Reaching out to the missing middle
Thursday, July 10, 2008
Deshantori, a heart-wrenching documentary which follows a group of young Bangladeshis through a harrowing journey in search of employment opportunities outside the country, has sparked soul searching questions for Bangladeshis wherever it has been shown. For me, the most poignant moment of the documentary was when one of the survivors of the journey sadly relates that nobody would lend him money to start a business, but they lent him money to pay for a dangerous and illegal passage overseas. Why are we unwilling to support our young people? Why is entrepreneurship such a bad word in our culture?
In our country, the term for an entrepreneur is a ’businessman,’ which carries with it a set of negative connotations. The assumption is that one goes into business if one cannot be a banker, doctor, engineer, lawyer, professor or a corporate worker. In movies, businessmen are portrayed as crude, immoral people. In day-to-day life, a businessman is only considered successful if he can achieve conspicuous display of wealth. The toxicity of the business sector has recently been magnified with the recent anti-corruption crack down which has put a high profile portion of the business community behind bars.
Despite our negative views of ’business’, the private sector has a crucial role to play in growing the economy and providing employment opportunities. The private sector is the engine of innovation in all sectors of the economy. Entrepreneurship in Bangladesh currently thrives in two sectors of the economy — among the poorest of the poor (14 million households) and among the well-off (about 2.5 million households). The reason for this is that both of these sectors have access to institutional financing.
Grameen Bank, BRAC, Proshika, Asa and others have created millions of micro-entrepreneurs among the poor through their microcredit programmes. At the other end of the spectrum, the government has encouraged entrepreneurship for the ’well-off’ or ’well connected’ by extending financing through institutions such as Bangladesh Shilpa Rin Shangstha, Bangladesh Shilpa Bank and Investment Corporation of Bangladesh. Most of our leading industrial entrepreneurs (’industrialists’) are indebted (morally, if not still monetarily) to these financial entities.
Now, let us look at the missing middle — the middle class. It is from this group, constituting over 12 million families, from which our young people are leaving the country in droves. These people are neither poor enough to qualify for micro-credit nor are they well connected or wealthy enough to access bank loans. Many of these young people receive a decent enough education but emerge from school to find zero employment opportunity in the public and private sector. If they then seek to establish a business for self-employment, they find the existing institutions of the financial sector have no mechanism to extend them credit.
While people will still leave the country to fill the need for unskilled labor overseas, we need to find ways to keep our skilled and educated youth in the country. As a first step toward this goal, we need to make ’business’ into an acceptable word in our culture. The next step is to make businessmen out of these young people.
How can it be done? The government needs to recognise and promote the benefits of entrepreneurship, create programmes to encourage it and, most importantly, create the right incentives for the financial institutions to embrace this missing middle.
Maybe now is the time to get the microcredit NGOs or government banks to look into providing this ’more than micro’ credit for the middle class youth. Just as microcredit organisations had to create new methods to mitigate the risk of lending to the poorest of the poor, so new standards will be needed for these loans.
These may include, for example, a minimum education level for the borrower and a requirement for a proven, easily replicable business plan. And, taking a page from the microcredit organisations, the loans would likely be capped. These institutions can even look into ’franchising’ ready made business opportunites while extending credit as Mr Muzammel Hoque, former GM of Grameen Bank, is doing with his new business venture (a holistic and green business based on 4 cows and financed with a loan of Tk 160,000).
In order to provide incentives to the financial institutions, and mitigate any additional risk, the government, foundations or mulitnational banks such as World Bank or Asian Development Bank could provide credit support or subsidise interest rates for loans which meet certain criteria.
I can think of hundreds of reasons why what I am proposing will not work. (I am sure I will get many emails from readers debunking my ideas.) I can also think of one good reason why it may work we are giving our youth a chance a chance they would not be given otherwise.
According to management guru Peter Drucker, an entrepreneur is ’one who always searches for change, responds to it, and exploits it as an opportunity’. Can anyone be an entrepreneur? The answer is no. But with access to capital, can many of our intelligent, energetic youth be turned into a decent business people if not passionate entrepreneurs? The answer is yes. It is no news that what the country needs now is more decent business people and fewer passionate critiques.