuing certificate 1.4 Specialize trainings 1.0 In addition, the trainees declared that one training session was not sufficient to have a comprehensive business plan. So, they suggested a possible revision of training on annual basis. They would like to receive trainings related to their projects such as piggery, bee keeping, bakery, carpentry, customer care, computer literacy, food conservation, bar, restaurant and hotel management, the use of fertilizers, mushroom production, marketing, poultry, hairdressing saloon, soap production, production of plums, development of egg incubation, juice production, up scaling the business or the management of big businesses. Some respondents expressed the desire to get a comprehensive business plan to be able to prepare their projects without a help of someone. Many of them want to understand the financial institution functioning and how to obtain a loan easily