CREDIT: <a href="">anaxila</a> (<a href="">CC</a>).
CREDIT: anaxila (CC).

Policy Innovations Digital Magazine (2006-2016): Innovations: Peer-to-Peer Microfinance Empowers Young Entrepreneurs

Nov 2, 2010

We hear a lot about microfinance these days as a way to help promote economic stimulation among the poor. Around 87 percent of the world's youth live in developing countries, yet young people make up only 10 percent of microfinance clients. That is why the United Youth Development Organization (UYDO) focuses on providing microloans only to young people. We strive to incentivize microfinance institutions to work with young people and to tailor their products accordingly.

I founded UYDO to approach these challenges and to help put youth-focused financial services on the map in the development industry. In September 2010, we launched the world's first youth-focused peer-to-peer microfinance platform, The website makes it possible for young people globally (ages 15–29) to raise funds and invest them in creative young entrepreneurs, enabling them to start businesses, earn income, and lift themselves out of poverty.

The beauty of peer-to-peer microfinance is that it bridges a gap between the investee and the investor. Transparency has become increasingly important and people are interested in seeing how their $10–20 makes a difference, rather than losing it in a "big black hole." Our members can invest funds, which have been raised or donated, directly in the young entrepreneurs of their choice and then follow their progress on our website. As the loans are repaid, funds are allocated back to members so that they can reinvest in even more young entrepreneurs, creating a truly sustainable way to help as many young people as possible.

Research by the Charities Aid Foundation shows that young people are eager to engage in charitable activities but feel excluded as they themselves do not necessarily have funds to donate. This is why UYDO focuses on providing young people with a platform to raise funds through various means. We have had members doing everything from putting on bake sales to cycling across America. If we can get 50,000 young people to raise an average of $10 each, we can help more than 100,000 young people per year start a business and lift themselves out of poverty.

To date, young people have raised more than $15,000 through the UYDO platform and our aim is to grow and enable young entrepreneurs to start more than 100,000 businesses per year by 2020.

Global Youth Unemployment

Increasing business opportunities among young people is extremely important as global youth unemployment has reached a record high and is expected to increase even more. Research has shown that idleness and the inabilty to find employment may result in young people feeling worthless, often leading them to seek value through illicit activities. A lack of political openness and crowding in urban centers may alienate youth further, increasing the risk of political violence. Some scholars even claim that historical periods of social unrest can be attributed to an excess in the unemployed, male young adult population.

The positive benefits of investing in young people far outweigh the potential negative consequences of not investing in them. For example, a 2004 study by the International Labor Organization argues that halving the world's youth unemployment could add an estimated $2.2 to 3.5 trillion to the world economy, with a majority of this gain being made in sub-Saharan Africa.

Youth can also add great value with regard to job creation and innovation. We find that young entrepreneurs tend to employ their young peers rather than adults for reasons of authority. Thus investing in young entrepreneurs has a lateral effect on employment opportunities for other young people.

Youth, Innovation, and Social Reform

We also believe that young people possess certain qualities associated with age that add value to societies and the economy. For example, young people tend to be optimistic, creative, and more likely to take on risk as they have less to lose. Young people are also less likely to be constricted by predetermined notions and are therefore more likely to approach social and economic challenges from new and different perspectives. Lastly, young people are likely to have types of knowledge that predispose them to making new discoveries: Broader education backgrounds and comfortableness with new and emerging technologies can make them more innovative and productive.

The anecdotal evidence that creativity and innovation is the domain of the young is overwhelming. Many of the most renowned scientists and social scientists created their first important work before age 25. Einstein was already publishing at 22. Sir Isaac Newton was 24 when he began his work on universal gravitation, calculus, and the theory of colors. Louis Braille created his special print for the blind at the age of 20.

We view innovation as crucial for poverty reduction. I would argue that innovation is the primary means by which developing economies can compete in the global marketplace, creating local solutions tailored for local consumers.

The positive characteristics of youth spill over to the social realm. Throughout history and all over the world, young people have been instrumental in political, social, and cultural development. From independence movements in colonies to equal rights between races, many of history's most important social movements have been triggered and led by young people.

Young people's natural comfortableness with technology and their role as early adopters facilitates creative ways of using new innovations for social change. All these examples demonstrate how young people can catalyze the processes of change and promote social development.

The Importance of Being Empowered

While young people can certainly facilitate positive change, those who feel disempowered, who are living in poverty in a hand-to-mouth economy, are more likely to engage in violent, rather than peaceful and constructive, movements.

By being employed, young people can use their skills and talents to add value to society. Job opportunities, facilitated through such means as microfinance, become tools of empowerment, enabling young people to become vital components for sustainable development.

In a time when global youth unemployment is so high, it is extremely important that we support young people and recognize the immense value they bring to society.

Nevada Berg and Vishnu Padmanabhan assisted in the development of this article.

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