brought microcredit to the mainstream, but what he's developed on a wide scale in Bangladesh and India is a bit at odds with and somewhat difficult to frame for the ones holding the big bags of cash that can REALLY make a difference for the world's poor. Websites like Kiva have had an amazing impact on raising capital for MFIs (MicroFinance Institutions) by connecting the lender (us) to the entrepreneurs who just need a bit of access to capital. They absolutely have a niche in harnessing technology to allow the average person to directly impact poverty, it seems. But let's talk numbers - $100 Million in loans at $25 a loan, often recycled within 8 months. Since its inception 5 years ago if you average the total out evenly, there is never more than $20M at a time being supplied globally to entrepreneurs. It's an almost laughable amount compared to say, the S&P - which has a market cap of $10.9 Trillion as of yesterday.
I attended one of the most insightful and relevant conferences at NYU yesterday given by the Microfinance Club of New York. The topic was "The Missing Middle" which points out the gap we now find between properly invest-able larger companies and the increasing preponderance of microcredit. There is currently no vehicle for credit available to the small and medium sized businesses caught in between these two groups but still need funding. When you talk about developing countries, almost all companies too big for microcredit end up falling into this category. It was interesting to note how impossible it was to talk about this "missing middle" without referring to its smaller and larger counterparts in microcredit and corporations. Almost everything referring to SMEs (small and medium sized enterprises) was done with reference to anecdotes about microcredit or large, invest-able companies. If this SME group is so peripheral to the eye of investment, its problems will be very difficult to address.
I didn't realize how finance-related this talk was going to be. I'm also very glad, because most social impact conferences are notoriously anecdotal, and I think as audiences grow more sophisticated, there needs to be a decent amount of evidence, measurement and analysis to balance out the evangelism. But it was almost like being back at my old company and also reminded me of my short stint working for an Angel/VC network. Terms floated around: Debt vs equity, Collateral Debt, Lending against forward receipts, concessionary/commercial capital, asset classes.
Because I myself only have a vague notion of most of these terms, I figure I'd write a quick primer on investment vehicles. Entry is coming shortly and will be linked.
It was great to dig into the nuts and bolts of microcredit though. I think few people understand how banks and lending/finance firms and investing work in the capital markets, much less the informal markets with the notion of social impact thrown in to muddy up the waters. The panelists were absolutely amazing - made up of:
Margot Brandenburg - Associate Director of Rockefeller Foundation
Roger Frank - i3 Advisors
Sky Fernandez - South African Chamber of Commerce in America (SACCA)
Hans Dellien - Women's World Banking
One can not get a broader perspective from people who are clearly passionate about their work and knowledgeable of this sector. It was an inspiring and challenging evening all around.
