Equity

One of our first conceptual struggles at MVS was how our service could be paid for. We established the organization because we recognized the very real limitations to success and growth that limited business management skills impose. However, developing our program and then offering it to entrepreneurs at the level we want to reach has a cost. We started out, idealistically, thinking that the microfinance community would recognize this as an essential service for their clients, and would be happy to pay for it. However, MFIs have great pressures — internal and external — to cut costs to the bone and be sustainable or profitable. We recognized that our clients are already under a great deal of financial pressure — after all, they’re poor to begin with, and then may be carrying a lot of debt to keep their businesses viable. Plus, they’re in no position to take any more financial risk. So we came to the conclusion that not only would we have to bear the upfront costs, but that we SHOULD bear the risk of ensuring that our program was successful and effective.
So….we decided that our clients would only have an obligation to us that was in proportion to the benefit we bring. If we have an equity stake in their businesses, we only succeed if they succeed. And if we have a pre-defined, transparent, exit strategy, then we only benefit as long as we continue to bring value.
From the beginning, I’ve been unsure of how this would be received. Would the small entrepreneur, who’s worked so hard for what she has and has had so little power all her life, be willing to share ownership of her business? Could we establish the trust that would be essential to make such an arrangement work?
It’s a pleasant surprise to me that we’ve already heard of 2 arrangements in Mali that are very similar to our intention. One is actually a proposed equity fund that we may have the opportunity to participate in. So some of the groundwork has been laid for micro- or meso-equity investment, and it seems to be “culturally appropriate.”

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