When we think of venture capital most of us think of the highly risky angel investors or private investment firms in North America that invest capital into businesses that have some wily new idea that just might make it really big and make everyone who invested in it really, really rich. In Bolivia, there is also a different kind of risk capital that is making a difference for small rural producers that need capital.
Wait a sec…this sounds familiar doesn’t it? Of course, Dr. Muhammad Yunus helped micro finance hit the big times in 2006 when he won the Nobel Peace Prize for his work with group lending in India. Micro finance often involves small loans to individuals with micro or small commercial enterprises, in Spanish, Pymes (pequeñas y medianas empresas). Micro lending is arguably a mature industry and really, the reason for mentioning it is to distinguish it from capital riesgo (risk capital) or micro venture capital that assists a different type of client.
Pro-Rural is the Bolivian organization that I currently have the privilege to work with. Based out of La Paz, Pro-Rural works with small and medium-sized rural producers that require more capital than the average micro bank is willing to lend. The other major difference between the risk capital that Pro-Rural provides and micro lending is that Pro-Rural looks to invest in businesses that are somehow part of a larger supply chain. Micro finance often lends to individual commercial vendors that sell an end product within the market that exists in their immediate area/region.
Both approaches are extremely important and thus it must be said that one is not superior to the other. The simple fact is that they attempt to achieve different ends. Micro loans will likely have a positive marginal income effect for the household of the woman (or man, although women entrepreneurs are often the targeted) that borrows the money. In the case of risk capital, Pro-Rural attempts to have a larger aggregate economic effect. In other words, lending to a small business, say for example a cattle producer, that is attempting to scale up her/his capacity so that they can sell to a medium-sized business that will process and sell onwards to a larger buyer may create additional employment opportunities as well as potentially improve the incomes of the employees in that firm. In summary, the effect theoretically could reach more people.
According to Aavishkaar India, an organization that provides “microventure capital” to Indian firms, there is a “missing middle” in the market for the type of lending that they provide. Micro lending captures lending at “the bottom of the pyramid” and banks and venture capitals etc., capture firms that are able to obtain conventional loans.
My personal editorial on this is that there is of course some overlap. It is important not to pick hard and fast categories for the businesses each type of organization will lend to. In particular, it seems important, when making an assessment on which firm to lend to, to ask oneself, even if this business is not currently part of a supply chain, what is their potential. Let’s take La Paz as an example, I think that when we pass vendors selling small commercial goods and food on the streets, it is likely that this is the largest the firm will be. However, what about other vendors? A person who has a small business making and selling organic granola and other packaged baked goods may not have any international connections at the moment, but with a little capital…the possibilities could be big. A person with goods just like that came into my office a few weeks ago. I bought delicious chocolate oatmeal cookies that I bet would be a hit in North American health food markets. Let’s not forget to imagine possibilities…isn’t that the spirit of entrepreneurship at its best? Isn’t that the spirit of hope when we talk about providing opportunities and access to more and better choices in life?
