Micro-entrepreneurship & entrepreneurial banking services: The case of Kiva

Several authors, like DeSoto (The other path also conference-video) and Prahalad (The fortune at the bottom of the pyramid), have recognised the vast untapped economic resources hidden in the informal markets of the poor. According to Prahalad’s argument the poor circulate several trillon dollar a year. Albeit this fact almost no enterprise targets this market because the conditions are vastly different from ‘normal economics’ taught in western business schools.

Until now. With the advent of micro-financing (wikipedia entry) more and more poor become legally ‘business ready’ and thus are recognised as a viable market. According to recent reports, global lending to the poor has increased by 25 % just last year and had reached more than 6 trillion billion $ [as pointed out in the comment] in 2003 already (MixMarket). By nature the loan recipients (a.k.a. micro-entrepreneurs) are running so called micro-enterprises (like street vending, market stands, etc.). These micro-entrepreneurs usually have no or very little education and come to their professions mostly out of need and not because of market analysis and conceptualisation of a viable business models. As such they are entrepreneurs, but not the kind Prof. Faltin’s Concept Creative/ Innovative Entrepreneurship is focusing on and subsequently, at first glance, their businesses are not relevant for our paradigmatic community. However I would like to present a highly innovative business based on the re-combination of existing services and technology that represents Concept Creative Entrepreneurship at its best:

Kiva is an internet based micro-financing platform that links micro-entrepreneurs with micro-lenders. Allow me to use a real case to explain how it works:

María Pilco from Guayaquil (Ecuador) runs a little convenience store. She has worked in the business all her life and for a long time she is interested to invest in marketing and to diversify her product range. Mrs. Pilco is already part of a lending group where local business owners collaborate to secure micro-loans in a communitarian fashion, and now she seeks 950 US$ to finance that expansion.

Mrs. Pilco’s lending group is registered at the local micro-finance institution which in turn has signed an agreement with Kiva. Now Kiva acts as the connection between the lender and the borrower by posting a little profile of Mrs. Pilco’s background and her business expansion plans in order to attract interest from people in first world countries. Interested investors can review many business proposals from micro-entrepreneurs from around the world and decide to support a plea starting with as little as 25 US$. Payback time is usually after around 6 months at which time the capital is either paid back or re-invested in another venture.

There are several positive aspects immanent in the model; first of all we are talking about investment in development not charity. This has the enormous advantage of capital being invested (not donated) which (a) results in a much more dignifying situation for the recipient and (b) the money goes directly into a concrete venture not in an abstract bureaucratic development program where most of the money is seeping into the administrative overhead. Secondly there is a personal connection between the lender and the micro-entrepreneur which potentially allows for the development of collaboration and business networking which should be beneficial for both parties as the micro-entrepreneur has knowledge about the local market and thus can facilitate the internationalisation of the lenders business activities.

In conclusion the simple economic activities of the individual micro-entrepreneurs might not be relevant to the Concept Creative approach but the global informal market of the poor represents a very high potential for entrepreneurial innovation and concept creative business models targeted to (a) deliver decent profit as well as (b) elevation of wealth and status for the micro-entrepreneur. This becomes even more relevant with many informational goods being sold through micro-payments which also allows the poor to purchase. Prahalad presents some very good examples of how to target this market. For me this combination is most attractive and I am looking forward to explore and discuss opportunities in this field.