NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, August 27, 2014

What does a social business do when they don’t have a rich uncle to help them go from microenterprise to a small- or medium-sized enterprises?

The answer may be crowdfunding.

Much has been made of the “missing middle” — the lack of SMEs in most developing countries — and one key, often bemoaned obstacle is lack of financing. While still in the early stages, some organizations have turned to crowdfunding for low-cost, risk-tolerant capital to help the entrepreneurs they serve bridge the gap between microfinance and commercial lending.

Kiva, a crowdfunding nonprofit that aims to alleviate poverty through lending, already recognized a few years ago the need to fund these social enterprises and recently decided to expand its portfolio. It was a shift for the organization, which up to this point had focused on crowdfunding microfinance loans, but one that has so far proven mostly successful, and according to funding partners, has helped leverage additional funds for social enterprises.

“In my personal opinion this is a space that is potentially larger than microfinance,” Carlos Pierre, Kiva’s manager of strategic initiatives, told Devex. “There is a massive need for financing for small companies.”