From Micro-Finance To Private Social Business

Excerpt

 

From Micro-Financing and Base of the Pyramid Concept to Private Social Business

by CROWDINVESTING/CROWDFINANCING as a Modern Phenomenon and

Chance for Economy

Rainer Schenk ­ Peter Bielik ­ Elena Horska

Slovak University of Agriculture in Nitra, Slovak Republic

April 2013

1. Abstract

The micro-credit movement has the noble goal - it is supposedly the largest - to resolve a

lack: The lack of credit in developing countries. Is this the key to combat all other

emergency? There are other requirements to avoid poverty and to let this capital crow into

increasing welfare by creating employment and converting individual ideas into

commercial chances. Besides the availability of capital, it is important to create clear

property rights of individuals and set the focus on a sustainable education system.

Additionally industrialized countries should strengthen their CSR policy towards

developing and emerging countries.

But actually there is a big problem in the "rich" countries in the way of capital. To supply

the economy with capital becomes more difficult as a result of the global finance crisis and

the lasting Euro debt crisis. The capital markets fail more and more and the crisis in Europe

could infect also other parts of the world. From necessity, since 2011 arose the

CROWDINVESTING movement with its roots in the USA and there development in

Western Europe and especially in Germany. By using the power of social networks and the

wisdom of the CROWD of Internet user it is possible to finance enterprises by private

placements of capital. For this purpose, each small amounts of money from the so called

Crowdinvestors are accumulated via special online Crowdinvesting platforms to a

considerable sum to finance enterprises by creating participations between these

Crowdinvestors and each of the enterprises.

Team of experts at the Slovak University of Agriculture in Nitra is developing an ideal

model of Crowdinvesting as a sustainable instrument of financing not only startups but also

small and medium enterprises. A result of research work, it could be, that Crowdinvesting

is also possible to use it as a kind of PSB.

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(Private Social Business) in for example

developing or emerging countries. "Wealth is created through enterprise and

entrepreneurship requires loans" (Joseph A. Schumpeter). Globalization was enforced by

ICT

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and Crowdinvesting is also possible by ICT. The Crowdinvesting movement is

predicted for a dynamic movement in Europe. If Crowd Investing works sustainably, it can

also be used internationally.

Keywords: Crowdinvesting, Micro Financing, developing countries, microcredit, Base of

the Pyramid Concept, Private Social Business.

2. Introduction

In this essay, we discuss the situation of the Poor people in developing bust also emerging

countries and approaches for solutions to eradicate poverty and to enable affluence in these

countries. One must be aware, that also in emerging countries for example like India, South

Africa or China most of the people of these countries are classified as poor, although the

economies of these countries increased significant.

For about five decades governments and special worldwide acting organizations tried to

eradicate poverty in the world, but without significant success. Today, about 4 Billions of

people are poor and this is a part of more than 50 percent of world population. Often there

was a failure in the efforts of reducing poverty because of a bad political environment in

poor countries, of corruption and lack of poverty rights. Many economists designed

concepts and models of reducing poverty in the world. One important concept is the

Bottom of Pyramid (BOP).

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We think that the basic idea of this concept is very good and gives the potential to modify

the BoP and to combine it with special financial tools, to raise the effectiveness and to

produce sustainability. In this essay we discuss the BoP but also the system of

Microfinancing as a possible tool for combination. If Microfinancing in the present

application is not useful, may be that the new phenomenon Crowdfunding or

Crowdfinancing is a substitute for Microfinancing. Considering all these thoughts after the

following three chapters, we made conclusions and a recommendation.

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Private Social Business is a neologism from Rainer Schenk

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Information and Communication Technique

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Also called Base of Pyramid

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Sometimes it is also called Crowdinvesting

3. The meaning of "Base of Pyramid"

In economics, the so called Base of the pyramid (BoP) is surely the largest, but also poorest

socio-economic group. In the world there are about 4 billion people who live on less than

US$2.50 per day. The world population is comprised of the year 2012/13 of around 7.1

billion people.

The BoP Phenomenon generally considers the developing an emerging

countries (for example Africa, South America, India). The 4 billion people at the BOP, all

those with incomes below $3,000 in local purchasing power, are living in relative poverty.

Their incomes in current U.S. dollars are less than $3.35 a day in Brazil, $2.11 in China,

$1.89 in Ghana, and $1.56 in India. Yet together they have substantial purchasing power:

the BOP constitutes a $5 trillion global consumer market.

Figure 1: The economic pyramid

Source:http://marketingbloggers.in/wp-content/uploads/2012/07/z_p-iv-Fortune.jpg (3/31/2013

8:36:45 AM)

So, more than 50 percent of the world population concern to the bottom of the pyramid.

The term "bottom of the pyramid" or "BoP" is used in particular by people developing new

models of doing business that deliberately targets that demographic, often using new

technology. Although different organizations and several national governments have been

busy to solve the problem of poverty for more than 50 years, all the movements had no

5

See http://www.weltbevoelkerung.de/oberes-menue/presse/presse/presseinformationen/news-

ansicht/display/weltbevoelkerung-zum-jahreswechsel-20122013.html; called up by Internet on 29/03/2013.

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See "The Next Four Billion, Market Size and Business Strategy at the Base of the Pyramid", Executive

Summary, IFC and World Recources Institute, Washington, 2007, P.3http://www.wri.org/publication/the-

next-4-billion, p. 3.

sweeping effect. Realizing this, C.K. Prahalad pursued a new approach to eradicate

poverty in the world. His approach is that he sees the world's poor not as victims or global

and social burden, but as potential value-producing consumers and entrepreneurs with

multiplier effects.

The world's poor offer the opportunity of a new and far more open world economy than in

the past. Prahalad believes that by the use of this part of the world population a new global

growth trend in the world economy could erase. The poor are actually the engine of an

unprecedented possible boom in the global economy. This is really obvious when you

consider that more than half the world's population for the world economy is laying fallow.

On the one hand it deals with huge potential of additional trade and secondly also with huge

additional potential of sources of innovation-power. Key issues to be discussed at the BoP concept are:

How can products, services and business models are being developed focused to the needs

and living conditions of the poor to be payable and be coordinated and contribute to reduce

poverty and solve social problems?

How can the entrepreneurial potential of poor people be encouraged to develop new

business models at the base of the global income pyramid and to generate income for poor

populations?

What is the contribution of business models of companies to reduce poverty, by including

the poor on the supply side (added value side)?

Under what conditions can BoP models emerge and work? "Is it the business of business?"

Experience has shown that even businesses in the BoP markets are characterized by

uncertainty and informal structures and therefore partnerships, for example with civil

society and development actors are success factors.

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Coimbatore Krishnarao Prahalad; * 8th August 1941 in Coimbatore, Inda; 16th April 2010 in San Diego,

USA) was an Indian-American economist. Most recently he worked as a professor of business strategy at the

University of Michigan in Ann Arbor, Michigan, and a world-renowned management consultant and author.

His scientific focus was set in the field of developing new management practices, corporate strategy and the

role of management in multinational companies. Recently among others he worked together with Stuart Hart

among concept of "Base of the Pyramid" (also called "Bottom of the Pyramid") with emerging markets and

innovative business models for the elimination of global poverty.

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See Prahalad, C. K. (2005): The Fortune at the Bottom of the Pyramid, Upper Saddle River/NJ: Pearson

International.

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See Deutsches Bundesministerium für wirtschaftliche Entwicklung und Zusammenarbeit BMZ,(2009):

Geschäfte für Entwicklung­Bewertung des BoP-Ansatzes aus entwicklungspolitischer Sicht, Typo Druck

GmbH, Bonn, 2009, p. 3.

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