Entrepreneurship, Second Edition

9.1. Entrepreneurial Financing for the World's Poorest

"To 'make poverty history,' leaders in private, public, and civil-society organizations need to embrace entrepreneurship and innovation as antidotes to poverty. Wealth-substitution through aid must give way to wealth-creation through entrepreneurship."^[] But the challenge is, "Where do nascent entrepreneurs living in poverty get any money to start a micro-business?" In Africa, for instance, 600 million people live on less than $3 per day based on purchasing power parity (PPP). For China, the number may be 400 million and for India 500 million.^[]

In the developing world, 1.4 billion people (one in four) were living below $US1.25 a day in 2005, down from 1.9 billion (one in two) in 1981. Poverty has fallen by 500 million since 1981 (from 52% of the developing world's population in 1981 to 26% percent in 2005), and the world is still on track to halve the 1990 poverty rate by 2015. But at this rate of progress, about a billion people will still live below $1.25 a day in 2015.^[]

Conventional banking is based on the principle that the more you have, the more you can borrow. It relies on collateral, which means that a bank loan must be adequately covered by assets of the business or its owner—or in many cases, both. But half the world's population is very poor, so about 5 billion people are shut out of banks. For example, fewer than 10% of adults in many African countries have bank accounts. Even in Mexico, the number of families ...