What’s wrong with the PM Youth Business Loan Scheme?


Prime Minister with the Chairperson

Prime Minister with the Chairperson

Just imagine giving one’s child a razor sharp knife to play with or presenting the key of an automobile to a teenager who does not know how to drive it – In both the cases, the loss is imminent and inevitable. Such is the case, if you offer a hefty sum of money to an inexperienced, incompetent, and incapable individual who cannot even generate their own idea for starting up a new business.

There’s no doubt that in Pakistan, with the absence of venture capital funding culture and collateral free loans, both the micro-finance scheme (designed to help people setup small cottage industries) and small and medium enterprise scheme (targeted at young educated people) have potential to create enterprise development opportunities contributing to the overall economic development. However, one must not forget the plight of similar schemes in other parts of the world and even in Pakistan where such loans did not reach to the deserving. My concerns can be summed up as follows:

  •  Innovative and Creative Idea NOT a pre-requisite

While access to capital is one of the important success factors for any business, an innovative and creative business idea is considered to be a key for the success and exponential performance of any potential business. For this scheme, the youth are expected to pick up one the few pre-feasibility studies (developed by SMEDA) in fifteen sectors possibly creating a huge imbalance in supply and demand through ineffective market mechanism.

  •  NO need of a business plan for applying

Globally, majority of businesses fail in the first three years of their existence. One of the most cited reasons is improper planning. Although SMEDA is offering a template on their website about how to develop a business plan, however, first item in the template states: “A business plan is not required for PM’s youth business loan scheme”. The first question which comes to my mind is how will lenders decide about the viability and success of the potential business? Are we going towards, yet another scandal of sub-prime lending?

  •   ONLY money is being offered

All over the world, the success of public sector business loan schemes depend upon an “integrated approach”, which consists of enterprise development skills, business support provision and creativity and innovation development as pre-requisites for applying and getting these loans approved. The integrated approach serves two purposes: First, it acts as a filter to identify the genuineness and readiness of potential youth to take the entrepreneurial leap. Second, it enables these young people to plan their business effectively and efficiently by minimizing the failure risks.

What should be done to make this scheme successful and productive? That’s what I plan to write in the next blog – so stay tuned.

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