Banque Populaire chair in Microfinance of the Burgundy School of Business
For some time now, I have been led by my research on suicides in microfinance to observe strategies to reduce borrower stress. Since, I’m mainly looking at entrepreneurial finance, which is probably the most romanced form of microfinance, the obvious solutions which come to mind are to find some kind of microequity or unsecured customer advances which could reduce the stress of debt from microfinance institutions, banks and moneylenders. But is anything being done?
In the developed world, there are such strategies. There are micro-angel investor clubs in France, called CIGALES. I have liked the concept so much that I myself have become a micro-investor. Then there are slow money strategies, which include equity and debt investments in food and related artisanal activities. Some of these include Commnity Supported Agricultre which is essentially based on customers providing advance funds, and there are also efforts to reduce the need for financing by cutting down costs through cooperating. All kinds of business cooperatives are being formed. Is it possible to transfer some of these experiences from the global North to the global South?
A key problem for microequity in France has been the exit problem. Most small firms are so tiny that there is no one, except the entrepreneur, who will buy back the shares of the microinvestors. Unless, of course, the microenterprise booms. But since the French Cigales focus a lot on searching double or even triple bottom line targets, it is unlikely that the economic bottom line is going to be so good as to attract business angels except in rare cases. If this is the case in developed countries, a priori, we would expect it to be worse in developing countries where micro is smaller. So, what can realistically be done?
Certainly, there are Venture Capital funds investing in the developing world but in very large companies. For example, Actis is a private equity fund investing exclusively in Africa, Asia and Latin America. It is a $ 5 billion fund deployed in 65 firms in the three continents. These are global investors, but primarily from North America and the EU, who are taking advantage of the huge demand from the growing consumer classes in emerging markets for real estate and infrastructure. The investors are essentially fiduciaries like pension funds, fund of funds and soverign wealth funds. With a little bit of maths, you would have understood that actis invests about $75 million in an average target company. Thus, in the financial services sector, they are not buying into even the largest MFIs, but into stock exchanges and banks. According to media reports, they have an agribusiness fund since 2006, but it seems to be too small to mention it on their website, or perhaps it has not been renewed. Surely, large investments will enable development, but its not the kind of grass-root raising of the individual poor out of poverty. Perhaps one day the benefits of growth will trickle down, but till then what?
For the moment, developing local community based investment funding into agricultural value chains and cooperatives of agiculture and business seem to be the best foot forward for developing agriculture. And agriculture seems to be the major driver of development since it employs about 70% of the workforce.