Op-Ed: Microfinance revisited and its role in reaching the missing middle

Two weeks ago I wrote about James Surowiecki’s article in the New Yorker that brought forward the inherent limitations of microfinance to actually generate a substantial number of jobs in a developing country. Since then it seems as if I was not the only one (surprise surprise) to take notice of Surowieki’s conclusions and it has even brought pioneers like Acumen Fund‘s CEO

Novogratz gave some credit to Surowiecki’s argument that not everyone in society is an entrepreneur and that in fact most people simply want a predictable, stable job with defined roles. Novogratz, however, distinguished her stance through her anectdotal experience with women’s access to credit and how throughout her experience they have overwhelmingly been favorable towards it. She says that this desire for credit provides the rest of us with critical lessons on how to address poverty.

However, the desire for credit on its own in no way makes someone an entrepreneur. Every teenager in America has an affinity for credit, but just because they are willing to spend that money somewhere does not make them some sort of innovator. Likewise, Surowieki’s argument highlights that for the most part microloans are not utilized for business expansion, but rather they help tide businesses over during rougher times, a la a bridge financing round. These funds like simple credit cards are used to cover funds that someone has already spent before — not towards future capital investments. It is that ability to reinvest ones funds towards scalability and expansion that is truly entrepreneurial.

Continue reading

Advertisements

Google SMEs: Internet search company to provide capital to small and medium size businesses in India

One of the ongoing issues that appears to be hindering development in countries like India is the lack of equity based funding for small and medium sized businesses. These entities, which usually are too large to be benefited from a microloan but too small to have the necessary financials to secure corporate debt or private equity backing, are often left to fend on their own.

No more, as Google.org along with two other foundations has announced a fund to help finance such ventures.

From pluGGd.in by

Google.org, Soros Economic Development Fund (SEDF) and Omidyar Network have announced a $17 million Small to Medium Enterprise Investment Company for India to create job opportunities and spur greater economic participation for a larger segment of the population.

This joint Investment Company will provide capital to small and medium businesses in undeserved markets.

SMEs are considered by many as the critical component for poverty alleviation, job creation and the eventual development of a nation as their scalable nature gives them the chance to become a major Fortune 500 player down the road.