Rob Katz

Social Capital Markets: Power to the People Through Democratic Capital

SoCap08 tag cloudWith three weeks to go before the U.S. presidential election, it’s no surprise that there’s a lot of interest in democracy here at the Social Capital Markets conference.? Fortunately, the conversation has (thus far) steered clear of moose burgers and the Weather Underground.? After all, the democracy we?re discussing here at SoCap08 is actually related to democratic capital, not democratic governance. ?

What is democratic capital, and why should the base of the pyramid community care?? Well, on a very basic level, the democratic capital panel is all about giving investors and borrowers the power to connect directly, without the intermediation of too many financial institutions.? This person-to-person connection takes the shape of four panelists and their social enterprises:

The panel’s relevance to base of the pyramid strategy and practice is clear.? Each of the panelists is working to get capital to BoP enterprises–in similar but different ways.Chatwani’s connects artisans and their products to the global eBay marketplace.? The social benefit of WorldofGood is a higher return on every product sold to the artisan–assuming that WorldofGood can increase efficiency and create a democratic market for these products–which Chatwani estimates is worth more than $200 billion per year.? Only four weeks old, time will tell with this startup, but they’ve got a solid history–WorldofGood is related to the eponymous nonprofit started by Priya Haji, a noted social entrepreneur and successful businesswoman.

MyC4 connects African microenterprises to investors; Kjaer hopes his company will be the first company owned by the world, for the world.? So far, $8 million has been lent to 3,000 entrepreneurs in six African countries.? The average loan size on MyC4 is $2500, which pay a cumulative return on investment of 12.8%.? On MyC4–unlike many microfinance sites–the interest rate is transparent.? It’s anywhere from 20% to 80% based on the size of the loan, and MyC4 takes a 3% fee, but only if the entrepreneur gets the full loan.

Premal Shah–President of–opines that ?anyone can be a microfinancier.?? Kiva, a well-known web site that connects lenders to microfinance clients, works with more than 100 MFI partners in 45 developing countries.? In three years, Kiva has raised $46M in loans from 345,000 internet lenders in 100-plus countries.? Shah gives us a peek at Kiva’s goals–raise $1 billion within five years; to achieve operational self-sufficiency; and to create the potential for reverse direction lending (Africa to the United States, for example).? His final goal: diversification–he wants Kiva to expand into other sectors (microinsurance, healthcare, business services) that are related to poverty alleviation and business development.

Tracey Pettingill-Turner is the CEO of MicroPlace, which provides investment opportunities through SEC-regulated securities that get money to MFIs.? An investor can put up as much as $100,000; the securities yield a small return.? In a year’s time, MicroPlace has worked with 5,000 investors, whose money has enabled 25,000 loans.

To me, the significance of this panel is the fact that it’s taking place.? There are four fully-baked social enterprises working to get capital to the BoP.? Think about that–as recently as two years ago, there was Kiva and?Kiva.? That there’s a dynamic market, with slightly differentiated product offerings, speaks to the interest in social investing and to the ability of Kiva to tell amazing stories, which have motivated hundreds of thousands of lenders to check them out as well as MicroPlace, MyC4 and now WorldofGood.? Will four be enough?? Unlikely.? Let’s hope this isn?t the last we hear from these entrepreneurs.