We are fast approaching the tipping point for a worldwide microfinance movement. Through online portals, more and more companies are leveraging the power of the crowd to fund ventures of all types. It is only a matter of time before the typical model of funding a venture becomes obsolete, as entrepreneurs will start looking for faster, more efficient and less demanding ways to raise capital.

If entrepreneurs are the engine of the economy, and cash is their lubricant, then new ways need to emerge to ensure that entrepreneurs get what they need to fire on all cylinders. The economic collapse in 2008 reminded everyone of how quickly the credit markets can dry up, as many small businesses were left with no access to capital or credit to stay afloat. If the same thing happens in the future, my guess is that there will be many ways to get a quick cash infusion, without going to a bank, thanks to a new generation of funding websites.

The idea behind microfinance is that it is a lot easier for many people to invest small amounts of money in a project than for one or two people to contribute large sums. The father of microfinance, Muhammed Yunus, conceived the idea while talking to a group of local craftsmen in Bangladesh. After seeing that this group needed only $27 dollars to get their business venture off the ground, he realized that an opportunity existed to bring a whole new level of finance to the underserved third world. What happened next is history, with Yunus turning Bangladesh into the birthplace of microfinance and founding Grameen Bank, which now lends money to millions of people worldwide.

Websites harnessing the power of the masses to fund people and projects around the world are popping up everywhere in all sectors. The first company to build a successful online microfinance model was Kiva, but now a whole new wave of companies are entering financial markets around the world. Kickstarter out of New York is crowd-funding creative projects; Community Lend of Ontario is facilitating community-based lending in local markets; Podium Funds is bringing crowd-sourced investing to the private equity market in Calgary; and Prosper is making peer-to-peer lending a common practice in the United States. All this is evidence that while the market is young and there are many challenges ahead, the movement is starting.

It won’t be long before a new company comes along and puts all the pieces together, allowing the best and brightest of the entrepreneurial crowd to get on-demand funding in record time. The question is, who will lead the charge toward this new model and what will that model be? Will a big institution or fund break from tradition and come up with a truly innovative model of microfinance for entrepreneurs, or will it come from the grassroots level?

The traditional way of lending, typically slow and inefficient, will not suffice for the new generation of entrepreneurs who are required to be nimble, resourceful and quick in order to compete in their respective markets. Beyond that, there are thousands, if not millions of people in the developed world who are willing to part with some of their hard-earned cash to fund entrepreneurial endeavours, they just need an opportunity to do so.

The microfinance model that brought Bangladesh out of abject poverty has spread throughout India, Africa, South America and many other nations to help fund small businesses, start-ups and social projects. The model is proven and there is now a group of businesses about to make their mark in markets across the developed world. The question is not if, but when will the new trend reach its tipping point and start to give entrepreneurs the ability to raise capital using a microfinance model?

I don’t have the answer, but it will be fun to see it unfold and become a part of it all, as it will dramatically alter the playing field in favour of entrepreneurs worldwide.

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Hi guys, another great post.

I am also very intrigued with the microfinancing model, but wonder where the regulatory folks are on this? Typically, when companies seek to raise money from the public, they are required to file an offering memorandum or prospectus and comply with strict reporting requirements, with certain exceptions (financing from friends & family, sophisticated investors,…). I’m sure they’ll jump in at some point – perhaps after the first big scam hits.

The concept of crowd approval of investments is great from a “voice of the market” perspective – something that even the Bay Street analysts could benefit from, And perhaps by capping the actual “per individual” investment, the risk is somewhat limited. At the same time, I wonder whether the crowd’s aggregated wisdom is a reasonable substitute for dispassionate professional investment management or regulatory oversight.

Hope it catches on – there’s always more demand for venture financing than supply!

Paul Sullivan

Paul Sullivan August 26

Hey Paul,

Great insights.

I personally think that the perfect model will be a blend between the crowd and the savvy investors. I think that the crowd wants to have access to these deals, but that the wisdom of the investment community needs to be integrated.

There will definitely have to be some regulatory changes to facilitate this type of development, but I think that the Canadian government recognizes the importance of entrepreneurs to the economic prosperity of the country. Eventually, there will be enough understanding of what entrepreneurs need to get the job done and regulatory frameworks can be revised.

I think that to accomplish this that the spark will have to come from the grassroots level, but a big company or fund (maybe a bank) will have to put their weight behind it. As I see it now, the banks are lending less and less to entrepreneurs, which is a result of the credit crisis and a move towards less risky lending practices. However, at some point, when financial markets settle down, the banks will want to get back into that market and will need to adopt an innovative approach to doing so.

Pure speculation at this point, but it is fun to think about.


Joel Finningley August 27

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