mabinda.com Business, Education, Technology Commentary.

Banking is one of the innovations of capitalism. That is take depositors money of savings and lend it to companies at a good enough rate so they can finance and expand their business operations. It’s why big businesses are able to borrow so much and grow their capital and finance. For instance, a company that has gotten more juice packets orders will likely turn to a bank for credit to buy a new line of machinery that can enable it purchase say a machine that can produce say 1,000,000 bottles of juice per day. On the other hand, small and micro businesses can borrow from micro finance institutions and just launch their operations. The missing middle is the medium high growth businesses which are just too big for the micro finance sector, and too small for the big banks. How do we cater for those?

It’s true the venture capital scene has helped a lot, but it’s for mostly tech based companies. What about the traditional brick and mortar businesses? As a first, when most people want to start their businesses they dip into their savings, friends and family credit, and even through their credit card. Then they reach out to their angel investors for sums of say between $50,000 and a million dollars. But then, this is mostly for tech based businesses. We need a similar product for the brick and mortar companies. There is a massive opportunity for businesses that lend sums of between $100,000 and $1,000,000 dollars. $100,000 is for those that just want to prototype and beging making initial sales, while $1,000,000 is for those that have significantly large operations. In that way, a fund that caters to this cadre will do exceptionally well, especially in developing countries.

Studies show that micro businesses are mostly for self sustenance. They are not wealth generation avenues. They are self employment avenues. But a medium scale business that employs between 15 and 600 employees is what will really turn around the American, and the global economy. We need to formalize small micro businesses and graduate them to medium high growth businesses for economies of scale. That’s how we can create millions of clean, decent, and rewarding jobs that will lift up the global economy. The Peruvian economist Dr. Hernando De Soto, a Nobel laureate, estimates that the value of dead capital in the world is $10 trillion dollars, that is wealth that has not been formalized. If we formalized this wealth, owners of this wealth will be able to access general channels of borrowing and graduate their businesses to medium high growth businesses. And that’s how we can build the multinationals of tomorrow. In every corner of the world we can have a Google. We can have a Facebook. We can have an X. And that’s how we can truly eliminate global poverty and grow prosperity.