Wednesday, November 14, 2018

WE CANNOT ERADICATE POVERTY WITH MONEY


When still finance minister Gerald Sendaula once said in response to a question about solving the poverty question,  “You cannot throw money at poverty and hope to eradicate it.”

At the time I thought the statement was strange.

If poverty is absence of money and you throw money at it haven’t you sorted it out?

Sendaula has been proven right many times. We have seen money being donated to people and communities around the country. There is an initial improvement in welfare, more form the euphoria than anything else, before the beneficiary communities fall back into poverty.

They are probably worse off because they have now tasted the “good life” so their impoverished state is now even more painful.

"The idea that money is the solution is based largely on the flawed analysis that the main – and sometimes the only, reason our start-up businesses are floundering is for lack of cash...

The other day a report was released, which showed that only 2.8 percent of the youth in the country have access to credit and as way to ease access some youth have suggested that financiers should take their academic transcripts as collateral for the credit.

Hopefully it will not be taken seriously because if it is, it will only aggravate an already bad situation. 

This kind of suggestion is clearly made from a position of ignorance of how financiers operate.

I suspect most research done into the plight of entrepreneurs, whether youth or not, is done by people who have not been entrepreneurs themselves.

To read these papers they put lack of capital at the top of the agenda, that if the entrepreneurs, youth had capital all will be alright.

Tell that to a retired NSSF saver who blows his millions on enterprise after enterprise and now has to find a job again. Tell that to the lottery winner, the sensible one who decided that with his winning he would start a business and today has little to nothing to show for it. Tell that to any number of people who have earned a windfall by virtue of their position or birth or luck and have tried to go into business and have seen their windfall slip right through their fingers.

What these youth need urgently is some training in financial literacy and business management, but more importantly mentorship by someone who has already travelled the path they want to follow.

And if they are faithful to the process, described as being beaten down seven times and getting up eight times, they will understand that money is not the problem.

In fact, in reality there is too much money flying around all one has to do is reach out and grab it.

Using mobile money as an example, last year about sh54trillion was transacted over all mobile money networks which comes to about sh31 million every second. If you think about this money is going from mobile account to mobile account through space, wheezing past, over, under and even through you. And we haven’t even started talking about the many more trillions that transact through the banks.

The trick is how to get a piece of this action.

"To begin with, the youth need to understand how a company works. A company beyond sharing risk, is a universally understood structure for creating value. The company brings together resources and if it is efficient, the output is value. If not there is a loss of value and the company’s promoters either change the way they do things or the company goes bust....

And when I talk about a company, I am not talking about registering – any fool can register a company, I mean do you know how to make it work.

To make it work takes hard work and sacrifice –  you learn, among other things, that as the owner of the company you get paid last. In the initial stages you may not get paid at all.

This is important and answers the issue about a lack of capital.

The companies that work, that is that produce value, never lack for capital. If the youth have no access to capital it’s because they have not understood how to organise themselves into a company, essentially to work together towards a shared goal.

A financier – a lender or investor’s most important consideration is “How will I get my money back?” Failure to satisfy this most basic of conditions is what leads to a lack of capital.

It is true too that Uganda has no formal financing options for startups. Our financial sector is dominated by commercial banks, who at best lend only to going concerns. But our youth will still have a better chance than not if they learn and practice how to operate like companies.

Key to operating as a company is to have financial statements, which without visiting your operations a financier can get a good idea of your enterprise’s viability and make an informed decision on whether to invest or not.

If you understand all tis you will see why your engineering or medical or even accounting degree cannot serve as collateral for your business.

It does not answer the financier’s key question “How do I get my money back?”

2 comments:

  1. Can't agree better. The "acquire-quick" syndrome is not helping either, it drives the youths' minds to money but not how to prepare to keep and grow it

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  2. Yes money can't but remember money is a factor of production critical to enhance industrial production, create employment so without it can't break the cycle of poverty

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