The Youth Enterprise Fund is earning accolades for its sustainability seen in its revolving kitty that has recorded impressive repayments during the second year of operation.

Fund chief executive Umuro Wario said a recovery rate of 95 per cent, in line with those recorded by microfinance lenders like Kenya Women Finance Trust and K-Rep Bank, was realised on the Sh858 million lent out previously.

He said Sh250 million of proceeds from previous loans had been lent out again, in the first official audit of the fund's performance.

The fund disburses loans to youth groups with viable proposals for venturing into enterprise at an interest rate of eight per cent.

The money is advanced through appointed banks which remit one per cent of the interest income to the Fund for administration, research and policy formulation.

The fund also gets operational finance from the Treasury which allocated Sh500 million for the next fiscal year, out of which Sh25 million will be for meeting recurrent needs.

Under its three year strategic plan running to 2011, the fund aims at having a self sustaining fund of Sh5 billion.

Despite the small Treasury allocations, Mr Wario said commercial banks had indicated interest in venturing into the model with the aim of cashing in on the high recoveries.

"There are good indicators that the new partnership between the fund and the private sector is going to unlock substantial financing for youth enterprise," Mr Wario said.

The fund, which was made a parastatal last year, has now recruited its own staff and shifted to a new office at National Bank Building.

Previously, the fund was relying on staff seconded from the Ministry of Finance.

Critics had feared the fund would turn into another milk - cow because of the high risks associated with the borrowers, many of them convenience vehicles crafted to take advantage of the funds by first time businessmen.

This handicap forced financial intermediaries disbursing the loans to employ strict vetting criteria for the business plans, knocking out those whose viability could not be assured.

During the initial face, good business proposals were left out due to demands for collateral. Mr Wario says the implementation strategy has been revised since then, to benefit more applicants.The new approach, he says, focuses on the needs of borrowers and the environment informing their operations. The fund has a potential client base of 13 million youths who are unemployed.

Because of the low injections from government, Mr Wario said there is need to increase private sector financing through innovative ways where lenders own the project in equity with the borrowers and provide funds and technical advice.

This would knock out the need for collateral. Already the Fund is in talks with the Canadian government and Enablis East Africa, a venture capital fund based there, whose conclusion may see the firm provide Sh850 million to the Youth Enterprise Fund in the next five years.

Mr Wario said that several fund raising initiatives were being followed locally with the private sector as well as donors. Other issues identified in the strategic plan were facilitation of product marketing, employment of the youth and capacity enhancement financed by the fund.