How big is the problem?
It is difficult for anyone to say precisely without any serious data how big the problem of graduate unemployment is but at least 4 out of every 5 Ghanaian graduates in the country who are qualified and willing to work yet unemployed. That is about 80% of our educated youth who are desperately searching for ‘unavailable’ jobs.
What then can be done?
As a result of the massive number of people in this category, It requires immense support and practical action plan on the part of government, banks and the unemployed graduates to get out of the problem. The affected graduates must be ready to change their orientation, by refocus their thinking from the traditional approach to that of problem solving, through strong commitment, diligence and power of possibility mentality for them to come out of the problem.
The role of the government in solving the graduate unemployment of graduates requires serious planning, organization and implementation. Government should be willing to commit itself to eradicating unemployment. This can be done not by means of GYEEDA (Ghana Youth Employment and Entrepreneurial Development Agency) with all the crisis and accusation of fraud bewildering its operations. Rather by investing money on individual graduates who need it to startup businesses of their own in the country in form of ‘SEED CAPITAL’ or ‘LOAN CAPITAL’.
This can be done through the following steps.
- Government should raise money from the market (A 2 year Treasury note of about GHC 100 to 200million) at a reasonable rate of 15% to 16%. This amount would be deposited with some selected banks not government banks for obvious reasons at the same rate they were taken from the market.
- The selected banks shall manage the funds which would serve as the initial capital for the business startups to be loaned to qualified applicants.
- Graduate Applicant shall be trained but Experts/ Consultants on how to write professionally satisfactory business plan in any area of their interest or passion. To qualify the business must be viable and sustainable.
- The maximum amount each applicant can access should not be more than GHC10, 000.00 reasons for this is to make it manageable for the applicant. Secondly, to ensure that large number of qualified applicants benefit from the Guaranteed Loan Scheme/Seed Capital Project as stated earlier.
- The business plan must pass through a thorough review and certification process by a professional accountancy firm in the country (to be selected by those banks managing the fund among the top firms auditing banks in the country but not necessarily their bank’s auditors),
- Then, the applicant is deemed qualified to apply for the loan through any of the banks for government support ‘SEED CAPITAL’ to start his or her business.
Requirements to access the loan
The following shall be required from each applicant whose business plan has been approved by the audit firm.
- A formal application letter for the loan by the applicant. This must be accompanied with acceptable means of identification in the form of International Passport, Voters’ ID or National ID to confirm the nationality of the applicant that he or she is a Ghanaian.
- A professionally certified business plan by an auditor as stated above.
- The original Certificate of Graduation from the university or the polytechnic from where he she graduated from.
- A letter from a guarantor who should have status of a senior public servant with the EOS (End of Service) benefit or gratuity expectation from the government not less than GHC 10,000.00. This must also be verified by the bank from the guarantor’s employer.
All these requirements must be submitted to the bank for proper vetting and due diligence. The bank would then release the Seed Capital to the applicant through his account opened for that purpose with the same bank.
The loan shall be granted with a 1 year Moratorium Period in mind (a legally authorized period to delay payment of money due or the performance of some other legal obligation, as in an emergency) before repayment would start to enable the business have a strong footing.
The interest on the loan shall not be more than 4% to 5% above the rate at which Government fixed the deposit with the participating banks which we stated above to be between 15% and 16% rate. This 4 to 5% rate can be broken down to 2.5% interest to the banks in form of their margin on the loan disbursed, 1.5% commission to the consulting firms to be appointed by the banks for monitoring and training of the beneficiaries. While 1% to the auditing firm engaged for the review of the business plan certification.
The consulting firms which would be appointed by the banks as training and monitoring group for the loan. Their role is to train the prospective applicants in the act of writing sound business plan, monitor the operations of the beneficiaries business to ensure they are working in line with the loan agreement and see to it that the business plan is well implemented and the success of the venture is guaranteed to enable it pay back the loan by the time the moratorium period is over.
A regular quarterly report must be submitted by the applicants to their respective consulting firms which must be vetted and confirmed to be the actual status of the various businesses to the lending bank.
To make the monitoring team (i.e Consulting firm) effective and comply to the project arrangement, they would provide a guarantee of 30% of their share of the fees stated above (1.5%) as a security to the bank during the duration of the loan to ensure they live up to their responsibility.
However, they will be entitled to that money at the end of the two year period if when the loan is fully repaid and within the acceptable loan loss risk provision agreed with the bank.
How will the loan repayment be done successfully?
From the business plan, it must be detailed and clear to the bank how the applicant’s repayment shall be done from the profit to be generated from the business.
The repayment would be scheduled to start a year after the moratorium period and be completed within 12 months following the first year of the loan. Both the principal and interest payable shall be spread over the twelve months period depending on the repayment schedule that is convenient for the borrower and acceptable to the lender at the time of disbursement.
The benefits of the scheme
We can look at the benefits of the scheme from the point of view of the unemployed graduate, Bank and Government.
- To the graduate applicant this would enable him/her to be self-employed and at the same time provide employment opportunities for others. More than one person is required to carry out the operations of the business and improve production. Expectedly, as demand increases, each applicant should be able to employ at least minimum of 2 employees to assist in their businesses yearly.
- The bank would benefit in form of improved balance sheets size and improve profitability performance. Additionally, more staff may be required to adequately handle the scheme which in itself will create more employment for people.
- To the government of Ghana, there would be significant reduction in the level of unemployment in the country. Within 3 to 4 years of the project, the government would have created over 200,000 jobs with an initial Ghc100m investment in year 1 and another Ghc100m in year 2. By third year, the scheme becomes self-financing. The first loan repayment must have been fully paid and another cycle would start from the initial amount.
- If GHC 10,000.00 is given out from GHC 100 million about 10,000 graduates would benefit from the scheme in the first year. These 10,000 graduates would then employ at least 20,000 additional hands within the next 1 year and in the second year another 20,000. This would bring the employed people to 50,000 in 2 years. Same process is expected to continue in the subsequent years, and then by the fourth year we already have more than 200,000 productive jobs created and still counting.
- If 10,000 applicants are successful in their businesses, first, it would increase the general productivity level of the country; reduce the inflationary rate in the economy.
- Crime rate would reduce since more people are now gainfully employed.
- Opportunity for increase in government revenue in the form of taxes is also apparent. After 2 year of doing serious business, each of these business men and women is capable of paying tax of about GHC50.00 per month. Hence 10,000 multiplied by GHC600.00 give annual tax revenue of GHC6million. Their employees too would also pay tax approximately GHC25.00 per person, per month and GHC 300.00 per annum. Thus in 2 years 40,000 multiplied by GHC 300.00 gives GHC 12 million. Therefore a yearly tax revenue income from the scheme of approximately GHC 18 million is guaranteed for the government because they are all within the tax net.
- It creates additional opportunity for better remuneration in the country. Employers of labour may have to raise salaries and wages to attract good hands to their employment. Reason for this is because cheap labour has become scarce. Thus the per capita income would increase in the country.
Exiting the Scheme
In case any applicant wishes to exit the scheme before the loan is fully paid, the outstanding loan balance at the time of exiting plus the interest due will be paid off by the individual or any company who employs such loan beneficiary.
This would be required before all the necessary ‘security documents’ submitted such as the original certificate of graduation, guarantor’s letter of discharge would be released to the loan beneficiaries.
In summary, the benefits in this arrangement far out-weigh the initial Ghc100m to Ghc200m invested in the project.
As already stated above, some of the benefits includes: Large number of empowered citizens as a result of quality employment, Increase in economic activities, reduction in dependent ratio, the propensity to save will increase once there is reduction in dependent’s ratio, leading to more investment ability for people as a result of increase in saving power. This would also create more jobs and improved living standard and life expectancy would improve as a consequence.
Once the project takes off, it would encourage other financial institutions to come on board, they too would design similar products to attract their own clients. More money would be moving around in the system to lubricate the economy.
The complaints that banks are not lending would change because so much business activities is available for banks to support and the government policy initiative would now shown the direction which everybody must follow.
He is a banker and Accountant leaves in Ghana.