Blackout

Seems like all the problems have been solved, if that’s what you take the silence to mean. In comparison to the deserved news barrage on microfinance (especially since Yunnus’ winning the Nobel Peace Prize) that certainly what it seems like. Mesofinance is dead, or done, or stillborn? To be honest, I don’t even know where the term originated. Al Hammond seems to make a start in his 2005 comment on a Nextbillion blog entry, just as Microfinance was hitting the capital markets. Although the term accurately describes a very urgent need, it has not yet developed the momentum that could help shift things for sure. That despite the fact that the benefits are large and obvious.

As Hammond and Kramer point out in a follow up piece published Value Magazine, also the victim of cot-death, “Small enterprises have been the dominant job creation in virtually every economy, advanced or developing, and entrepreneurship has been the path to wealth-creation, at the individual and nation-state level alike.” The International Labour Organisation (ILO) estimates that more than 70% of the workforce in developing countries operates in the informal or underground economy. These are enterprises that operate at ground level with a keen eye towards applicable technology. They know their market best, crucial particularly in developing countries. And yet it is particularly in developing countries that they lack the support network they need to overcome managerial, talent and financial barriers.

In the West a diverse but tight web of supporters made up of Angels, friends, family, government agencies, foundations and the Crowd help enterprises with a capital requirement of under $1m with their struggles. In places like India, where there are only 2 known Angel networks even less people able or willing to support their peers in an innovative venture, this system does not find an equal. The government and foundations help in some ways, most notably by forcing banks to lend a considerable percentage of their total Small & Medium Enterprises (SME’s). But debt, as Vineet pointed out in a report for the International Fund for Agriculture Development (IFAD) is not enough for start-ups in a cash crunch, and may even lead to an even more dramatic situation for the entrepreneurs. Instead they need long-term, committed equity partners to bear part of the risk with them. Solutions for this are thin on the ground.

India Development Gateway is one of them. By reducing the transaction cost of investing in such small deals, enabling a new class of investors, and ensuring smooth and successful transactions along the life of the company, IDG brings some solutions to the table. If entrepreneurs can’t find help in their immediate vicinity, why shouldn’t they benefit from technology to sharpen their ideas and reach out to others? Good question not often asked! Although some answers are emerging, and have done for a while, they are not nearly an adequate response to the size of the problem. In fact, so small is the number of voices that speak eloquently about the problem that one might be forgiven for seeing a conspiracy - The Small Cap Blackout!