Small companies, merger and acquisition, that’s the way they will evolve.

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

The need is definitely there, but the motivation for people to give in much larger sums will require some kick ass campaigning. And not everyone even knows about Kiva yet, so we’ll need some good fortune on our side to hit the magic missing middle. Our U.S. VC’s could use a CSR angle!

I rather continue at…
http://www.kiva.org/lender/fernandoylet