From May 2012 to August 2013 I backpacked around the world, traveling in Africa and Asia learning about emerging economies and social ventures. When I returned to Canada I consulted for an Equity CrowdFunding portal under construction for 4 months. I knew the potential that increased capital could have in the countries where bank loans are above 20% but wasn’t aware of a recent World Bank Report. I’m in the process of reading the report and will blog in more detail later but I wanted to post a quick blog to bring it to your attention, (for the full World Bank report by click here).
What people in North America don’t realize is that credit isn’t available in most of the developing world. There are no credit card machines with Square readers at fruit stands, homes are built over years without loans, and without credit the ability to create cash which spurns demand is limited. (Not to mention only a small percentage of the population is banked limiting the ability for banks to leverage savings.) As Africa’s emerging middle class receives credit the money supply will increase, they’ll spend more, crediting more demand, more jobs and more middle class individuals. This increase in consumption will increase the demand for resources, but long term sustainability is another story. Increased spending encourages business owners to be more efficient as more competitors enter the markets due to increased volume, this will drive down prices, in my experience many businesses in Africa operate on a high margin low volumes model.
But Ryan, doesn’t Africa need clean water, food, and education? Although these basic necessities are still elusive or are of low quality in many of the countries a lack of capital stagnates growth. An increase of capital has the potential (if invested wisely) to increase business, which will generate wealth, and consumption leading to long term stability across the continent. This wealth will then be taxed (collecting taxes is another issue) and reinvested to improve infrastructure, and schools. Creating a tax base also makes government officials accountable in comparison to aid revenue.
Where does CrowdFunding fit into the picture? Kiva kicked off the concept with micro loans split among many individuals but imagine if you could invest directly into an African solar venture or Agriculture firm online via a CrowdFunding portal. Equity Crowdfunding has the potential to allow strong entrepreneurs to source capital from outside of Africa and altruistic investor to find new investment options. In the future many individuals will look beyond Blue Chip stocks to find a gem that matches their interests and personal beliefs.
In my next post on the subject I will go into the World Bank report and outline some of the main points.