Small-scale Business Funding

Tuesday, June 12, 2007

Corporate social responsibility and NGO engagement comes in many shapes and sizes, but very few companies are still able to see the potential for profit in poverty. The traditional philanthropic model involves the allocation of grants through charitable foundations.

And thank goodness it does, as these corporate grants make possible much of the work carried out by NGOs around the world to tackle poverty.

However some companies are beginning to go one step further and to consider the fact that there may actually be a fortune lurking untapped among the five billion or so people at the bottom of the wealth pyramid

Since Grameen Bank pioneered the concept of micro lending, microfinance institutions of all sizes have been started by NGOs, trusts and companies all over the world. Increasingly, commercial banks including Citigroup, ABN Amro, Standard Chartered Bank and Deutsche Bank are partnering with the sector and developing different business models.

Tiny loans, big impact

Nobel Prize laureate Muhammed Yunus set up Grameen Bank in Bangladesh in 1983, giving tiny loans to women who did not quality for conventional bank loans. Borrowers can form a solidarity group, promising to guarantee one another?s loans. Repayment levels are nearly 100%.

More recently, in the last seven years the Citigroup Foundation has reportedly contributed nearly $40 million to more than 200 microfinance organisations and the group has taken to describing itself as the banker to the banker of the poor.

And it isn?t only financial institutions that are getting in on the act.

Earlier this year Danone, the French food multi-national, launched Agricole, a mutual fund to invest in micro financing projects in the world?s poorest countries. The aim is to raise some ?100 million micro financing investments in countries such as Bangladesh.

The global microfinance supply is currently estimated at around $4 billion, with over 22 million borrowers served. But with an overall market penetration of 6% there is still a vast untapped market.

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Source: Ethical Corporation (link opens in a new window)