The financing gap for small businesses around the world is a yawning $940 billion. A new Collaborative for Frontier Finance is trying to tackle the problem by breaking it into segments.
The collaborative’s early work is to identify breakthrough financing strategies for high-growth and niche ventures as well as “dynamic” enterprises in bread-and-butter industries and livelihood-sustaining enterprises in the formal or informal economies, including family-run businesses.
“We’re not making progress fast enough,” Omidyar Network’s Chris Jurgens said in announcing the effort at SOCAP18. “Millions of businesses are not making impact and billions of dollars is sitting on the sidelines.”
- Small-and-growing businesses are defined as business seeking between $20,000 and $2 million in working capital, capital improvements or growth capital. They fall into the “missing middle” because they are too big for microfinance but too small for private equity, too staid for venture capital and too risky for banks (see, “Emerging-markets impact investors turn away from small businesses, at their peril”)
- The consortium, founded by the Dutch Good Growth Fund and the infoDev unit of the World Bank, along with Omidyar, will convene practitioners to explore alternative capital structures (think quasi equity and revenue-sharing) and lending products (mezzanine debt) and new financial technology to evaluate risk and lower transaction costs. Other backers of the consortium include Australia’s DFAT and the Argidius, MacArthur and Small foundations. The collaborative is being incubated at the Global Development Incubator.