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Today is Blog action day. The topic is poverty. To help fight global poverty, how about providing a loan to an entrepreneur in the developing world. The tech site Techcrunch has a fund raising team set up on kiva.org. You can make a loan to entrepr…

Below is my viewpoint on Meso-finance and how we (I am Co-founder of MYC4*) deal with this crucial lever in development, here goes:

“Market gap: the missing middle”

Despite its limitations, microfinance in Africa is growing rapidly and offers significant potential for the poorest of the working poor. As is the case with entrepreneurship, most businesses in Africa are initially funded by money from friends and family. Once they start to show some success, microfinance institutions may be an option for some growth capital, typically to finance working capital such as stock. For those who do not have access to fair microfinance institutions, loan sharks are a common source of funding, often triggering a new cycle of poverty driven by perpetual debt. For those lucky few that are able to grow their businesses beyond the start-up phase, few – if any – real financing options exist to scale the business to the next level. Indeed, most microfinance institutions cap their maximum loan sizes to EUR 2,000 or less. Even the largest MFIs rarely lend more than EUR 10,000 leaving most established SMEs with no real market options for funds to grow their businesses further.

This is where MYC4 is already having the greatest impact. The primary reasons why MFIs do not make loans of these sizes have to do with regulatory or operational limitations, typically related to concentration of risk and limited share capital. However, because MYC4 loans represent a distributed risk to investors, and because the loans are made off balance sheet by the local MFIs or banks, these SMEs no longer need to be excluded from the financial sector, and their growth can thus be financed successfully through MYC4. The same financial institutions which were forced to turn them away previously can now act as a pass-through for MYC4 funds, and successful entrepreneurs need no longer be turned away.

As many of these are businesses with proven track records and a prior history of borrowing, credit risk may in fact be lower than with typical microfinance loans. What’s more, as this is a glaring gap in the market due to friction in financial sector regulations and capitalisation, MYC4 can operate comfortably in this space in all countries, working through existing leading financial institutions, without disrupting or distorting markets in a negative way. The unbanked, defined here as successful entrepreneurs “stuck in the middle”, too large for MFIs and too small for banks, can now be reached and financed through MYC4, earning investors a fair return, becoming the engine of growth they are known to be, creating jobs and generating profits and tax revenues for local governments.

See you on http://www.myc4.com

*) By focusing on the power of business as the driving force to end poverty, MYC4 provides investors with a dynamic platform to create and support new enterprise and commercial innovation in Africa. MYC4 sources financing for the ‘unfundable’, bringing people together in business deals at the best market price with the Internet acting as a catalyst for change.

MYC4 is striving to become a universal platform that unites capital, people and knowledge in a common pursuit of promoting sustainable businesses in Africa.

The goal of MYC4 is to become the first company in the world to be owned by the world. In essence this would mean 6.6 billion shareholders. By the end of 2008, MYC4 aims to reach 25,000 investors and facilitate investments of EUR 12.5 million in more than 5,000 African businesses. Goals for 2009 are 100,000 investors and EUR 100 million.

saw this post via the blog action day site. it’s great that you’re participating.

However, microcredit’s primary metric is too often focused on ‘loan repayment rates,’ rather than ‘are the poor truly lifting themselves, their families and communities out of poverty?” (many microcredit recipients pay off loans, yet can’t afford medical care or the fees for sending their kids to school, which is vital for breaking the cycle of poverty)

It’s important to remember that nobody is inherently knowledgeble about running a business–either in the US or abroad. Nor is everyone ‘meant’ to be an entrepreneur. Many poor people would rather have a steady, well-paying job but opt for microenterprise as a default choice. It’s important to keep a full spectrum perspective and to see microcredit as an important tool for poverty alleviation, which requires a complex and multifaceted approach.

The next wave of innovation in poverty alleviation should include entrepreneurship/business training tailored to poor entrepreneurs that enable them to boost profits, scale their businesses, create jobs and help poor communities grow their local economies. The poor also need financial literacy training, affordable health insurance, and business mentoring — much like their first world counterparts — if the promise of poverty alleviation via microcredit is to reach it’s full potential.

Thanks for taking time to encourage giving, some of your past sins are forgiven.

-Bruce McNamer, CEO, TechnoServe

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