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The new Localised Empowerment Acceleration Facility launched this week with $10 million in start-up funds draws on past experience and is designed to become what is so desperately needed, a revolving capital fund that can help youths, women and the disabled become self-supporting and generate new wealth.
After the failure of the Youth Development and Employment Creation Fund launched four years ago, a failure caused by the low repayment rates, radical changes have been made as Vice President Phelekezela Mphoko made very clear.
For a start the fund is not a hand-out and is not charity. It will lend money to those who satisfy the essential conditions that they have a viable business opening, that they have the skills they need and that they will repay the loans. The Vice President dwelt at some length on the need for repayments. And that need is obvious: there are limited funds available and there will be far more potentially viable ideas than funds.
Yet as money starts coming back into the fund it can be loaned to the next people on the list. Over a few years $10 million can be used to make $50 million in loans.
The small minority of those in the original youth fund who did keep up their payments will be finding that they possess a very valuable business asset, a decent credit rating. If they need to expand, that record will help them get a new loan, although we would like to see those who do graduate from the special fund successfully to start approaching commercial lenders.
The new fund will benefit all communities, since the money will be divided fairly evenly between constituencies, which all group roughly the same number of people. We applaud the idea of using community input when doing the necessary due diligence on proposals.
In its heyday, the Agricultural Finance Corporation was able to lend to small farmers by using groups of 50 or so farmers who mutually guaranteed each other. This made them choosy over who they admitted, preferring for example a competent hard-working young man who no one really liked over the lazy fellow who was everyone’s best friend.
Generally speaking local knowledge about credit worthiness can overcome smooth-talking plausibility and proposals need to be vetted. For example a headmaster has a pretty good idea who out of recent school leavers is likely to be a worthwhile adult.
There also needs to be better monitoring of payments from the loan funds. If some group wants to buy luxury consumer goods with their loan then the payment needs to be stopped. If a small team is setting up a plumbing business then essential tools and perhaps a handcart are required, but little else besides a small float for materials and bus fares.
There will, of course, be failures. But the percentage needs to be small and considering that at the beginning there will be so many more applications than funds to lend it should be possible to start with those who have the best chance of succeeding.
Done correctly this time and Vice President Mphoko certainly made it clear that this was not a subject for debate, the fund can start making a real difference and as success breeds success, it will make sense for other lenders to channel extra money into a functioning fund.
If Zimbabwe is to develop its potential we need more and more people to become first self-sufficient and then job-creating tax-payers. We need to start somewhere, and LEAF is a good start, especially if the conditions laid down this week are strictly kept with no exceptions.
Online Reporter