Avoiding risks in youth loans

Soft loan schemes seem to be a favourite of governments in our part of the world. However, like most whirlwind romances these usually end in disaster, leaving a trail of broken hearts and shattered dreams. There is hardly anybody left to pick up the pieces or more accurately tide over the losses. The provincial government in Punjab has declared its intention to provide soft loans worth Rs3 million to young people. Though the measure carries inherent risks and is couched in populist undertunes, it is a brave attempt to finance the restless dreams of youth and engage their entrepreneurial spirit in gainful activity. But the success of the loan scheme would depend solely on whether the government is able to steer clear of the temptation to reward its loyalists with the proposed loans while keeping the deserving youth at a distance. In the past we have seen too many governments succumbing to that temptation.

It is true that young entrepreneurs present a bigger risk to provincial financiers than their older counterparts, because they often do not have the same experience, industry connections, or major assets to provide as loan collateral — even if they possess the skills set and motivation for a business. The previous government led by the PML-N claimed to have introduced several schemes for the benefit of common people yet these collapsed with the passage of time because there were many a slip between the cup and the lip. The repercussions also were costly and widespread: the country’s economy took a hit. A cocktail of different solutions can be employed to help support youth entrepreneurs. An important step is getting the development community to push financial institutions into recognising non-traditional financial and non-financial support as a way of formally de-risking businesses. The road to success is guaranteed by strict adherence to merit and guarding against the misuse of youth loans. 

Published in The Express Tribune, September 26^th, 2018.

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